UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

OR

Commission file number 0-25090

STILLWATER MINING COMPANY

(406) 322-8700

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES [X] NO [  ]

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

At August 2, 2004 the company had outstanding 90,278,976 shares of common stock, par value $0.01 per share.

STILLWATER MINING COMPANY

FORM 10-Q

QUARTER ENDED JUNE 30, 2004

INDEX

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PART 1 — FINANCIAL INFORMATION

Item 1. Financial Statements

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

See notes to consolidated financial statements.

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

See notes to consolidated financial statements

4

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

See notes to consolidated financial statements.

5

Stillwater Mining Company
Notes to Consolidated Financial Statements
(Unaudited)

Note 1 — General

     In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the company’s financial position as of June 30, 2004 and the results of its operations and its cash flows for the quarter and six-month periods ended June 30, 2004 and 2003. Certain prior period amounts have been reclassified to conform with the current year presentation. The results of operations for the quarter and six-month periods are not necessarily indicative of the results to be expected for the full year. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the company’s 2003 Annual Report on Form 10-K.

Note 2 – Stock-Based Compensation Costs

     The company has elected to account for stock options and other stock-based compensation awards using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, because stock options are granted at fair market value, no compensation expense has been recognized for stock options issued under the company’s stock option plans. The company records compensation expense for other stock-based compensation awards ratably over the vesting periods. The company has adopted the disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. The following pro forma disclosures illustrate the effect on net income (loss) and earnings (loss) per share as if the fair value based method of accounting, as set forth in SFAS No. 123, had been applied.

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Note 3 – Comprehensive Income

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

     The net of tax balance in accumulated other comprehensive income (loss) at June 30, 2004 and December 31, 2003 was $2.1 million and ($0.8 million), respectively.

     The company had commodity instruments relating to fixed forward metal sales and financially settled forwards outstanding during the first six months of 2004. The net unrealized gain on these instruments, $2.1 million at June 30, 2004, will be reflected in other comprehensive income until these instruments are settled. All commodity instruments outstanding at June 30, 2004 are expected to be settled within the next eighteen months (see Note 8).

     The company’s interest rate swaps, which were accounted for as hedging instruments, matured on March 4, 2004 (see Note 8).

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

Note 4 — Inventories

     Inventories consisted of the following:

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

Note 5 – Long-Term Debt

Credit Facility

     In February 2001, the company entered into a $250 million credit facility with a syndicate of financial institutions which replaced a previous $175 million bank facility. The credit facility has been amended or waivers have been obtained eight times with the most recent waiver effective for the first and second quarters of 2004. The credit

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facility provides for a $65 million five-year term loan facility (Term A), a $135 million seven-year term loan facility (Term B) and a $25 million revolving credit facility (reduced from $50 million at the company’s request as of March 20, 2003). Amortization of the term loan facilities commenced on March 31, 2002.

     During 2003, the company renewed a letter of credit in the amount of $7.5 million, carrying an annual fee of 4.0%. This letter of credit reduced by $7.5 million the amount available under the revolving credit facility at June 30, 2004. The revolving credit facility requires an annual commitment fee of 0.5% on the remaining unadvanced amount.

     In accordance with the terms of the credit agreement, the company is required to offer 50% of the net cash proceeds from the sale of the 877,169 ounces of palladium inventory received in the 2003 Norilsk Nickel transaction to prepay its term loans. In accordance with the scheduled delivery of this palladium under the sales agreements in place as of June 30, 2004, $37.0 million of the long-term debt has been classified as a current liability. The lenders are not obligated to accept any prepayment offer. If the lenders decline the prepayment, the company retains the cash but the availability under the revolving credit facility is reduced by the amount of the prepayment declined. Once the revolving credit availability is reduced to zero, any amounts declined will become restricted cash applied to collateralize letters of credit outstanding against the revolving credit line. As of June 30, 2004, the company has offered a total of $15.9 million of cash proceeds from sales of palladium received in the Norilsk Nickel stock purchase for prepayment of the Term B facility. (The prepayment offers are made as cash is actually received, which normally lags behind recognition of sales revenue.) These offers were all declined and the availability to borrow under the revolving credit facility as of June 30, 2004 has been reduced accordingly by $15.9 million to $1.6 million. Once this availability is reduced to zero, any further amounts declined by the banks will be reserved to cash collateralize any letters of credit outstanding under the revolving credit facility. The Term B facility final maturity date is December 31, 2007. The final maturity date of the revolving credit facility is December 30, 2005.

     As of June 30, 2004, the company has $127.8 million outstanding under the Term B facility, bearing interest at a variable rate plus a margin, reset quarterly (8.0% at June 30, 2004). The schedule of principal payments on the amounts outstanding as of June 30, 2004, without regard to possible prepayments from sales of the inventory received in connection with the Norilsk Nickel transaction, is as follows:

     During the first and second quarters of 2004, the company did not meet the production covenant under the credit facility, which is based on a trailing four-quarter average. The bank syndicate granted a waiver of this covenant that is effective for the first and second-quarters of 2004. The company was in material compliance with all other provisions of the credit facility as of June 30, 2004. As of June 30, 2004, the company had in place a firm underwritten commitment to refinance its existing credit facility that did not include a minimum production covenant. Subsequent to June 30, 2004, the company refinanced its existing credit facility (See Note 10).

Note 6 – Earnings per Share

     Outstanding options to purchase 1,402,915 and 2,577,604 shares of common stock were excluded from the computation of diluted earnings per share for the three-month periods ended June 30, 2004 and 2003, respectively, because the effect would have been antidilutive using the treasury stock method. The effect of outstanding stock options on diluted weighted average shares outstanding was an increase of 178,143 and 161,634 shares for the three- month periods ended June 30, 2004 and 2003, respectively.

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     Outstanding options to purchase 1,470,460 and 2,574,704 shares of common stock were excluded from the computation of diluted earnings per share for the six-month periods ended June 30, 2004 and 2003, respectively, because the effect would have been antidilutive using the treasury stock method. The effect of outstanding stock options on diluted weighted average shares outstanding was an increase of 160,695 and 174,031 shares for the six-month periods ended June 30, 2004 and 2003, respectively.

     On April 29, 2004, 6,816 shares of restricted stock were granted to the non-management Board of Directors. These shares of restricted stock vest on October 29, 2004. On May 7, 2004, 348,170 shares of restricted stock were granted to members of management. These shares of restricted stock vest on May 7, 2007. During 2002, the company granted 135,119 shares of restricted stock to certain officers and employees which vested during 2003 and 2002. The effect of outstanding restricted stock on diluted weighted average shares outstanding was an increase of 107,576 and 1,059 shares for the six-month periods ending June 30, 2004 and 2003, respectively.

Note 7 – Long-Term Sales Contracts

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

     The sales contracts provide for adjustments to ounces committed based on actual production. These contracts contain termination provisions that allow the purchasers to terminate in the event the company breaches certain provisions of the contract and the breach is not cured within periods ranging from 10 to 30 days of notice by the purchaser. The long-term sales contracts qualify for the normal sales exception from hedge accounting rules provided in SFAS No. 138 because they will not settle net and will result in physical delivery. The floors and ceilings embedded within the long-term sales contracts are treated as part of the host contract, not as a separate derivative instrument, and are therefore also not subject to the requirements of SFAS No. 133.

     The company entered into sales agreements during the first quarter of 2004 to sell the palladium received in the stock transaction with Norilsk Nickel. Under these agreements, the company will sell approximately 36,500 ounces of palladium per month, ending in the first quarter of 2006, at close to market prices. Separately, under one of these agreements, the company also will sell 3,250 ounces of platinum and 1,900 ounces of rhodium per month, also at prices close to market.

Note 8 – Financial Instruments

     The company from time to time uses various derivative financial instruments to manage the company’s exposure to market prices associated with changes in palladium and platinum commodity prices and in interest rates. The company accounts for its derivatives in accordance with SFAS No. 133, which requires that derivatives be reported on the balance sheet at fair value and, if the derivative is not designated as a hedging instrument, changes in fair value must be recognized in earnings in the period of change. Because the company hedges only with instruments that have a high correlation with the value of the underlying exposures, changes in the derivatives’ fair value are

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expected to be offset by changes in the value of the hedged transaction.

Commodity Derivatives

     The company enters into fixed forwards and financially settled forwards that are accounted for as cash-flow hedges to hedge the price risk in its secondary recycling activity and mine production, respectively. In the fixed forward transactions, metals in the recycled material are sold forward at the time of receipt and delivered against the fixed forward contracts when the ounces are recovered. Financially settled forwards may be used as a mechanism to hedge against fluctuations in metal prices associated with future production. Under financially settled forwards, at each settlement date the company receives the difference between the forward price and the market price if the market price is below the forward price, and the company pays the difference between the forward price and the market price if the market price is above the forward price. The company’s financially settled forwards are settled in cash at maturity.

     During the second quarter of 2004, the company entered into financially settled forward transactions covering about 20% of its anticipated platinum sales from July of 2004 through December of 2005. These transactions are designed to hedge 40,500 ounces of platinum sales from mine production for the next eighteen months at an overall average price of approximately $784 per ounce

     Until these contracts mature, any net change in the value of the hedging instrument is reflected currently in stockholders equity in Accumulated Other Comprehensive Income (AOCI). A net unrealized gain of $2.1 million on these hedging instruments existing at June 30, 2004, is reflected in AOCI. When these instruments are settled, any remaining gain or loss on the cash flow hedges will be offset by metal inventory losses or gains and will be recognized in operating income. All commodity instruments outstanding at June 30, 2004 are expected to be settled within the next eighteen months.

     A summary of the company’s derivative financial instruments as of June 30, 2004 is as follows:

     Mine Production:

Financially Settled Forwards

Secondary Recycling:

Fixed Forwards

Financially Settled Forwards

Interest Rate Derivatives

     The company entered into two identical interest rate swap agreements which fixed the interest rate on $100.0 million of the company’s debt, which were effective March 4, 2002 and matured on March 4, 2004. These interest

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rate swap agreements qualified as a cash flow hedge and were considered to be highly effective since the change in the value of the interest rate swap offset changes in the future cash flows related to interest payments on the company’s debt. During the six-month periods ended June 30, 2004 and 2003, hedging losses of $0.3 million and $1.2 million, respectively, were recognized as additional interest expense.

Note 9 – Income Taxes

     The company computes income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” SFAS No. 109 requires an asset and liability approach which results in the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of those assets and liabilities, as well as operating loss and tax credit carryforwards, using enacted tax rates in effect in the years in which the differences are expected to reverse. The company has net operating loss carryforwards (NOL’s), which expire in 2009 through 2023. The company has reviewed its net deferred tax assets and has provided a valuation allowance to reflect the estimated amount of net deferred tax assets which management considers more likely than not will not be realized. The company has not recognized any income tax provision or benefit for the quarter ended June 30, 2004, as any changes in the net deferred tax assets and liabilities have been offset by a corresponding change in the valuation allowance.

Note 10 – Subsequent Events

     On August 3, 2004, the company completed the refinancing of its bank credit facility. The new credit facility consists of a $140 million six-year term loan maturing July 31, 2010, and bearing interest at a variable rate plus a margin (LIBOR plus 325 basis points, or approximately 4.75% at August 3, 2004) and a $40 million five-year revolving credit facility expiring July 31, 2009 and initially bearing interest at LIBOR plus 300 basis points, or approximately 4.50%. Proceeds of the new facility will be used to pay off the previous debt facility and for general corporate purposes. The revolving credit facility includes a letter of credit facility that has been partially utilized to secure a $7.5 million letter of credit in support of certain of the company’s reclamation obligations. The letter of credit carries an annual fee of 3.00%. The revolving credit facility requires an annual commitment fee of 0.75% on the remaining unutilized amount. The new credit facility contains customary financial and other covenants; however, it does not include a minimum production covenant. The new credit facility requires that the company offer 25% of the proceeds received for the sales out of the palladium inventory received from the Norilsk Nickel transaction as prepayments against the credit facility. It also requires that 50% of the company’s annual excess cash flow be offered for prepayment against the credit facility. With the completion of the refinancing, the company expects to incur a one time charge in the third quarter of 2004 of approximately $5.0 million which includes a prepayment charge and the write-off of deferred costs on the former credit facility.

     Subsequent to the end of the second quarter, the company has entered into financially settled forward contracts covering an additional 26,500 ounces of platinum for the period of August of 2004 through January of 2006 at an overall average price of about $788 per ounce.

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

     The following commentary provides management’s perspective and analysis regarding the financial and operating performance of Stillwater Mining Company (the “company”) for the quarter and six-month period ended June 30, 2004. It consists of the following subsections:

	•		“Overview” – a brief summary of the company’s consolidated results and financial position, the primary factors affecting those results, and some issues of continuing interest that may affect performance in the future.
	•		“Key Factors” – indicators of profitability and efficiency at the company’s various operations individually and, where relevant, on a consolidated basis.
	•		“Results of Operations” – a discussion and analysis of the specific operating and financial results for the quarter and six-month period ended June 30, 2004 as compared to the same periods in 2003.
	•		“Liquidity and Capital Resources” – a discussion of the company’s cash flow and liquidity, investing and financing activities, and significant contractual obligations.
	•		“Critical Accounting Policies” – a review of accounting policies the company considers critical because they involve assumptions that could have a material effect on the company’s reported assets, liabilities, income or cash flow and that require difficult, subjective or complex judgments by management.

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

Overview

     Two overriding factors heavily influence the company’s profitability: the volatility of PGM prices and the company’s cost structure. Metal prices are dictated by market forces and so are beyond the direct control of the company, although market effects can be mitigated through long-term sales agreements and at times through hedging activities. Several other major producers in the mining industry either produce PGMs as a byproduct of other refining, or enjoy ores with a substantially higher proportion of (higher-priced) platinum to palladium. The company does not enjoy these advantages and has a higher cost structure than most of its competitors, putting it at a disadvantage. The company’s unit costs generally are affected by the level of ore production, by the consistency and quality of the ore mined, by the choice of mining method, and by overall operating efficiency. The company spends substantial amounts of development capital each year in the mines to sustain ongoing production. Despite these challenges, minimizing unit costs in a safe and efficient manner is the principal operating focus of the company.

     In 1998, the company entered into three long-term sales contracts that commit most of the mines’ production through 2010. These contracts have floor prices that, in the recent low price environment for palladium, have been of significant benefit in allowing the company to continue operating profitably. Unless extended or modified, as to which there can be no assurance, these contracts will all expire by 2010. At that time, the company could be fully exposed to market prices and the absence of these contracts after 2010 could negatively affect the company’s operating results.

     During the second quarter of 2004, the company fixed platinum prices in the forward market by entering into financially settled forward transactions covering about 20% of our anticipated platinum mine production for the period from July of 2004 through December of 2005. The company believes that the spread between palladium and platinum prices may narrow if consumers switch from using platinum to palladium for existing and new applications, driven by the lower price of palladium. The company is concerned that the price of platinum could weaken if this switching occurs and has locked in the price on a portion of future sales. The second quarter 2004 transactions fix the price for 40,500 ounces of platinum sales from mine production for the next eighteen-months at an overall average price of

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about $784 per ounce. Subsequent to the end of the second quarter, the company has entered into financially settled forward contracts covering an additional 26,500 ounces of platinum for the period of August of 2004 through January of 2006 at an overall average price of about $788 per ounce. The hedges are expected to modestly reduce the overall volatility of the company’s earnings and cash flow.

     Volatility of PGM prices has caused the company significant concerns in the past. The decision to build the second mine, known as East Boulder, along the J-M Reef was made in 1998, at a time when the palladium price was rising and widely expected to continue higher. The East Boulder facilities were largely financed through available cash and through bank borrowings that were expected to be repaid as mine production came on line. However, as the project proceeded, the cost of construction far exceeded initial estimates and at the same time palladium prices plummeted, leaving the company badly over-leveraged. Ultimately, in the fall of 2001, the company was forced to slow down development at East Boulder in order to avoid running out of cash.

     Following this slow down, for a time the company’s financial position remained precarious. On eight separate occasions since February of 2001, the company was obliged to amend its credit agreement or obtain covenant waivers. In early 2002, Stillwater secured $60 million of additional equity funding through a private offering of its common stock. The company revised its mining plans several times in an effort to optimize production and minimize costs in light of financial limitations. Recognizing these challenges, the company considered several strategic options including seeking a financial partner that could infuse additional equity and bring Stillwater’s capital structure back into balance. This process led to the stock purchase transaction, announced in November of 2002 and closed in June of 2003, whereby Norilsk Nickel acquired 50.8% of the company for $100 million in cash and 877,169 ounces of palladium, through the purchase of newly issued Stillwater common shares. Norilsk Nickel subsequently completed a public cash tender offer for some additional shares, increasing their ownership interest to 55.5%.

     The stock purchase agreement with Norilsk Nickel also provided that the parties intended to negotiate an agreement to market at least one million ounces of Norilsk Nickel palladium through Stillwater annually. As disclosed previously, the company and Norilsk Nickel have since determined not to pursue such an agreement at this time.

     The company was obligated by its banks to utilize $50.0 million of the cash proceeds from the Norilsk Nickel transaction to pay down bank debt. Consequently, the Term A loan facility was paid off in full on June 30, 2003. During the first quarter of 2004, the company entered into contracts to resell the 877,169 ounces of palladium received from Norilsk Nickel to DaimlerChrysler, Mitsubishi and Engelhard Corporation. The palladium is being sold in equal monthly quantities over the next two years, at close to market prices at the time of sale. The company’s banks had the option under the 2001 credit agreement to apply 50% of the cash proceeds from the sale of this inventory to reduce the company’s outstanding debt. Since the banks declined to accept all or any portion of these proceeds, the availability under the company’s prior revolving credit line was reduced by an amount equal to the amount declined. As of June 30, 2004, the outstanding undrawn availability under the revolving line of credit had been reduced to $1.6 million.

     The company obtained production covenant waivers from its bank group effective for the first and second quarters of 2004. The company was in material compliance with all other provisions of the credit facility as of June 30, 2004. On August 3, 2004, the company completed the refinancing of its bank credit facility. The new credit facility consists of a $140 million six-year term loan maturing July 31, 2010, and bearing interest at a variable rate plus a margin (LIBOR plus 325 basis points, or approximately 4.75% at August 3, 2004) and a $40 million five-year revolving credit facility expiring July 31, 2009 and initially bearing interest at LIBOR plus 300 basis points, or approximately 4.50%. Proceeds of the new facility were applied to pay off the previous debt facility and the remainder for general corporate purposes. The revolving credit facility includes a letter of credit facility that has been partially utilized to secure a $7.5 million letter of credit in support of certain of the company’s reclamation obligations. The letter of credit carries an annual fee of 3.00%. The revolving credit facility requires an annual commitment fee of 0.75% on the remaining unutilized amount. The new credit facility contains customary financial and other covenants; however, it does not include a minimum production covenant. The new credit facility requires that the company offer 25% of the proceeds received for the sale of palladium inventory received from the Norilsk Nickel transaction as prepayments against the credit facility. It also requires that 50% of the company’s annual excess cash flow be offered for prepayment against the credit facility.

     During July of 2004, the company entered into financially settled forwards for 26,500 ounces of platinum sales

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through January 2006 at an overall average price of approximately $788 per ounce. The company believes that it now has adequate liquidity for its contemplated needs.

     In looking to the future, the company’s primary focus will remain on profitability. Reducing production costs will continue to be a priority. One opportunity to reduce unit production costs may be to increase the production rate at the East Boulder mine. As previously disclosed, the company is gradually increasing production at East Boulder to 1,650 tons of ore per day. While the company had planned to achieve this daily rate by the end of 2004, several issues have been identified which will extend the ramp-up period into 2006. The issues have centered on recognition that the developed state of the mine must be further advanced in order to achieve and maintain the higher production level. The work on improving the developed state will include:

	•		additional primary development to increase the number of ramp systems and working faces
	•		additional diamond drilling to more accurately identify changes in structure
	•		development of a ventilation raise to surface to support a larger amount of equipment while improving underground air quality related to diesel particulate matter (DPM).

     Ore production levels at East Boulder have averaged just over 1,300 tons of ore per day so far this year, up slightly from approximately 1,250 tons of ore per day for the first six-months of 2003. Full utilization of equipment at the mine will not be attained until after completion of two new ventilation shafts in late 2005.

     During the second-quarter of 2004, the company shut down its smelter and base metals refinery for about five weeks for routine smelter re-bricking and other refurbishing. This planned shutdown reduced second-quarter earnings and cash flow, although sales out of the palladium inventory continued, partially mitigating the effect of the outage. Production at the mines was unaffected by this shutdown. The mine concentrates were stockpiled at the smelter and processed once the facility came back up. The company's processing of these stockpiles was largely completed by June 30, 2004 and the metal was shipped for final refining.

     The company’s financial results for the six-months ended June 30, 2004 improved compared to the same period in 2003, even with the five-week outage in Columbus to refurbish the smelter and refinery. Earnings for the first six months of 2004 totaled $32.2 million, compared to a loss of $21.0 million for the first half of 2003. This improvement is largely due to increased realized prices and additional sales volume of PGMs during the first six-months of 2004 as compared to the same period in 2003. The increase in sales volumes resulted from sales in 2004 of palladium received in the Norilsk Nickel stock purchase transaction and from a new contract for secondary processing (i.e., recycling) of autocatalysts. The 2003 loss also included a one-time deferred tax adjustment related to the Norilsk Nickel transaction that reduced earnings by $14.0 million. Cash flow from operations increased to $39.7 million in the first half of 2004, up from $36.0 million in the first half of 2003; first-half 2004 cash flow remained strong in spite of growth in operating capital requirements associated with the smelter rebricking.

     The company continually reviews ways to increase demand for its products in order to improve profitability. Stillwater has undertaken a promotional effort to establish a palladium council that would coordinate industry efforts to strengthen demand and foster new applications for palladium. Stillwater also has entered into a third-party agreement to produce and market palladium coins and is exploring ways to increase jewelry demand for palladium.

     The labor agreement covering the company’s union employees at the Stillwater Mine and the Columbus processing facilities was scheduled to expire at noon on July 1, 2004. The company and the union reached tentative agreement on a new labor agreement just prior to expiration and extended the contract expiration until noon on July 12, 2004, in order to allow time for the union membership to vote on the contract. On July 11, 2004, the union leadership notified the company that a vote of their membership had rejected the proposed agreement, and accordingly the bargaining unit went on strike effective at noon on July 12, 2004. On July 19, 2004, the members of the union voted to approve a three-year contract, which provides for a 3% annual salary increase and a contract renewal cash bonus. Employees returned to work beginning with the day shift on July 21, 2004. Despite the resolution of this strike, we cannot assure that we will not encounter additional strikes or other types of conflicts with labor unions or employees in the future.

     As noted above, the Company completed the refinancing of its bank credit facility on August 3, 2004. With the completion of the refinancing, the Company expects to incur one-time charges in the third quarter of 2004 totaling approximately $5.0 million, including a prepayment charge and the write-off of deferred costs associated with the former bank credit facility.

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     In addition, a nonrecurring valuation adjustment of $2.1 million related to the buyout of the lease on one of the tunnel boring machines at the East Boulder Mine will occur during the third quarter of 2004.

     Subsequent to the end of the second quarter, the company has entered into financially settled forward contracts covering an additional 26,500 ounces of platinum for the period of August of 2004 through January of 2006 at an overall average price of about $788 per ounce.

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Stillwater Mining Company
Key Factors
(Unaudited)

OPERATING AND COST DATA FOR MINE PRODUCTION

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Stillwater Mining Company
Key Factors (continued)
(Unaudited)

OPERATING AND COST DATA FOR MINE PRODUCTION
(Continued)

(1)

Sub-grade tons milled includes reef waste material only. Total tons milled includes ore tons and sub-grade tons only.

(2)

Total cash costs for this purpose include costs of mining, processing and administrative expenses at the mine site (including mine site overhead, taxes other than income taxes, royalties, by-product credits from production and credits for secondary materials). For the purposes of reporting cash cost per ounce statistics for the company’s mine operations, costs related to the secondary recycling of autocatalysts, offset by sales proceeds included in the company’s revenue, are reflected as an allocated credit to operating costs. Total production costs include total cash costs plus depreciation and amortization. Income taxes, corporate general and administrative expenses and interest income and expense are not included in either total cash costs or total production costs.

(3)

“Cash cost per ton” and “cash cost per ounce” represent Non-GAAP measurements that management uses to monitor and evaluate the performance of its mining operations. Management believes cash costs per ounce and per ton provide an indicator of profitability and efficiency at each location and on a consolidated basis, and also may provide a benchmark for comparing our performance with that of other mining companies and other mine operating properties. See table “Reconciliation of Non-GAAP measures to cost of revenues.”

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Stillwater Mining Company
Key Factors (continued)
(Unaudited)

SALES AND PRICE DATA

(4)

The company’s average realized price represents revenues (include the effect of contractual floor and ceiling prices) and hedging gains and losses realized on commodity instruments, but excluding contract discounts, all divided by total ounces sold. The average market price represents the average London PM Fix for palladium, platinum and combined prices and Johnson Matthey for rhodium prices for the actual months of the period.

(5)

Stillwater reports a combined average realized and market price of palladium and platinum based on actual sales of mine production ounces. Prior period amounts have been adjusted to conform with the current year presentation.

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Stillwater Mining Company
Key Factors (continued)
(Unaudited)

Reconciliation of Non-GAAP measures to cost of revenues

“Cash cost per ton” and “cash cost per ounce” represent Non-GAAP measurements that management uses to monitor and evaluate the performance of its mining operations. Management believes cash costs per ounce and per ton provide an indicator of profitability and efficiency at each location and on a consolidated basis, and may provide a benchmark for company performance with that of other mining companies and other mine operating properties.

OPERATING AND COST DATA RECONCILIATION

     (in thousands except cost per ton and cost per ounce data)

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Stillwater Mining Company
Key Factors (continued)
(Unaudited)

OPERATING AND COST DATA RECONCILIATION
(CONTINUED)
(in thousands except cost per ton and cost per ounce data)