UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

OR

Commission File Number 0-25090

STILLWATER MINING COMPANY

536 EAST PIKE AVENUE, COLUMBUS, MONTANA 59019
(Address of principal executive offices and zip code)

(406) 322-8700
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

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  oNO

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). x YES  oNO

As of March 9, 2004, assuming a price of $12.92 per share, the closing sale price on the New York Stock Exchange, the aggregate market value of shares of voting and non-voting common equity held by non-affiliates was approximately $518,138,861.

As of March 9, 2004, the company had outstanding 89,916,849 shares of common stock, par value $0.01 per share.

Table of Contents

TABLE OF CONTENTS

GLOSSARY

GLOSSARY OF SELECTED MINING TERMS

     The following is a glossary of selected mining terms used in the Form 10-K that may be technical in nature:

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PART I

ITEMS 1 AND 2
BUSINESS AND PROPERTIES

INTRODUCTION AND 2003 HIGHLIGHTS

     Stillwater Mining Company is engaged in the development, extraction, processing and refining of palladium, platinum and associated metals (platinum group metals or PGMs) from a geological formation in southern Montana known as the J-M Reef. The J-M Reef is the only known significant source of platinum group metals inside the United States and one of the significant resources outside South Africa and Russia. Associated by-product metals of PGMs include minor amounts of rhodium, gold, silver, nickel and copper. The J-M Reef is a narrow but extensive mineralized zone containing PGMs, which has been traced over a strike length of approximately 28 miles. The company conducts its current mining operations at the Stillwater Mine near Nye, Montana and at the East Boulder Mine near Big Timber, Montana. Both mines are located on the J-M Reef. In addition, the company operates a smelter and refinery at Columbus, Montana.

     PGMs are rare precious metals with unique physical properties that are used in diverse industrial applications and in the jewelry industry. The largest use for PGMs is in the automotive industry for the production of catalysts that reduce harmful automobile emissions. Palladium is also used in the production of electronic components for personal computers, cellular telephones, facsimile machines and other devices, as well as for dental applications. Platinum’s largest use is for jewelry. Industrial uses for platinum, in addition to automobile and industrial catalysts, include the manufacturing of data storage disks, glass, paints, nitric acid, anti-cancer drugs, fiber optic cables, fertilizers, unleaded and high-octane gasoline and fuel cells.

     At December 31, 2003, the company had proven and probable ore reserves of approximately 40.4 million tons with an average grade of 0.58 ounce of PGMs per ton containing approximately 23.6 million ounces of palladium and platinum at a ratio of approximately 3.6 parts palladium to one part platinum. See “Business and Properties — Ore Reserves”.

2003 Highlights:

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Revenues were $240.2 million in 2003, compared with $275.6 million in 2002. The company reported a net loss of $323.3 million, or $4.77 per share in 2003 compared to net income of $31.7 million, or $0.74 per share in 2002. The 2003 net loss includes a $390.3 million asset impairment charge and a charge of $70.3 million to record a valuation allowance for the amount of the net deferred tax assets the company believes will not be utilized. The charges are non-cash and not expected to impact operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Year Ended December 31, 2003 Compared to Year Ended December 31, 2002.”

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In 2003, the company produced a total of 584,000 ounces of palladium and platinum compared to 617,000 ounces in 2002. Total consolidated cash costs per ounce were $283 in 2003, compared with $287 in 2002. The lower consolidated cash costs per ounce were due to a decrease in operating costs primarily related to lower mining costs at the East Boulder Mine.

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On June 23, 2003, the company and MMC Norilsk Nickel (Norilsk Nickel), a Russian mining company, completed a stock purchase transaction whereby the company issued 45,463,222 shares of its common stock to Norimet Limited (Norimet), a wholly-owned subsidiary of Norilsk Nickel, representing 50.8% of the company’s then outstanding shares. The company received consideration from Norimet consisting of $100.0 million in cash and 877,169 ounces of palladium valued at $148.2 million as of June 23, 2003 (see Note 12). The aggregate value of the consideration was $248.2 million as of June 23, 2003. The company was required to use 50% of the cash consideration received from Norilsk Nickel to pay down its bank loans. As contemplated by the stock purchase transaction on September 3, 2003, Norimet completed a cash tender offer at $7.50 per share to acquire 4,350,000 shares of the company’s outstanding common stock. Following completion of the tender offer, Norimet owned 49,813,222 shares or 55.5% of the then outstanding common stock. As of March 9, 2004 Norimet owned 49,813,222 shares or 55.4% of the company’s outstanding common stock.

     For a discussion of certain risks associated with the company’s business, please read “Business and Properties—Current Operations”, and “—Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

HISTORY OF THE COMPANY

     Palladium and platinum were discovered in the J-M Reef by Johns Manville Corporation (“Manville”) geologists in the early 1970s. In 1979, a Manville subsidiary entered into a partnership agreement with Chevron U.S.A. Inc. (“Chevron”) to develop PGMs

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discovered in the J-M Reef. Manville and Chevron explored and developed the Stillwater property and commenced underground mining in 1986.

     The company was incorporated in 1992 and on October 1, 1993, Chevron and Manville transferred substantially all assets, liabilities and operations at the Stillwater property 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 an initial public offering in December 1994, and Manville sold a portion of its shares through the offering reducing its 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 New York Stock Exchange (NYSE) under the symbol “SWC”.

     On June 23, 2003 the company completed a stock purchase transaction with Norilsk Nickel, whereby Norilsk Nickel became a majority stockholder of the company. On such date, the parties entered into a Stockholders Agreement. Under the Stockholders Agreement, among other things:

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The company’s board of directors will be composed of a majority of directors who meet certain independent requirements, including the requirements of the NYSE.

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Norilsk Nickel will be able to elect a number of directors based on its proportionate ownership of the company’s voting shares. No director designated by Norilsk Nickel may be an officer, employee or director of Norilsk Nickel or any of its affiliates and some of these directors must meet certain independence requirements.

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At all times there will be a number of directors on the board who are elected and replaced in a manner designed to protect their independence from Norilsk Nickel (the “Public Directors”).

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Without the prior approval of a majority of the Public Directors, the company may not enter into any agreement or transaction with Norilsk Nickel or any of its affiliates or which otherwise benefits Norilsk Nickel or its affiliates in an advantageous manner over the interests of other stockholders.

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Norilsk Nickel and its affiliates may not acquire additional shares of the company, subject to certain exceptions. Norilsk Nickel and its affiliates may make an offer to acquire all or part of the company’s shares with the prior written consent of a majority of the Public Directors after the Public Directors have received an opinion from an independent financial advisor regarding the fairness of the purchase to the company’s other stockholders.

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Other than transfers to an affiliate under certain conditions, Norilsk Nickel is restricted from transferring its shares without the prior written consent of a majority of the Public Directors if the transfer will result in any person beneficially owning 5% or more of the company’s voting shares. After the third anniversary of the Stockholders Agreement, these transfers will be permitted if certain conditions are met.

GEOLOGY OF THE J-M REEF

     The Stillwater Complex, which hosts the J-M Reef ore deposit, is located in the Beartooth Mountains in south central Montana. It is situated along the northern edge of the Beartooth Uplift and Plateau, which rise to elevations in excess of 10,000 feet above sea level. The plateau and Stillwater Complex have been deeply incised by the major drainages and tributaries of the Stillwater and Boulder Rivers down to elevations at the valley floor of approximately 5,000 feet.

     Geologically, the Stillwater Layered Complex is composed of a succession of ultramafic to mafic rocks derived from a large complex magma body emplaced deep in the Earth’s crust an estimated 2.7 billion years ago. The molten mass was sufficiently large and fluid at the time of emplacement to allow its chemical constituents to crystallize slowly and sequentially, with the heavier mafic minerals settling more rapidly toward the base of the cooling complex. The lighter, more siliceous suites crystallized relatively slower and also settled into layered successions of norite, gabbroic and anorthosite suites. This systematic process resulted in mineral segregations being deposited into extensive and uniform layers of varied mineral concentrations.

     The uniquely PGM-enriched J-M Reef and its characteristic host rock package represent one such layered sequence. The geosciences community believes that the PGM-enriched suite and other minerals characterizing the J-M Reef, accumulated at the same time and by the same mechanisms of formation as the rocks enclosing them. Over time, the orientation of a portion of the original horizontal reef and layered igneous complex was faulted an estimated 20,000 feet to the northeast and was tilted upward at angles of 50 to 90 degrees to the north by the Beartooth Uplift. Localized faulting and intrusive mafic dikes are also evident along the 28-mile strike length of exposed Stillwater Complex. The impact of these structural events is localized along the J-M Reef and may

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affect the percent mineable tonnage in an area, create additional dilution, or result in below cut-off grade and barren zones. The impacts on ore reserves of these events are quantified under the percent mineable discussion under “Ore Reserves.” The upper portion and exposed edge of the reef complex were eroded forming the lenticular-shaped surface exposure of the Stillwater Complex and J-M Reef package evident today.

     The J-M Reef package has been traced, at its predictable geologic position and with unusual gross uniformity over considerable distances within the Stillwater Complex. The surface outcrops of the reef have been examined, mapped and sampled for approximately 28 miles along its east-southeasterly course and over a known expression of over 8,200 feet vertically. That predictability of the J-M Reef has been further confirmed in subsurface mine workings of the Stillwater and East Boulder Mines and by over 21,000 drill hole penetrations.

     The PGMs in the J-M Reef consist primarily of palladium, platinum and a minor amount of rhodium. The reef also contains significant amounts of iron, copper and nickel, and trace amounts of gold and silver. Five-year production figures from the company’s mining operations on the J-M Reef are summarized in Part II, Item 6, “Selected Financial and Operating Data”.

ORE RESERVES

     As of December 31, 2003, the company’s total proven and probable palladium and platinum ore reserves are 40.4 million tons at an average grade of 0.58 ounce per ton, containing 23.6 million ounces of palladium and platinum, a decrease of 7% in contained ounces from December 31, 2002.

Methodology

     The company utilizes statistical methodologies to calculate ore reserves based on interpolation and extrapolation between sample points. These sample points consist of surface and underground diamond drilling with sample spacings between 50 and 100 feet for proven reserves and up to 1,000 feet for probable reserves. The maximum extrapolation distance for reserves is 1,000 feet horizontally and in depth from sample points. This extrapolation is based on the known continuity of the J-M Reef and geostatistical confirmation of the basis for the projection of zones of influence from sample points. Extrapolation and interpolation is limited by modifying factors including geologic evidence, economic criteria and mining constraints. All sample points within the ore reserve area are utilized in determining the ore reserves. The proven reserve estimate utilizes geostatistical and modeling software to provide estimates of tonnages and contained ounces. The probable reserve estimate also utilizes geostatistical methods to provide estimates of tonnages and contained ounces.

SEC Guidelines

     The United States Securities and Exchange Commission (SEC) has established guidelines contained in Industry Guide No. 7 to assist registered companies as they estimate ore reserves. These guidelines set forth technical, legal and economic criteria for determining whether the company’s ore reserves can be classified as proven and probable.

     The SEC’s economic guidelines have not historically constrained the Company’s ore reserves, and did not constrain the ore reserves at December 2003. Under these guidelines, ore may be classified as proven or probable if extraction and sale result in positive cumulative undiscounted cash flow. Pursuant to Industry Guide No. 7, industry practice and guidance provided by the SEC on the selling price for purposes of this analysis is based on either the historical trailing 12-quarter average combined PGM market price or the current PGM market price. In testing ore reserves at December 31, 2003, the company applied the trailing 12-quarter combined average PGM market price of $428 per ounce, based upon a palladium price of $379 per ounce and platinum price of $586 per ounce.

Results

     The December 31, 2003, ore reserves were reviewed 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. Behre Dolbear has consented to be a named expert herein. See “Business and Properties — Risk Factors — Ore reserves are very difficult to estimate and ore reserve estimates may require adjustment in the future; changes in ore grades could materially impact the company’s production and reported results.”

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Proven and Probable Ore Reserves

The company’s proven ore reserves are generally expected to be extracted utilizing the existing mine infrastructure. Additional capital expenditures will be required to extract the company’s probable ore reserves.

(1)		Reserves are defined as that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Proven reserves are defined as reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes, grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established. Probable reserves are defined as reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation. The proven and probable reserves reflect variations in the PGM content and structural impacts on the J-M Reef. These variations are the result of localized depositional and structural influences on the distributions of economic PGM mineralization. Areas within the reserve boundaries of the two mines include areas where as little as 7% and up to 100% of the J-M Reef is economically mineable. There are significant portions of the reef that are known to be barren. The reserve estimate gives effect to these assumptions. See “Business and Properties — Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors That May Affect Future Results and Financial Condition.”
(2)		Expressed as palladium plus platinum in-situ ounces per ton at a ratio of 3.6 to 1. Stillwater Mine is at a 3.4 to 1 ratio and the East Boulder Mine is 3.7 to 1.
(3)		The proven and probable reserves represent in-situ contained ounces as determined by geostatistical estimation methodologies. Several mining and processing losses must be deducted to arrive at the estimated recoverable ounces.

Discussion

The company’s proven and probable ore reserve above shows a 7% decrease in contained ounces from December 31, 2002. The decrease is due to several factors:

•		A net increase of 4% in contained ounces of ore reserves at the East Boulder Mine due to favorable definition drilling and development activities during 2003, offset by,
•		A 16% decrease in contained ounces of ore reserves at the Stillwater Mine related to:

•		Adjustments in probable estimation factors, mine planning and economic factors resulting in reductions or reclassification of peripheral areas to mineralized material coupled with a net reduction in mined production versus ore reserve additions from drilling and development activities during 2004.
•		Modifications to the method used in estimating mineable ore tons and grade. In 2003, the company began using a full three-dimensional model to define the orebody. The company believes this is a more accurate method of extrapolating drill hole and geologic information.
•		Additional minor reductions due to changes in reserve estimation techniques.

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     The economic analysis with respect to 2003 included testing the potential ore reserves at various commodity prices. The results of this analysis identified the following relationships between prices and reserves as of December 31, 2003. Such relationship may vary with future ore reserves determinations.

     The analysis shows that at a combined average price for palladium and platinum above approximately $340 per ounce reserves are bounded by geologic certainty and do not continue increasing. The company has not tested the reserves beyond the level shown because of the expense of access and drilling to establish reserves and because of the extensive life of a 23.6 million ounce reserve. At a combined long-term average price for palladium and platinum below approximately $340 per ounce, reserves are constrained by economics and are estimated to decrease as shown.

IMPAIRMENT CHARGE

     The company follows Statement of Financial Accounting Standard (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment is considered to exist if total estimated future cash flows on an undiscounted basis are less than the carrying amount of the asset. Future cash flows include estimates of recoverable ounces, PGM prices (considering current and historical prices, long-term sales contract prices, price trends and related factors), production levels, capital and reclamation expenditures, all based on life-of-mine plans and projections.

     The company disclosed in its quarterly report on Form 10-Q for the quarter ended September 30, 2003 that a continuation of palladium prices, at then low levels, would lead to asset impairment writedowns and a reduction of ore reserves which could be material. The company disclosed that the timing of such writedown or reduction in ore reserves would be evaluated in light of palladium prices and other matters.

     Ore reserves are determined on an annual basis, and concurrently, mine plans and operating budgets are updated. The East Boulder Mine ore reserve at year-end 2003 increased 4% in contained ounces from that reported at year-end 2002. However, the Stillwater Mine ore reserve at year-end 2003 decreased 16% in contained ounces from that reported at year-end 2002. Overall the company’s estimated contained ounces declined by 7%. The company’s ore reserve determination for 2003, calculated at December 31, 2003, was ultimately bounded by geologic certainty and largely unaffected by price. Instead, the 2003 changes were adjustments for material mined, additions for extension of mine workings and drilling during 2003 and changes in mine plans.

     The year-end 2003 change in ore reserves at the Stillwater Mine prompted an impairment review of the carrying values of the company’s mine properties. The review determined that company investments in property, plant and equipment at the Stillwater Mine and East Boulder Mine were impaired. Consequently, the company performed a fair market value assessment of the assets and recorded an asset impairment charge of $390.3 million reducing the carrying value of the properties to their fair market value, as required. The impairment charge consists of $176.7 million at the Stillwater Mine, $178.0 million at the East Boulder Mine and $35.6 million at the processing and other facilities, reducing the carrying value of Stillwater Mine to $228.6 million, East Boulder Mine to $150.0 million and the processing and other facilities to $40.9 million. The company engaged an independent appraiser, Behre Dolbear, who utilized traditional mine valuation techniques including discounted cash flow analysis for purposes of determining fair market value.

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     The resulting net carrying value of the company’s mining assets as of December 31, 2003 and 2002 is as follows:

     The reduction in carrying value of these mining assets is not expected to impact the company’s employees, mine operations, smelting and refinery operations, delivery of PGMs to customers or compliance with the covenants of the company’s bank credit facility.

     Assumptions underlying future cash flows are subject to risks and uncertainties. Any differences between significant assumptions and market conditions such as PGM prices, lower than expected recoverable ounces, and/or the company’s operating performance could have a material effect on the company’s determination of ore reserves, or its ability to recover the carrying amounts of its long lived assets resulting in potential additional impairment charges.

CURRENT OPERATIONS

     The company’s original long-term deposit development strategy and certain elements of its current planning and mining practices on the J-M Reef were founded with initial feasibility and engineering studies conducted in the 1980’s. Initial mine designs and practices were established in response to available technologies and the particular characteristics and challenges of the J-M Reef ore deposit. The company’s current development plans, mining methods and ore extraction schedules are designed to provide systematic access and development of the ore deposit within the framework of current and forecast economic, regulatory and technological considerations as well as the specific characteristics of the J-M Reef ore deposit. Some of the challenges specific to the development of the J-M Reef include:

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Surface access limitations (property ownership and environmental sensitivity)

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Topographic and climatic extremes involving rugged mountainous terrain and substantial elevation differences

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Specific characteristics of the mineralized zone (narrow – average width 5 feet, and long – approximately 28 miles in length)

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Downward angle of mineralized zone dipping from near vertical to 38 degrees

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A deposit which extends both laterally and to depth from available mine openings

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Probable ore reserves extend for a lateral distance of approximately 32,000 feet at the Stillwater Mine and approximately 17,000 feet at the East Boulder Mine — a combined distance of approximately 9.3 miles.

STILLWATER MINE

     The company wholly owns and performs underground mining operations at the Stillwater Mine, near Nye, Montana. The mining operation accesses, extracts and processes PGM ores from the eastern portion of the J-M Reef from mine openings located in the Stillwater Valley. In addition, the company owns and maintains ancillary buildings that contain the concentrator, shop and warehouse, changing facilities, headframe, hoist house, paste plant, water treatment, storage facilities and office. All structures and tailings management facilities are located within a 2,450 acre Stillwater Mine Operating Permit area. Ore reserves developed at the Stillwater Mine are controlled by patented mining claims either leased or owned outright by the company. 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. See “Business and Properties — Risk Factors.”

     The Stillwater Mine accesses and has developed a 5.6-mile segment of the J-M Reef, between the elevations of 7,000 and 2,900 feet above sea level. Access to the ore at the Stillwater Mine is accomplished by means of a 1,950-foot vertical shaft and by a system of horizontal adits and drifts driven parallel to the strike of the J-M Reef at vertical intervals of between 200 feet and 300 feet. Seven main adits have been driven from surface portals on the west and east slopes of the Stillwater Valley at various elevations between

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5,000 and 5,900 feet above sea level. Five principal levels 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 3,800-foot elevation. Four additional major levels below the 5,000-foot level are accessed principally from a vertical shaft and shaft ramp system. The company is currently developing a decline system from the 3,200-foot elevation to access and develop deeper areas in the central part of the mine below those currently serviced by the existing shaft.

     The 1,950-foot vertical shaft was constructed between 1994 and 1997 as part of the company’s plan to increase output from 1,000 to 2,000 tons of ore per day and was sunk adjacent to the concentrator to increase efficiency of the operation. Ores and any waste rock to be transported to the surface from the off-shaft and deeper areas of the mine are crushed prior to being hoisted up the shaft. The production shaft and underground crushing station reduced haulage times and costs, improved the material handling of ore and waste and improved the grinding capabilities of the concentrator. Ore from those areas above the 5,000-foot west elevation is hauled to the surface by train. Waste not used for backfill in underground excavations is transported to the surface and used in the rock embankment of the tailings dam or placed in the permitted waste rock disposal sites.

     The Stillwater Mine currently uses its 28 footwall laterals and 6 primary ramps and vertical excavations to provide personnel and equipment access, supply haulage and drainage, intake and exhaust ventilation systems, muck haulage, backfill plant access, powder storage and/or emergency egress. The footwall lateral and primary ramp systems will continue to provide support of production and ongoing development activities. In addition, certain mine levels are required as an integral component of the ventilation system and serve as required intake and or exhaust levels, or as parallel splits to maintain electrical ventilation horsepower balance and to meet Mine Safety and Health Administration (“MSHA”) requirements. In addition, MSHA regulations contain requirements for alternate (secondary) escapeways from mine workings. These levels, in addition to comprising critical functional components of the ventilation and escapeway system, serve as permanent mine service and utility infrastructure for road and rail transportation, dewatering and backfill pumping facilities designed and intended to be used for the life of the mine.

     Prior to 1994, almost all of the company’s mining activities utilized “cut-and-fill” stoping methods. This method extracts the orebody 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. Commencing in 1994, the company 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 orebody using mobile equipment. Access to the orebody is from ramps driven in or adjacent to the orebody allowing the use of hydraulic drills and load-haul-dump equipment. Sub-level stoping is a mining method in which blocks of the reef approximately 50 feet high and up to 75 feet in length are extracted in 30-foot intervals utilizing mobile electric hydraulic long-hole drills and remote control rubber tired load-haul-dump equipment. The reef is mined in a retreat sequence and mined out areas are filled with development waste. Mechanized mining accounted for approximately 93% of total tons mined in 2003. The company determines the appropriate mining method to be used on a stope-by-stope basis.

     The company processes ore from the Stillwater Mine through a concentrator plant adjacent to the Stillwater Mine shaft. The mill has an approximate capacity of 3,000 tons per day. Ore is fed into the concentrator, mixed with water and ground to a slurry in the concentrator’s 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 this circuit, the sulfide minerals are floated, recycled, reground and refloated to produce a concentrate suitable for further processing. The flotation concentrate, which represents approximately 1.5% of the original ore weight, is filtered and transported in bins approximately 46 miles to the company’s metallurgical complex in Columbus, Montana. Approximately 55% of the tailings material from this process is returned to the mine and used for backfill to provide a foundation upon which additional mining activities can occur. The balance is placed in tailings containment areas. No additional steps are necessary to treat any tailings placed back into the mine. Tailings placed into the impoundment areas require no additional treatment and are disposed of pursuant to the company’s operating permits. Mill recovery of PGM’s was 91%, 90% and 90% in 2003, 2002 and 2001, respectively.

     In 1998, the company received an amendment to its existing operating permit which provided for the construction of a lined tailings impoundment that would serve the Stillwater Mine for approximately the next 30 years. Construction commenced on the tailings impoundment in 1999 and was completed and placed into operation in late 2000. See “Business and Properties — Current Operations — Regulatory and Environmental Matters — Permitting and Reclamation”.

     During 2003, the Stillwater Mine produced approximately 428,000 ounces of palladium and platinum, compared to approximately 492,000 ounces in 2002 and approximately 504,000 ounces in 2001. See “Selected Financial and Operating Data.” The Stillwater Mine’s total cash costs were $262 per ounce in 2003 compared to $263 per ounce and $264 per ounce in 2002 and 2001, respectively.

EAST BOULDER MINE

     The East Boulder Mine is located in Sweet Grass County, Montana and provides access to the western portion of the J-M Reef.

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The mine is fully permitted independent of the Stillwater Mine and serves as a second access to the J-M Reef. Surface facilities for the East Boulder Mine are situated on unpatented mill site claims maintained on federal lands administered under the Gallatin National Forest. All facilities are wholly owned and operated by the company. Proven and probable ore reserves for the mine are controlled by patented mining claims owned by the company. The mine is located approximately 32 miles southeast of Big Timber, Montana, and is accessed by a public road. All surface facilities including the tailings management complex are located within a 977-acre operating permit area. Development of the mine commenced in 1998 and consists of underground mine development and surface support facilities, including a concentrator, shop and warehouse, changing facilities, storage facilities, office and tailings management facility. The mine commenced commercial production effective January 1, 2002.

     The J-M reef is accessed by two 18,500-foot, 15-foot diameter tunnels. The access tunnels intersect the orebody at an elevation 6,450 feet above sea level. The orebody is currently developed by three levels of footwall lateral drives parallel to the orebody totaling approximately 16,700 feet, and by two primary ramps totaling approximately 6,400 feet. The orebody is accessed vertically by ramp systems driven approximately every 1,200 feet along the length of the deposit. The predominant mining methods are sub-level stoping and ramp-and-fill mining methods. During the first half of 2002, a sand fill plant was constructed and commissioned underground to facilitate the application of the cut-and-fill mining method to portions of the orebody.

     The ore is transported by rail haulage to the surface and processed through a concentrator plant, which has a capacity of 2,000 tons per day, in which the ore is mixed with water and ground to a slurry in the concentrator’s mill circuit to liberate the PGM bearing sulfides from the rock matrix. Similar with the process at the Stillwater Mine, reagents are then added to the slurry to separate the valuable sulfide from the waste rock in a flotation circuit. The sulfide minerals are floated, recycled, reground and refloated to produce a concentrate. The flotation concentrate, which represents 1.9% of the original ore weight, is filtered and transported in bins approximately 90 miles to the company’s metallurgical complex in Columbus, Montana. Approximately 53% of the tailings material from this process is returned to the mine and used for backfill to provide a foundation upon which additional mining activities can occur. The balance is placed in tailings containment areas. No additional steps are necessary to treat any tailings placed back into the mine. Tailings placed into the impoundment areas require no additional treatment and are disposed of pursuant to the company’s operating permits. The impoundment area has an estimated life of approximately 20 years at the original planned production and processing rate of 2,000 tons per day. Mill recovery of PGM’s was 89% and 88% in 2003 and 2002, respectively.

     During 2003, the East Boulder Mine produced approximately 156,000 ounces of palladium and platinum, compared to approximately 125,000 ounces in 2002. During 2001, the mine recovered approximately 22,000 ounces of PGM’s generated from construction and development activities. Proceeds of $7.1 million received from the sale of this material were credited against capitalized mine development during 2001. The East Boulder Mine’s total cash costs were $343 per ounce in 2003 compared to $381 in 2002 due to higher production levels and cost reduction programs. See “Selected Financial and Operating Data.”

EXPLORATION AND DEVELOPMENT ACTIVITIES

     The J-M Reef has been explored from the surface along its entire 28-mile strike length by surface sampling and drilling. Surface exploration drilling consists of an array of over 900 drill holes with a maximum horizontal spacing between holes of 1,000 feet. Exploration activities have also included driving and underground drilling from two exploratory adits, the West Fork Adit and the Frog Pond Adit. Comprehensive evaluation of PGM mineralization encountered in the J-M Reef has allowed delineation of probable reserves adjacent to the Stillwater and East Boulder Mines and confirmation of the existence of mineralized material over much of the remaining strike length. Exploration to date has defined sufficient probable reserves to sustain mining for a number of years in the future. It is the company’s practice to systematically convert its established probable reserves to the proven category coincident with planned advances of underground development. The company’s exploration focus is on its current delineated PGM reserves and adjacent mineralization along the J-M Reef within the company’s mining claims rather than the exploration of other mineral occurrences within the Stillwater Complex or at other prospective mineral properties. Consequently, exploration does not presently represent a significant expenditure for the company.

     As part of the company’s ongoing development activities, it continues to convert its established probable ore reserves to proven ore reserves through the lateral and vertical development of the Stillwater and East Boulder Mines. These ongoing activities involve the construction of mine development workings to access established ore reserves and the continuous advancement of definition drilling, engineering and mine plans to replace depleted ore reserves. During 2003, 2002, and 2001, $48.8 million, $43.9 million and $86.1 million respectively, were incurred in connection with capitalized mine development and are included in total capital expenditures.

     Diagrams of the Stillwater and East Boulder Mines as currently developed and as planned to be developed in the future are as follows:

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METALLURGICAL COMPLEX

     Smelter. The company owns the land and a smelter plant located in Columbus, Montana. Concentrates from the mine sites are fed to a 5.0-megawatt electric furnace, where the concentrates are melted and separated into a silica oxide rich slag and a PGM rich matte. The matte is tapped from the furnace and granulated. The granulated furnace matte is re-smelted in a top blown rotary converter (TBRC), which separates iron from the converter matte. The converter matte is poured from the TBRC, granulated and transferred to the refinery for further processing. The granulated converter matte, approximately 10% of the original smelter feed weight, consists of copper and nickel oxides containing about 2% PGMs.

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     The gasses 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 smelting facility consists of an electric arc furnace, two TBRC’s, a granulator and gas handling and solution regeneration systems. Smelter capacity is 100 tons of concentrate per day.

     Refinery. The company’s refinery is on property it owns adjacent to the smelter in Columbus, Montana. The refinery utilizes the patented Sherritt Process, whereby sulfuric acid is used to dissolve the nickel, copper, cobalt and iron from the converter matte. This process upgrades the converter matte product substantially from 2% PGMs to 55-60% PGMs.

     In the refinery, minor amounts of by-product copper, nickel, cobalt, and other metals are separated from the PGM bearing converter matte and marketed as by-products. Iron is precipitated from an iron-copper-nickel-cobalt solution and is returned to the smelter to be processed and removed in the slag. A nickel crystallizer circuit produces a crystalline nickel sulfate by-product containing minor amounts of cobalt which is marketed into sales contracts with a company in Canada. A copper electrowinning circuit removes copper from solution as cathode copper which is marketed into sales contracts with companies in the U.S.

     A PGM rich filter cake, which also contains minor amounts of gold and silver, is shipped to precious metals refineries in New Jersey and California and the metals are returned to of the company’s account as 99.95% sponge after approximately 18-35 days. The refined metal is then available for delivery to the company’s customers. The company pays its refiners a refining charge in United States dollars per ounce for the toll processing of the refinery filter cake.

     During 2003, 2002 and 2001, total by-product sales were approximately $12.1 million, $10.6 million and $8.2 million, respectively, and were credited against production costs.

     The Columbus Smelter and Refinery complex is planned to be idled for four to six weeks in the second quarter 2004 for a periodic re-bricking of the smelting furnace. Mine operations will continue during the re-bricking with concentrate production stored for processing following the restart of the smelter. Concentrate accumulated during the re-bricking is expected to be processed by year-end 2004.

SECONDARY MATERIALS PROCESSING

     Secondary PGM metals contained in spent catalytic converter material are processed by the company through its metallurgical complex. A sampling facility for secondary materials is used to crush and sample spent autocatalysts prior to being blended for smelting in the electric furnace. The spent autcatalytic material is sourced primarily from automobile repair shops and automobile yards that disassemble old cars for the recycling of their parts. Spent petroleum refining catalysts are also processed by the company.

     The company has been processing small spot shipments of spent autocatalysts since 1997. In October 2003, the company entered into a long-term metal sourcing agreement with Power Mount Incorporated of Somerset, Kentucky under which it will contractually purchase secondary metals for recycling.

     The net proceeds from the processing of recycled autocatalysts in 2003, 2002 and 2001 reduced production costs by approximately $0.9 million, $1.0 million and $2.0 million, respectively.

OTHER PROPERTIES

     The company owns a 17,600 square foot warehouse facility and also leases 10,100 square feet of office space in buildings in Columbus. The annual lease expense for the executive offices in Columbus, Montana is approximately $61,500 per year. The company believes that its existing facilities are adequate to service current production levels. The company also owns parcels of rural land in Stillwater and Sweetgrass Counties, Montana near its mine sites totaling approximately 3,364 acres and additional properties in Columbus and Big Timber, Montana which are used as support facilities. All of the company’s fee properties are subject to a mortgage in favor of the company’s credit facility.

CREDIT AGREEMENT

     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 seven times with the most recent amendment effective March 20, 2003. The credit 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

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company’s request as of March 20, 2003). Amortization of the term loan facilities commenced on March 31, 2002.

     Pursuant to the terms of the credit facility, the company was required to apply $50.0 million of the $100.0 million cash proceeds received in the Norilsk Nickel transaction (see Note 12) to prepay its term loans. Consequently, the Term A facility was paid in full on June 30, 2003. In addition, in accordance with the terms of the credit agreement, the company is required to offer 50% of the net proceeds from the sale of palladium inventory received in the Norilsk Nickel transaction (see Note 12) to further prepay its term loans. Accordingly, $74.1 million of the long-term debt has been classified as a current liability. The lenders are not obligated to accept the offer for prepayment. If lenders do not accept the prepayment, the company retains the cash but the availability under the revolving credit facility is reduced by the amount of the prepayment not accepted. 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 December 31, 2003, the company has $128.5 million outstanding under the Term B facility, bearing interest at a variable rate of 7.25%. The schedule of principal payments on the amounts outstanding as of December 31, 2003, without regard to the possible sale of the inventory received in connection with the Norilsk Nickel transaction, is as follows:

     During 2003, the company obtained a letter of credit in the amount of $7.5 million and carries an annual fee of 4.0%, which reduces amounts available under the revolving credit facility at December 31, 2003. The revolving credit facility requires an annual commitment fee of 0.5% on the remaining unadvanced amount. Of the $25 million revolving credit facility, $17.5 million remains available to the company. This revolving credit facility will be reduced in circumstances where lenders are offered a prepayment but do no accept the prepayment. (see above)

     The loans are required to be prepaid from excess cash flow, proceeds from asset sales and the issuance of debt or equity securities, subject to specified exceptions. Proceeds of the term loan facility were used to finance a portion of the company’s expansion plan. Proceeds of the revolving credit facility are being used for general corporate and working capital needs. The Term B credit facility bears interest at LIBOR, subject to a 2.5% minimum, plus a margin of 4.75% or an alternate base rate plus a margin of 3.25%. Substantially all the property and assets of the company and the stock of the company’s subsidiaries are pledged as security for the credit facility.

     Covenants in the credit facility include restrictions on: (1) additional indebtedness; (2) payment of dividends or redemption of capital stock; (3) liens; (4) investment, acquisitions, dispositions or mergers; (5) transactions with affiliates; (6) capital expenditures (other than those associated with the company’s mine plan); (7) refinancing or prepayment of subordinated debentures; (8) changes in the nature of business conducted or ceasing operations at the principal operating properties; and (9) commodities hedging based upon annual palladium and platinum production. The company is also subject to financial covenants including a debt to operating cash flow ratio, a debt service coverage ratio and a debt to equity ratio.

     Events of default in the credit facility include: (1) a cross-default to other indebtedness of the company; (2) any material modification to the life-of-mine plans; (3) a change of control of the company other than the Norilsk Nickel transaction (see Note 12); (4) the failure to maintain agreed-upon annual PGM production levels; (5) any breach or modification of any of the sales contracts. The company anticipates it will refinance the credit facility during 2004. The company is in compliance with its debt covenants at December 31, 2003.

PGM SALES AND HEDGING ACTIVITIES

Mine Production:

     Palladium, platinum, rhodium and gold are sold to a number of consumers and dealers 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 third party refineries to the account of the purchaser. By-product metals are purchased at market price by customers, brokers or outside refiners.

     During 1998, the company entered into three supply contracts with its customers that contain guaranteed floor prices for metal delivered. In late 2000 and in 2001, the company amended these contracts to extend the terms and to modify the pricing mechanisms.

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One of these contracts applies to the company’s production through December 2010, one through December 2006 and the other contract is estimated to be completed in 2007. Under the contracts, the company has committed between 80% to 100% of its palladium production and between 70% to 80% of its platinum production. 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:

     At March 9, 2004, the London PM Fix market prices for palladium and platinum were $256 and $895 per ounce, respectively. The sales contracts provide for adjustments to ounces committed based on actual production. The sales 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 are not subject to the requirements of SFAS No. 133 as the contracts qualify for the normal sales exception provided in SFAS No. 138 since 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 a separate derivative instrument, and are therefore also not subject to the requirements of SFAS No. 133. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

     The percentage of the company’s sales ounces that were made pursuant to modified pricing mechanisms are summarized below:

     The company has historically entered into hedging agreements from time to time to manage the effect of price changes in palladium and platinum on the company’s cash flow. Hedging activities consist of fixed forwards for future deliveries of specific quantities of PGMs at specific prices, the sale of call options and the purchase of put options and financially settled forwards. Gains or losses can occur as a result of hedging strategies. Hedging gains of $9.2 million and $5.5 million were realized in 2002 and 2001, respectively. No hedging gains or losses were realized in 2003.

     During 2003, the company entered in fixed forwards that were accounted for as cash-flow hedges. These sales of metals from processing secondary materials are sold forward at the time of receipt and delivered against the cash flow hedges when the ounces are recovered. All of these transactions settle in the first three months of 2004. The unrealized loss on these instruments due to changes in metal prices at December 31, 2003 was $0.9 million ($0.5 million net of tax). The company has credit agreements with its major trading partners that provide for margin deposits in the event that forward prices for metals exceed the company’s hedge contract prices by a predetermined margin limit.

Palladium acquired in connection with Norilsk Nickel transaction:

     During 2003, the company entered into negotiations for the sale of the 877,169 ounces of palladium, which constituted a portion of the payment received from Norilsk Nickel when it acquired its initial 51% interest in the Company. In the first quarter of 2004, the company announced that it had entered into contracts or had reached understandings, under which all of the palladium will be sold, at close to market prices at the time of sale, over a period of two years primarily for use in automobile catalytic converters.

TITLE AND ROYALTIES

     The company holds 995 patented and unpatented lode or millsite claims covering approximately 16,000 acres along the J-M Reef

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mineral zone and on adjacent federal lands utilized for the company’s operations facilities. The company believes that approximately 130 of these claims cover 100% of the known apex of the J-M Reef. The remainder of the company’s unpatented claims either adjoin the apex of the J-M Reef or secure sites for surface operations. Prior to the moratorium on processing new applications for mining claim patents, the company had leasehold control on 1 patented claim under the Mouat Agreement, had been granted patents on 34 of its own claims (a combined total of 735 acres), and had 33 patent applications pending on 135 additional mining claims covering an area of 2,249 acres. The applications included claims owned directly by the company or held by the company in leasehold. During the fourth quarter of 2001, 31 new patents were issued to the company for 126 mining claims covering 2,126 acres. At year end 2001, patents had been issued for all submitted applications involving the claims owned directly by the company. In a decision dated April 30, 2002, the Montana State Office of the Bureau of Land Management rejected two mineral patent applications submitted prior to July 13, 1993 covering 123 acres in 9 mining claims held by the company in leasehold under the Mouat Agreement. The company has joined with the Mouat interests in appealing the decision to the U.S. Department of the Interior Board of Land Appeals (IBLA). In the event the decision is upheld, the 9 original claims will revert to unpatented mining claim status. The company does not believe that the final decision will have any adverse affect on the company’s operations or interest under the Mouat Agreement. The company presently maintains 825 active unpatented mining and millsite claims. Unpatented mining claims may be located on lands open to mineral 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 claims are more commonly subject to challenges of third parties, regulatory or statutory changes, or contests by the federal government. The validity of an unpatented mining claim or millsite claim, in terms of establishing and maintaining possessory rights, depends on strict compliance with a complex body of federal and state statutory and decision law regarding the location, qualifying discovery of valuable minerals, occupancy and beneficial use by the claimant.

     Of the company’s 995 controlled claims, 869 are subject to royalties, including 711 subject to a 5% net smelter royalty payable to Newmont Capital Limited, 56 subject to a 0.35% net smelter royalty payable to the Mouat family, and 102 subject to both royalties. During 2003, 2002 and 2001, the company incurred royalty expenses of approximately $6.0 million, $6.9 million and $7.0 million, respectively. At December 31, 2003, 100% of the company’s proven and probable ore reserves were secured by either its 161 patented mining claims or the 9 first-half certified claims pending the appeal ruling by the IBLA. Processing facilities at the East Boulder Mine are situated on 127 validated unpatented millsite claims.

SAFETY

     Mining operations are conducted at the Stillwater Mine and at the East Boulder Mine and involve the use of heavy machinery and drilling and blasting in confined spaces. The pursuit of safety excellence at the company continues with the implementation of the company’s G.E.T. (Guide, Educate and Train) Safe safety and health management systems. Efforts have focused on accident prevention seeking opportunities for safer mining methods and increased employee awareness and training. Areas of specific focus included enhanced work place examinations, joint union and management safety committees, critical task analysis and implementation of measurable safety standards. Employee led focus teams were successful in solving many safety related challenges. The company will continue to utilize focus teams to address specific safety and health related issues. The company has partnered with MSHA on several occasions for purposes of education, training, research, and technology sharing. As a result of this partnership, several breakthrough results were created. Most noteworthy were the completion of a jointly created training seminar for MSHA inspectors and Stillwater supervisors as well as study and research efforts for reducing employee exposures to noise and diesel particulate matter.

     During 2003, special attention to the safety performance of underground mining crews at the Stillwater Mine resulted in an improvement in incidence rate of 13%. This improvement was offset by a rise in incident rates for Stillwater Mine non-mining crews and an increased incident rate at the East Boulder Mine. The metallurgical complex in Columbus, Montana continued to maintain a low incidence rate while being recognized by the Montana Department of Labor and Industry as a leader in workplace safety. The smelter was the recipient of their tenth SHARPS Award and the refinery received their sixth. The SHARPS program recognizes employers who have demonstrated exemplary achievements in workplace safety and health. By meeting the SHARPS inspection requirements, these facilities may be exempt from general Occupational Safety and Heath Administration (OSHA) inspections for one year. The company’s total incidence rate through 2003, excluding contractor hours, was 8.0 for every 200,000 man hours worked as compared to 7.7 for 2002 and 10.1 for 2001.

     Safety performance continues to be an organizational focus. Consistent and sustained improvement is expected to be realized through increased safety accountability at all levels of the organization, auditing of workplace standards and practices and increased opportunities for employee involvement and participation.

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EMPLOYEES

     As of December 31, 2003 and 2002, the company had 1,540 and 1,575 employees, respectively, in the following areas:

     All of the company’s hourly employees at the Stillwater Mine, the East Boulder Mine, the smelter and refinery are represented by the Paper, Allied Industrial, Chemical and Energy Workers International Union (PACE). On July 1, 1999, a five-year contract was negotiated which covers substantially all hourly workers at the Stillwater Mine, the smelter and the refinery and calls for an annual average wage increase of approximately 4% per annum. On July 1, 2002, a three-year contract was negotiated which covers all hourly workers at the East Boulder Mine and calls for an average wage increase of approximately 4% per annum.

     The contract with hourly employees at the Stillwater Mine and the smelter and refinery expires June 30, 2004. The company and Union representatives are expected to meet to negotiate a new contract during the second quarter of 2004.

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 which could involve 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. 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. See “Business and Properties — Risk Factors.”

     The Stillwater Mine and East Boulder Mine are located on the northern edge of the Absaroka-Beartooth wilderness, about 30 miles north of Yellowstone National Park. Due to the proximity of the company’s operations to Yellowstone National Park and a wilderness area, the company’s operations are subject to stringent environmental controls which may adversely impact the company’s revenues. For example, increasingly stringent requirements may be adopted under the Clean Water Act, Clean Air Act or Endangered Species Act which could require installation of environmental controls not required of competitors located overseas. See “Business and Properties — Risk Factors.”

     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 including current property owners for 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. See “Business And Properties — Risk Factors.”

     The company believes that its operations and facilities comply in all material respects with current federal, state and local permits and regulations, and that it holds all necessary permits for its operations at the Stillwater and East Boulder Mines and to complete all of its planned expansion projects, including the East Boulder Mine. However, compliance with existing and future laws and

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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.

     Permitting and Reclamation. Operating Permits 00118 and 00149 issued by the Montana Department of State Lands encompass approximately 2,450 acres at the Stillwater Mine located in Stillwater County, Montana and 977 acres at the East Boulder Mine located in Sweetgrass County, Montana. The permits delineate lands that may be subject to surface disturbance. At present, approximately 359 acres have been disturbed at the Stillwater Mine, and 180 acres have been disturbed at the East Boulder Mine. 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 Department of Environmental Quality (DEQ). Additional reclamation requirements may be imposed by the United States Forest Service (USFS) during the permitting process. For regulatory purposes, reclamation does not mean restoring the land to its pre-mining state. Rather, it means 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 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 included selection and construction of a new tailings impoundment and removal of the 2,000 tons of ore per day production cap. During 1997, as a result of this application, the Montana DEQ began preparation of an Environmental Impact Statement in order to assess the environmental impacts of the amendment. The Montana DEQ issued the final Environmental Impact Statement in 1998, subsequent to review of draft issuances and a public hearing. In November 1998, the Record of Decision was issued by the Montana DEQ and the USFS. There were no material changes from the original application.

     In the first quarter of 1999, an environmental group filed a complaint against the Montana DEQ challenging the adequacy of the Environmental Impact Statement and reclamation provisions developed in connection with the amendment to the permit. The company was not named in the complaint. In mid-2000, the company signed an agreement with the group and its affiliates (the Councils). Under the terms of the agreement, the Councils withdrew litigation against the Montana DEQ. The Councils also agreed not to file a protest against the renewal of the company’s water quality permit at the East Boulder Mine. For its part, the company agreed to programs that have reduce traffic flows to both the Stillwater Mine and the East Boulder Mine. In addition, the company is funding expanded monitoring programs and the development of a watershed partnership for the Boulder River basin to assist residents in improving the quality of surface and ground water. Included in this is the funding of a long-term fishery study. The company estimates the total cost of all the environmental programs associated with the implementation of the agreement to be approximately $320,000 annually.

     The company’s environmental expenses were $1.7 million, $1.8 million and $1.1 million, for 2003, 2002 and 2001, respectively. The company had capital expenditures for environmental facilities during 2003, 2002 and 2001 of $6.3 million, $0.3 million and $3.7 million, respectively. The company’s ongoing operating expenditures for environmental compliance are expected to exceed approximately $2.0 million per year and will be expensed as incurred.

STOCK PURCHASE AGREEMENT TRANSACTION WITH MMC NORILSK NICKEL

     On June 23, 2003, the company and Norilsk Nickel completed a stock purchase transaction whereby the company issued 45,463,222 new shares of its common stock to Norimet, a wholly-owned subsidiary of Norilsk Nickel. The company received consideration from Norimet consisting of $100.0 million in cash and 877,169 ounces of palladium valued at $148.2 million as of June 23, 2003. The aggregate value of the consideration was $248.2 million. The company was required to use one-half of the cash proceeds to prepay its term loans and is required to offer one half of the cash proceeds received from the sale of the ounces as a prepayment of the Term B facility See “Credit Agreement” above.

     On September 3, 2003, Norimet completed a cash tender offer to acquire 4,350,000 shares of the company’s outstanding common

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stock. Following completion of the cash tender offer, Norimet owned 49,813,222 shares or 55.5% of the company’s then outstanding common stock. As of March 9, 2004 Norimet owned 49,813,222 shares or 55.4% of the company’s outstanding common stock.

     The stock purchase agreement between the company and Norilsk Nickel provided that the parties would negotiate in good faith to enter into an agreement whereby the company would buy from Norilsk Nickel or its affiliates at least one million ounces of palladium annually. The company intended to resell this palladium under long-term customer contracts. The stock purchase agreement provided that the parties intended to execute this agreement within six months of the closing of Norilsk Nickel’s stock purchase, which occurred on June 23, 2003. Negotiations concerning this agreement have not occurred but the company anticipates discussing the subject with Norilsk Nickel during 2004.

COMPETITION: PALLADIUM AND PLATINUM MARKET

GENERAL

     Palladium and platinum are rare precious metals with unique physical qualities that are used in diverse industrial applications and in the jewelry industry. 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. 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

     Palladium demand increased or remained relatively stable for the period 1994 through 2000 and then dropped in 2001 and 2002, (see palladium chart below). In 2003, the palladium demand recovered approximately 16% as compared to the 2002 demand, although the demand remains approximately 40% below the high established in 1999, according to Johnson Matthey’s Platinum Interim Review Report published in November 2003 (Johnson Matthey or the Johnson Matthey report). The Johnson Matthey report cites the continued decrease in demand of palladium due to continued weakness in the electronics industry, coupled with relatively low levels of purchasing by the auto industry. According to Johnson Matthey, demand or purchases of palladium had grown from 4.9 million ounces in 1994 to 9.4 million ounces in 1999, thereafter decreasing to 6.8 million ounces in 2001, 4.9 million ounces in 2002 and an estimated 5.7 million ounces in 2003 as consumers switched to alternative materials, including platinum, engaged in thrifting (obtaining the same or better performance results with less material), and began to use safety stocks accumulated prior to 2001. While consumption of palladium as compared with demand is difficult to measure, Johnson Matthey estimates consumption for autocatalysts in 2003 likely exceeded demand as U.S. auto manufacturers used far less metals from inventory stocks than in 2002.

     Charts reproduced from the Johnson Matthey Platinum 2003 Interim Review.

     Johnson Matthey also reported that platinum demand has increased from 4.6 million ounces in 1994 to 6.6 million ounces in 2003, a 44% increase and that demand for platinum exceeded supply in 2003 by 480,000 ounces, or 8%, (see platinum chart above).

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     The unique physical qualities of PGMS’s 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.

     The largest application for palladium is in the automotive industry. This industry represented approximately 57% of the worldwide palladium demand in 2002, and remained relatively constant at 58% of the worldwide demand in 2003. According to Johnson Matthey, demand for palladium in the next several years is expected to resume growing, driven primarily by its use in the production of automotive catalysts which reduce harmful automobile emissions. In the U.S., the automobile industry have been required to comply with standards that decrease automotive emissions to National Low Emission Vehicle standards beginning with the 1999 model year vehicles. Europe and Japan have adopted more stringent standards for the future as well. With growing concern for cleaner air, it is expected that greater attention to automobile emissions will continue. This will have an undetermined effect on palladium and platinum. Prices of palladium reached record levels in 2001. On January 26, 2001, the price of palladium on the London PM Fix was $1,090. Given the 2001 prices, some substitution of platinum for palladium was experienced in the manufacturing and automotive catalyst sectors. Substitution subsided and reversed to a degree in 2002 and more rapidly in 2003 as the price of platinum strengthened exceeding a weakening palladium price. Nevertheless, inventories of palladium acted to keep its price in check.

     Johnson Matthey estimated that approximately 17% of the 2003 palladium supply is consumed in the production of electronic components for personal computers, cellular telephones, facsimile machines and other devices. However, given the higher palladium price during the first half of 2001, some substitution of base metals for lower end applications has occurred. Johnson Matthey also reported that dentistry continues to be a major user of palladium for gold-based dental alloys, and represented approximately 14% of the palladium demand for 2003.

     According to Johnson Matthey, approximately 63% 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 gasoline’s 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. Johnson Matthey also reported that demand for platinum exceeded supply in 2003 by 480,000 ounces, or 8%. Consent to cite Johnson Matthey was neither sought nor obtained. See “Business and Properties — Risk Factors.”

SUPPLY

     The leading global sources of palladium and platinum production are mines located in the Republic of South Africa and Russia. The Johnson Matthey report estimated that South Africa provided approximately 36% of the palladium and 76% of the platinum worldwide during 2003. Johnson Matthey noted that the principal PGM mining companies in the Republic of South Africa are Anglo American Platinum Corporation, Ltd., Impala Platinum Holdings, Ltd. and Lonmin Ltd. The Johnson Matthey report estimated that Russia, as a by-product of nickel production, provided approximately 47% of the palladium and approximately 16% of the platinum worldwide in 2003. The Johnson Matthey report indicated that Russia held back from the spot market in 2002; however, Russia was expected to sell all of its palladium produced in 2003 (see charts below).

     Charts reproduced from the Johnson Matthey Platinum 2003 Interim Review.

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     Supply numbers provided by Johnson Matthey are for metals entering the market and do not necessarily represent metals produced during the years shown. For palladium this constitutes a significant year-to-year difference due to substantial inventories held by the Russian Government, accumulated in past years by auto companies and speculators. For platinum this is less significant as inventories held by governments or private institutions have not been as material. Annual worldwide mine production of palladium for 2003 is estimated at 6.3 million ounces. Annual worldwide production of platinum for 2003 is estimated at 6.1 million ounces.

     Johnson Matthey expects the supply of palladium will rise rapidly in 2004 as a result of the expansion of platinum production in South Africa and the settlement of a strike in Canada which affected production for three months during 2003. Johnson Matthey estimates that Norilsk Nickel in Russia produced approximately 2.95 million ounces of palladium in 2003 as a by-product of nickel mining, and that portions of Russian government stockpiles accumulated over the years also are exported each year. If Russian government stockpiles of palladium and platinum still exist and are extensive, and if they are disposed of in the market in significant quantities, the increased supply could result in lower prices.

     In addition to these sources, PGMs are recovered from automotive catalytic converters acquired from scrap dealers. A small but growing industry has developed in the collection and recovery of PGMs from scrap sources, including automotive catalytic converters, electronic and communications equipment and petroleum catalysts converters. For the year ending 2003, it is estimated by CPM Group that recovery of PGM’s from scrap sources will account for 1,275,000 ounces of palladium, 610,000 ounces of platinum and 41,000 ounces of rhodium.

PRICES

     The company’s revenue and earnings depend upon world palladium and platinum prices. The company has no control over these prices, which tend to fluctuate widely. 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 palladium and platinum prices is illustrated in the following table of the London PM Fix of annual high, low and average prices per ounce.

*

(Through March 9, 2004)

     AVAILABLE INFORMATION

     The company’s Internet Website is http://www.stillwatermining.com. The company makes available, free of charge, through its Internet Website, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after the company electronically files such materials with, or furnishes them to, the Securities & Exchange Commission. These documents will also be provided in print, upon request.

RISK FACTORS

     Set forth below are certain risks faced by the company.

VULNERABILITY TO METALS PRICE VOLATILITY—CHANGES IN SUPPLY AND DEMAND COULD REDUCE MARKET PRICES

     Since the company’s sole source of revenue is the sale of platinum group metals, changes in the market price of platinum group metals significantly impacts profitability. Many factors beyond the company’s control influence the market prices of these metals. These factors include global supply and demand, speculative activities, international political and economic conditions and production levels and costs in other platinum group metal producing countries, principally Russia and South Africa.

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     Over the last few years, the market prices of palladium have been extremely volatile. The price for palladium reached a record high price level of $1,090 per ounce in January 2001 then fell to a low of $315 per ounce in November 2001 only to recover to approximately $440 per ounce by December 31, 2001. During 2002, palladium prices continued to decline, trading in a range of $325 to $350 per ounce until October 2002 at which point the price of palladium fell sharply to a low of $222 per ounce in December 2002, closing the year at $236 per ounce. The palladium price recovered slightly in January 2003 to $269 per ounce but then fell consistently to reach a low of $148 per ounce during April 2003. With speculative buying the palladium price increased during the latter half of 2003 to reach a high of $232 per ounce in September 2003 and then closed the year with a market price of approximately $195 per ounce at December 31, 2003. At March 9, 2004, the market price of palladium was approximately $256 per ounce.

     The price for platinum increased from $480 per ounce early in 2002 to approximately $600 per ounce by December 31, 2002 and continued to increase through 2003 to approximately $815 per ounce at December 31, 2003. At March 9, 2004, the market price of platinum was approximately $895 per ounce.

     A prolonged or significant economic contraction in the United States or worldwide could lead to further volatility in market prices of PGMs, particularly if demand for PGMs falls in connection with reduced automobile and electronics production. If other producers dispose of substantial amounts of platinum group metals from stockpiles or otherwise, the increased supply could reduce the prices of palladium and platinum.

     Reductions in PGM prices adversely impact the company’s revenues, profits and cash flows. Protracted periods of low metals prices could significantly reduce revenues and the availability of required development funds particularly after the company’s supply contracts expire, to levels that could cause portions of the company’s ore reserves and production plan to become uneconomic. This could cause substantial reductions to PGM production or suspension of mining operations. See “Business and Properties — Competition: Palladium and Platinum Market” for further explanation of these factors.

     In consummating the Norilsk Nickel transaction, a substantial portion of the consideration received was paid in palladium. Norilsk Nickel paid the company 877,169 ounces of palladium, which was valued at approximately $148.2 million as of June 23, 2003 (see Note 12). During 2003, the company entered into negotiations for the sale of the 877,169 ounces of palladium. In the first quarter of 2004, the company announced that it had entered into contracts or had reached understandings, under which all of the palladium will be sold, at close to market prices at the time of sale, over a period of two years primarily for use in automobile catalytic converters. The amount to be received by the company under these contracts will be subject to market price changes.

THE COMPANY DEPENDS UPON A FEW CUSTOMERS AND ITS SALES AND OPERATIONS COULD SUFFER IF IT LOSES ANY OF THEM

     The company is party to long-term sales contracts with General Motors Corporation, Ford Motor Company and Mitsubishi Corporation, each of whom represents more than 10% of the company’s revenues and in aggregate represented 98% of the company’s revenues in 2003. For more information about these sales contracts, see “Business and Properties — Current Operations — Sales and Hedging Activities”.

     As a result of these contracts, the company is subject to the customers’ compliance with the terms of the contracts, their ability to terminate or suspend the contracts and the customers’ willingness and ability to pay. The loss of any of these customers would require the company to sell at prevailing market prices, which may expose it to lower metal prices as compared to the floor price structures under the sales contracts. In the event the company becomes involved in a disagreement with one or more of its customers, their compliance with these contracts may be at risk. In such an event, the company’s operating plans could be threatened. In addition, under the company’s syndicated credit facility, a default or modification of the sales contracts could prohibit additional loans or require the repayment of outstanding loans. A termination or breach by a customer could impact the company’s operations and negatively impact the company’s financial results.

     During 2003, the company entered into negotiations for the sale of the 877,169 ounces of palladium, which constituted a portion of the payment received from Norilsk Nickel when it acquired its initial 51% interest in the Company. In the first quarter of 2004, the company announced that it had entered into contracts or had reached understandings, under which all of the palladium will be sold, at close to market prices at the time of sale, over a period of two years primarily for use in automobile catalytic converters. As a result of these contracts, the company is subject to the customer’s compliance with the terms of the contracts, their ability to terminate or suspend the contracts and the customer’s willingness and ability to pay. The loss of any of these would require the company to sell the metal in the open market which may have a negative impact on the price received. Alternatively, the company may choose not to sell the metal or seek alternative contracts. In such an event the company’s earnings and cash flows could be negatively impacted. See “Business and Properties — Current Operations — Sales and Hedging Activities” for additional information about the sales contracts.

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FAILURE TO RENEW LONG-TERM SALES CONTRACTS FOR MINE PRODUCTION COULD RESULT IN MODIFIED OPERATIONS OR CURTAILMENT OF OPERATIONS

     During 1998, the company entered into long-term sales contracts with General Motors Corporation, Ford Motor Company and Mitsubishi Corporation, which, when combined, represented more than 98% of the company’s 2003 revenues. The contracts apply to the company’s production through December 2010. Under the contracts, the company has committed between 80% to 100% of its palladium production and between 70% to 80% of its platinum production. Metal sales are priced at a modest discount to market, with floor and ceiling prices. Accordingly, the company benefits if the market price drops below the floor price of the contract and is unable to realize the full benefit of the market price if the market price exceeds the ceiling price of the contract. The three car contracts will expire in 2006, 2007 and 2010, respectively. At that time the company will be directly dependent on market prices, without the price protection or risk due to the floors and ceilings of the long-term contracts. If the company is unable to extend or renew these contracts beyond 2010, with similar floor prices and the market price of PGM’s remain below the company’s total cash funding requirements to produce PGM’s, then operations may have to be modified or curtailed.

THE COMPANY HAS ONLY TWO PRINCIPAL SOURCES OF REVENUES FROM ITS MINING OPERATIONS

     In 2003, 73% and 27% of the company’s revenues was derived from its mining operations at the Stillwater Mine and East Boulder Mine, respectively. Prolonged interruption in operations at either location would have a negative impact on the company’s ability to generate revenues, profits and cash flow in the future. Material factors that could cause an interruption in operations at either mine are outlined in the “Risk Factors – Mining risks and potential inadequacy of insurance coverage - the company’s business is subject to significant risks that may not be covered by insurance.”

THE COMPANY IS A RELATIVELY HIGH COST PRIMARY PRODUCER

     The company’s products compete in a global market place with the products of other primary producers of PGM’s. They also compete with the products of mining companies who produce PGM’s as a by-product of their primary commodity, principally nickel.

     The company’s cash cost of production and associated annual capital required to produce its annual production is high relative to other primary producers of PGM’s. Most primary producers of PGM’s are located in South Africa.

     Because of the uncompetitive cost structure, in periods of low pricing, the company’s competitors may still be able to be profitable, while the company may not. Furthermore, the non-primary producers of PGM’s will generally continue to produce and sell PGM’s in low pricing periods as it is not their principal commodity.

ACHIEVEMENT OF THE COMPANY’S PRODUCTION GOALS IS SUBJECT TO UNCERTAINTIES

     Based on the complexity and uncertainty involved in operating underground mines, it is difficult to provide accurate production and cost estimates. The company cannot be certain that either the Stillwater or East Boulder Mines will achieve the production forecast or that the expected operating cost levels will be achieved or that funding will be available from internal and external sources in necessary amounts or on acceptable terms to continue the necessary development work. Failure to achieve the company’s production forecast would negatively impact the company’s revenues, profits and cash flows. The reduction of production levels would also impact certain covenants under the company’s credit facility relating to the accomplishment of specified production and financial goals. As underground operations expand at depth and horizontally, it is likely that operating costs will increase unless employee productivity is increased. In addition, as additional underground infrastructure is constructed, amortization will increase unless additional ore reserves are identified. Such increase in costs could adversely affect the company’s profitability.

     New mining operations often experience unexpected problems during initial years of operation, which can result in substantial delays in reaching commercial production. The East Boulder Mine commenced commercial operations in 2002 and has an operating history of two years. As a result, estimates of future cash operating costs at East Boulder Mine are based largely on the company’s limited experience at the East Boulder Mine and operating experience at the Stillwater Mine portion of the J-M Reef. Actual production, cash operating costs and economic returns may differ significantly from those currently estimated or those established in future studies and estimates. At the East Boulder Mine, the company has experienced a decrease in total cash costs per PGM ounce from $381 in 2002 to $343 in 2003.

ORE RESERVES ARE VERY DIFFICULT TO ESTIMATE AND ORE RESERVE ESTIMATES MAY REQUIRE ADJUSTMENT IN THE FUTURE; CHANGES IN ORE GRADES COULD MATERIALLY IMPACT THE COMPANY’S PRODUCTION AND REPORTED RESULTS

     Ore reserve estimates are necessarily imprecise and depend to some extent on statistical inferences drawn from limited drilling,

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which may prove unreliable. Ore reserve estimates are expressions of professional judgment based on knowledge, experience and industry practice. The company cannot be certain that its estimated ore reserves are accurate, and future production experience could differ materially from such estimates. Should the company encounter mineralization or formations at any of its mines or projects different from those predicted by drilling, sampling and similar examinations, reserve estimates may have to be adjusted and mining plans may have to be altered in a way that might adversely affect its operations. Declines in the market prices of platinum group metals may render the mining of some or all of the company’s ore reserves uneconomic. The grade of ore may vary significantly from time to time and between the Stillwater Mine and the East Boulder Mine, as with any mining operation. The company cannot give any assurances that any particular level of metal may be recovered from the ore reserves. Moreover, short-term factors relating to the ore reserves, such as the need for additional development of the orebody or the processing of new or different ore types or grades, may impair the company’s profitability in any particular accounting period.

AN EXTENDED PERIOD OF LOW PGM PRICES COULD RESULT IN A REDUCTION OF ORE RESERVES AND A FURTHER ASSET IMPAIRMENT WRITEDOWN

     The company follows Statement of Financial Accounting Standard (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The company reviews and evaluates its long-lived assets for impairment when events and changes in circumstances indicate that the related carrying amounts of its assets may not be recoverable. Impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than carrying amount of the asset. Future cash flows include estimates of recoverable ounces, PGM prices (considering current and historical prices, long-term sales contracts prices, price trends and related factors), production levels and capital and reclamation expenditures, all based on life of mine plans and projections.

     If impairment exists then a calculation of fair market value must be made. If fair market value is lower than the carrying value of the assets, then the carrying value must be rewritten down to the fair market value.

     An event in the future that might require management to perform an impairment calculation might be prolonged period of low PGM prices. In addition, prolonged low PGM prices might impact adversely the determination of ore reserves which would require an impairment calculation. Assumptions underlying future cash flows are subject to risks and uncertainties. Any differences between significant assumptions and market conditions such as PGM prices, lower than expected recoverable ounces, and/or the company’s operating performance could have a material effect on the company’s determination of ore reserves, or its ability to recover the carrying amounts of its long lived assets resulting in potential impairment charges.

USERS OF PGMS MAY SUBSTITUTE OTHER MATERIALS FOR PALLADIUM AND PLATINUM

     High PGM prices may lead users of PGMs to substitute other materials for palladium and platinum. The automobile, electronics and dental industries are the three largest sources of palladium demand. In response to supply questions and high market prices for palladium, some automobile manufacturers have sought alternatives to palladium and may reduce their PGM purchases. There has been some substitution of other metals for palladium in the automobile, electronics and dental applications. Substitution in all of these industries may increase significantly if the PGM market prices rise or if supply becomes unreliable. Significant substitution for any reason, in the absence of alternative uses for palladium being identified, could result in a material PGM price decrease, which would negatively impact the company’s revenues.

IF THE COMPANY IS UNABLE TO OBTAIN SURETY BONDS TO COLLATERALIZE ITS RECLAMATION LIABILITIES, OPERATING PERMITS MAY BE IMPACTED

     The company is required to post surety bonds, letters of credit, cash or other acceptable financial instruments to guarantee performance of reclamation activities at the Stillwater and East Boulder Mines. As a result of a significant reduction of liquidity in the surety bond market, the total bonding capacity of the U.S. insurance industry has been severely reduced. In addition, the State of Montana has been requiring higher bonding levels at mining operations throughout the state. The bonded amount at the East Boulder Mine was $11.5 million during 2003. The Stillwater Mine currently posts a bond of $9.2 million which may require a substantial increase. The company expects that the Stillwater Mine bond will be reviewed and adjusted by the Agencies during 2004, and in all likelihood, be increased. In the event that increased bonding requirements are imposed and the company is unable to obtain the required bonds, the ability to operate under existing operating permits could be adversely affected.

MINING RISKS AND POTENTIAL INADEQUACY OF INSURANCE COVERAGE — THE COMPANY’S BUSINESS IS SUBJECT TO SIGNIFICANT RISKS THAT MAY NOT BE COVERED BY INSURANCE

     Underground mining and milling, smelting and refining operations involve a number of risks and hazards, including:

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•		unusual and unexpected rock formations affecting ore or wall rock characteristics,
•		ground or slope failures,
•		cave-ins, ground water influx and other mining or ground-related problems,
•		environmental hazards,
•		industrial accidents,
•		organized labor disputes or work slow-downs,
•		metallurgical and other processing, smelting or refining problems,
•		wild fires, flooding and periodic interruptions due to inclement or hazardous weather conditions or other acts of God,
•		mechanical equipment failure and facility performance problems, and
•		the availability of critical materials and equipment.

     Such risks could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, delays in mining, monetary losses and possible legal liability. Fatalities have occurred at the company’s mine since operations began in 1986. Industrial accidents could have a material adverse effect on its business and operations. The company cannot be certain that its insurance will cover certain of the risks associated with mining or that it will be able to maintain insurance to cover these risks at economically feasible premiums. Furthermore, the cost of insurance has dramatically increased as a result of worldwide economic conditions. The company might also become subject to liability for environmental damage or other hazards which it cannot insure against or which it may elect not to insure against because of premium costs or other reasons. Losses from such events could have a negative impact on the company’s business, financial condition and results of operations.

HEDGING AND LONG-TERM SALES CONTRACTS COULD LIMIT THE REALIZATION OF HIGHER METAL PRICES

     The company enters into hedging contracts from time to time in an effort to reduce the negative effect of price changes on its cash flow. These hedging activities typically consist of contracts that require the company to deliver specific quantities of metal, or to financially settle the obligation in the future at specific prices, the sale of call options and the purchase of put options. See “Business and Properties — Current Operations - Sales and Hedging Activities” for a discussion of the company’s hedge positions. While hedging transactions are intended to reduce the negative effects of price decreases, they can also prevent the company from benefiting from price increases. When PGM prices are above the price for which future production has been sold, the company would have an opportunity loss.

     The company has entered into long-term sales contracts that provide a floor price and a ceiling price for sales of a portion of its production. To the extent commodity prices exceed the ceiling price of the sales contracts, the company will not receive full market price at the time of sale. For a description of these contracts, see “Business and Properties—Current Operations—PGM Sales and Hedging Activities”.

CHANGES TO REGULATIONS AND COMPLIANCE WITH REGULATIONS COULD INCREASE COSTS AND CAUSE DELAYS

     The company’s business is subject to extensive federal, state and local environmental controls and regulations, including regulations associated with the implementation of the Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, Metals Mines Reclamation Act and numerous permit stipulations as documented in the Record of Decision for each operating entity. These laws are continually changing and, as a general matter, are becoming more restrictive. Generally, compliance with these regulations requires the company to obtain permits issued by Federal, State and Local regulatory agencies. 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. Nonrenewal of permits or the imposition of additional conditions could prohibit the company’s ability to conduct its operations. See “Business and Properties — Regulatory and Environmental Matters”.

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     Compliance with existing and future environmental laws and regulations may require additional control measures and expenditures which the company cannot predict. Environmental compliance requirements for new mines 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. Expansion may require new environmental permitting at the Stillwater Mine and mining and processing facilities at the East Boulder Mine. Private parties may pursue legal challenges of the company’s permits. See “Business and Properties — Regulatory and Environmental Matters”.

     The company’s activities are also subject to extensive federal, state and local laws and regulations governing matters relating to mine safety, occupational health, labor standards, prospecting, exploration, production, exports, smelting and refining operations and taxes. Compliance with these and other laws and regulations, including new requirements implemented under guidance of the Department of Homeland Security, could require additional capital outlays.

FURTHER AMENDMENTS OR WAIVERS OF THE COMPANY’S CREDIT AGREEMENT MAY BE NECESSARY AND MAY NOT BE OBTAINED

     The company’s agreement with a syndicate of financial institutions provides a credit facility which was used to finance a portion of the expansion plan and contains covenants relating to the accomplishment of specific production objectives, capital expenditures and financial targets. The credit facility consists of term loans and a revolving credit facility. The company has obtained amendments or waivers of various covenants on seven occasions. If significant operational problems are incurred, the company may breach one of its covenants and require a further amendment. Under such circumstances, if necessary amendments are not granted, the loans will be in default and immediately due and payable. For further information on the credit facility, see “Business and Properties – Current Operations - Credit Agreement.”

LIMITED AVAILABILITY OF ADDITIONAL MINING PERSONNEL AND UNCERTAINTY OF LABOR RELATIONS MAY AFFECT THE COMPANY’S ABILITY TO ACHIEVE ITS PRODUCTION TARGETS

     The company’s operations depend significantly on the availability of qualified miners. Historically, the company has experienced high turnover with respect to its miners. In addition, the company must compete for individuals skilled in the operation and development of mining properties. The number of such persons is limited, and significant competition exists to obtain their skills. The company cannot be certain that it will be able to maintain an adequate supply of miners and other personnel or that its labor expenses will not increase as a result of a shortage in supply of such workers. The company currently employs 427 miners. Failure to maintain an adequate supply of miners could limit the company’s ability to meet its contractual requirements. The company had approximately 1,540 employees at December 31, 2003, of which about 800 located at the Stillwater Mine and 100 at the Columbus facilities, which are covered by a collective bargaining agreement with PACE Local 8-001, expiring June 30, 2004. On July 1, 2002, employees at the East Boulder Mine became covered by a collective bargaining agreement with PACE Local 8-001, expiring June 30, 2005. About 290 employees were covered under this agreement at December 31, 2003. In the event the company’s employees were to engage in a strike or other work stoppage, it could result in a significant disruption of the company’s operations and higher ongoing labor costs.

UNCERTAINTY OF TITLE TO PROPERTIES — THE VALIDITY OF UNPATENTED MINING CLAIMS IS SUBJECT TO TITLE RISK

     The company has a number of unpatented mining claims. See “Business and Properties — Current Operations — Title and Royalties”. The validity of unpatented mining claims on public lands, which constitute most of the company’s property holdings, is often uncertain and possessory rights of claimants subjected to challenge. Unpatented mining claims may be located on lands open to appropriation of mineral rights, 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 the vulnerability to challenges of third parties or the federal government. The validity of an unpatented mining claim or millsite, in terms of its location and its maintenance, depends on strict compliance with a complex body of federal and state statutory and decisional law and, for unpatented mining claims, the existence of a discovery of valuable minerals. In addition, few public records exist to definitively control the issues of validity and ownership of unpatented mining claims or millsites. While the company pays annual maintenance fees and has obtained mineral title reports and legal opinions for some of the unpatented mining claims or millsites in accordance with the mining laws and what the company believes is standard industry practice, the company cannot be certain that the mining laws will not be changed and the company’s possessory rights to any of its unpatented claims may not be deemed defective and challenged.

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THE COMPLEXITY OF PROCESSING PLATINUM GROUP METALS POSES OPERATIONAL AND ENVIRONMENTAL RISKS IN ADDITION TO TYPICAL MINING RISKS

     Producers of platinum group metals are required to conduct processing procedures and construct and operate additional facilities beyond those for gold and silver producers. In addition to concentration facilities at the mine site, the company operates its own smelting and refining facilities in Columbus, Montana to produce a filter cake that is shipped for final refining by a third party refiner. The operations of a smelter and refinery by the company require environmental steps and operational expertise not required of most other precious metals producers. This additional complexity of operations poses additional operational and environmental risks, such as solution spills, the release of sulfur dioxide from the storage vessels and product spills in transportation.

ITEM 3

LEGAL PROCEEDINGS

     The company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the company’s consolidated financial position, results of operations or liquidity.

STOCKHOLDER SUITS

     In 2002, seven lawsuits were filed against the company and certain senior officers in United States District Court, Southern District of New York, purportedly on behalf of a class of all persons who purchased or otherwise acquired common stock of the company from April 20, 2001 through and including April 1, 2002. They assert claims against the company and certain of its officers under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Plaintiffs challenge the accuracy of certain public disclosures made by the company regarding its financial performance and, in particular, its accounting for probable ore reserves. In September 2002, an amended complaint was filed which consolidated the cases and lead counsel was appointed to represent the plaintiffs. In October 2002, defendants moved to dismiss the complaint and to transfer the case to federal district court in Montana. The motion to transfer the case was granted May 9, 2003, and the case is now pending in the federal district court in Montana. On January 30, 2004, the court held a status conference at which time the plaintiffs were given until March 30, 2004 to file an amended complaint. The court also set the following briefing schedule for any motion to dismiss: defendants’ motion to dismiss must be filed on or before May 14, 2004, plaintiffs’ opposition must be filed on or before June 14, 2004 and defendants’ reply must be filed on or before June 28, 2004. The court anticipates setting a hearing date on the motion to dismiss in July 2004.

     On June 24, 2002, a stockholder derivative lawsuit was filed against the company and its directors in state court in Delaware. It arises out of allegations similar to the class actions and seeks damages allegedly on behalf of the stockholders of Stillwater for breach of fiduciary duties by the directors. The parties have agreed to suspend activity in this matter pending the outcome of the motion to dismiss in the above referenced class action suit.

     The company considers the lawsuits without merit and intends to vigorously defend itself in both of these actions.

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ITEM 4

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The company held its annual meeting of stockholders on October 23, 2003. The following table sets forth the proposals presented at the annual meeting and the votes cast in connection with each proposal. Further information regarding these proposals was included in the Company’s proxy statement filed with the Securities and Exchange Commission on September 24, 2003 and the exhibits thereto:

All proposals were approved at the meeting. The following persons were re-elected to the company’s board of directors: Craig L. Fuller, Patrick M. James, Steven S. Lucas, Joseph P. Mazurek, Francis R. McAllister, Sheryl K. Pressler, Donald W. Riegle, Todd D. Schafer and Jack E. Thompson

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ITEM 4A

EXECUTIVE OFFICERS OF REGISTRANT

     Set forth below is certain information concerning the individuals who were executive officers of the company as of December 31, 2003.

(1)

Mr. Wing’s appointment is effective on March 22, 2004.

     The following are brief biographies of the company’s executive officers and directors:

EXECUTIVE OFFICERS

     Francis R. McAllister (age 61) was appointed Chairman of the Board and Chief Executive Officer of the company effective February 12, 2001. Mr. McAllister was appointed a Director of the company on January 9, 2001. Prior to his appointment to the Board, Mr. McAllister was with ASARCO Incorporated from 1966 to 1999, most recently serving as Chairman and Chief Executive Officer in 1999, Chief Operating Officer from 1998 to 1999, Executive Vice President — Copper Operations from 1993 to 1998, Chief Financial Officer from 1982 to 1993 and in various professional and management positions from 1966 to 1982. He currently serves on the Board of Directors of Cleveland Cliffs, Incorporated, an iron ore mining company. Mr. McAllister received his MBA from New York University, his Bachelor of Science — Finance from the University of Utah, and attended the Advanced Management Program at Harvard Business School.

     Stephen A. Lang (age 48) became the Company’s Executive Vice President and Chief Operating Officer effective September 2, 2003. Mr. Lang was employed with Barrick Gold Corporation from 2001 to 2003 as Vice President and General Manager of Barrick Gold’s Goldstrike/ Meikle operation. Prior to joining Barrick Gold, Mr. Lang served as Vice President of Engineering and Project Development of Rio Algom, Limited in Santiago, Chile from 1999 to 2001. From 1996 to 1999, Mr. Lang served as Vice President and General Manager of Kinross Gold Corporation/ Amax Gold Corporation’s Fort Knox Mine in Fairbanks, Alaska. From 1981 to 1996, he held various positions with Santa Fe Pacific Gold Minerals Corporation, including General Manager of the Twin Creeks Mine in Golconda, Nevada. Mr. Lang earned a Bachelor of Science in Mining Engineering from the University of Missouri-Rolla and a Master Degree in Mining Engineering from the University of Missouri-Rolla.

     John R. Stark (age 51) was appointed Vice President, Human Resources on September 21, 1999 and was subsequently appointed Secretary and Corporate Counsel on May 29, 2001 and July 17, 2001, respectively. Mr. Stark has a varied background in corporate administrations and human resources. He was previously with Molycorp, Inc. since 1996 as Manager of Sales and Administration; Western Mobile, Inc., an international construction material supplier, from 1992 to 1996; and with AMAX Inc. for 13 years until 1992. Mr. Stark received his Juris Doctor degree from the University of Denver School of Law and holds a Bachelor of Arts degree in economics from the University of Montana.

     Terrell I. Ackerman (age 50) is currently Vice President, Planning and Process Operations. Mr. Ackerman joined the company in March 2000 as Director of Corporate Planning after 2 years as an independent consultant. During 1998 and 1999 Mr. Ackerman conducted feasibility studies, operational and mine planning reviews for various underground operations. Prior to this time, Mr. Ackerman was VP and General Manager of BHP Copper’s San Manuel Operation in Arizona. Mr. Ackerman held increasing roles of accountability for Magma Copper Company starting as an underground engineer in training in 1976. Mr. Ackerman received a Bachelor of Science degree in Mine Engineering from the University of Idaho College of Mines.

     Gregory A. Wing (age 54) will become the Company’s Vice President and Chief Financial Officer effective March 22, 2004. Mr. Wing was with Black Beauty Coal Company as Vice President of Finance and Chief Financial Officer from 1995 through 2003. Prior to joining Black Beauty, Mr. Wing was with Pittsburg and Midway Coal Mining Company a subsidiary of Chevron Corporation as Manager of Financial Planning and Analysis in Englewood, CO. From 1986 to 1989, he was employed with Chevron Corporation as Senior Analyst in Corporation Planning, and from 1980 to 1986, he was with Arabian American Oil Company. Mr. Wing earned a Bachelor of Arts in Physics from the University of California at Berkeley and a M.B.A. in Accounting and Finance from the University of California at Berkeley.

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PART II

ITEM 5

MARKET FOR REGISTRANT’S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

     On January 31, 2002, the company completed a $60 million private placement of its common stock involving approximately 4.3 million shares or approximately 10% of the outstanding shares after such issuance. The Company filed a registration statement for the resale of such shares, which was declared effective as of June 7, 2002.

     The company’s common shares are traded on the New York Stock Exchange (NYSE) under the trading symbol “SWC.” For the period from January 1, 2002 through December 31, 2003, the high and low sales prices for the company’s common stock for each quarter as reported by the NYSE were:

     STOCKHOLDERS. As of March 9, 2004, the company had 472 stockholders of record.

     DIVIDENDS. The company has never paid any dividends on its common stock and expects for the foreseeable future to use all of its cash flow 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. Covenants in the company’s credit facility and its exempt facility revenue bond indenture significantly restrict the payment of dividends on common stock.

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ITEM 6

SELECTED FINANCIAL AND OPERATING DATA

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