UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

OR

Commission file number 1-13053

STILLWATER MINING COMPANY

(406) 322-8700

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

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

At October 28, 2004 the company had outstanding 90,362,209 shares of common stock, par value $0.01 per share.

STILLWATER MINING COMPANY

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2004

INDEX

2

PART 1 — FINANCIAL INFORMATION

Item 1. Financial Statements

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

3

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

See notes to consolidated financial statements

4

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

See notes to consolidated financial statements.

5

Stillwater Mining Company
Notes to Consolidated Financial Statements
(Unaudited)

Note 1 — General

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

Note 2 – Stock-Based Compensation Costs

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

(in thousands)

6

Note 3 – Comprehensive Income

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

     The net of tax balance in accumulated other comprehensive loss at September 30, 2004 and December 31, 2003 was $3.0 million and $0.8 million, respectively.

     The company had commodity instruments relating to fixed forward metal sales and financially settled forwards outstanding during the first nine-months of 2004. The net unrealized loss on these instruments, $3.0 million at September 30, 2004, will be reflected in other comprehensive income until these instruments are settled. All commodity instruments outstanding at September 30, 2004 are expected to be settled within the next twenty-four months (see Note 8).

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

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

(in thousands)

Note 4 — Inventories

     Inventories consisted of the following:

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

Note 5 – Long-Term Debt

Credit Facility

     On August 3, 2004, the Company entered into a new $180 million credit facility with a syndicate of financial institutions that replaced the Company’s previous $250 million credit facility. The new credit facility consists of a $140 million six-year term loan facility maturing July 30, 2010, bearing interest at a variable rate plus a margin (London Interbank Offer Rate (LIBOR) plus 325 basis points, or about 5.13% at September 30, 2004) and a $40

7

million five-year revolving credit facility bearing interest when drawn at a variable rate plus a margin (LIBOR plus 300 basis points, or 4.88% at September 30, 2004) expiring July 31, 2009. The revolving credit facility includes a letter of credit facility; undrawn letters of credit issued under this facility carry an annual fee of 3.13%. The remaining unused portion of the revolving credit facility bears an annual commitment fee of 0.75%. Amortization of the term loan facility commenced on August 31, 2004.

     As of September 30, 2004, the company has $139.7 million outstanding under the term loan facility. During 2004, the company obtained a letter of credit in the amount of $7.5 million as surety for its long-term reclamation obligation at East Boulder Mine, which reduces amounts available under the revolving credit facility to $32.5 million at September 30, 2004.

     The new credit facility requires as prepayments 50% of the company’s annual excess cash flow, plus any proceeds from asset sales and the issuance of debt or equity securities, subject to specified exceptions. Such prepayments are to be applied first against the term loan facility balance, and once that is reduced to zero, against any outstanding revolving credit facility balance. Proceeds of the term loan facility were used to refinance the company’s previous credit facility and for general corporate purposes. Proceeds of the new revolving credit facility may be used for general corporate and working capital needs. The company’s term loan facility allows the company to choose between LIBOR loans of various maturities plus a spread of 3.25% or alternate base rate loans plus a spread of 2.25%. The alternate base rate is a rate determined by the administrative agent under the terms of the credit facility, and has generally been equal to the prevailing bank prime loan rate, which is 4.75% at September 30, 2004. The alternate base rate applies only to that portion of the term loan facility in any period for which the company has not elected to use LIBOR contracts. Substantially all the property and assets of the company are pledged as security for the new credit facility.

     In accordance with the terms of the new credit facility, the company is required to offer 25% of the net proceeds from sales of palladium received in the Norilsk Nickel transaction to prepay its term loan facility. Accordingly, $15.4 million of the long-term debt has been classified as a current liability representing that portion of the term loan facility expected to be prepaid under this arrangement during the next twelve months. The company’s new credit facility contains a provision that exempts the company from offering prepayments related to the sales of palladium received in the Norilsk Nickel transaction until a certain cumulative level of palladium sales is met. As of September 30, 2004, the company has not offered, and has not been required to offer any prepayments on the new credit facility in connection with the sales of palladium received in the Norilsk Nickel transaction.

     Covenants in the new credit facility include restrictions on the company’s ability to: (1) incur additional indebtedness; (2) pay dividends or redeem capital stock; (3) grant liens; (4) make investments, acquisitions, dispositions or enter into mergers; (5) enter into transactions with affiliates; (6) make capital expenditures; (7) refinance or prepay subordinated debt; (8) change the nature of the company’s business or cease operations at the principal operating properties; and (9) enter into commodity hedging. The company is also subject to financial covenants including a debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio, a debt service coverage ratio and a minimum liquidity requirement.

     Events of default under the terms of the new credit facility include: (1) a cross-default linked to other indebtedness of the company; (2) any material modification to the life-of-mine plans; (3) a change of control of the company subject to exceptions, and (4) any material breach by a counterparty to a material sales contract or any termination of such a sales contract. The company is in compliance with its covenants under the new credit facility at September 30, 2004.

8

     The following is a schedule by year of required principal payments to be made in quarterly installments on the amounts outstanding under the term facility at December 31, 2004 without regard to the prepayments required to be offered from sales of palladium received the Norilsk Nickel transaction or out of excess cash flow:

Note 6 – Earnings per Share

     Outstanding options to purchase 1,668,053 and 2,726,710 shares of common stock were excluded from the computation of diluted earnings per share for the three-month periods ended September 30, 2004 and 2003, respectively, because the effect would have been antidilutive using the treasury stock method. All stock options were antidilutive at September 30, 2003 because the company reported a net loss and inclusion of any of these options would have reduced the net loss per share amounts. At September 30, 2004 certain stock options were excluded as antidilutive for purposes of calculating earnings per share using the treasury stock method because the exercise price of the options was greater than the average market price of the common shares during the quarter.

     The effect of outstanding stock options on diluted weighted average shares outstanding was an increase of 68,674 and 0 shares for the three-month periods ended September 30, 2004 and 2003, respectively.

     Similarly, outstanding options to purchase 1,671,381 and 2,726,710 shares of common stock were excluded from the computation of diluted earnings per share for the nine-month periods ended September 30, 2004 and 2003, respectively. All stock options were antidilutive at September 30, 2003 because the company reported a net loss and inclusion of any of these options would have reduced the net loss per share amounts. At September 30, 2004 certain stock options were excluded as antidilutive for purposes of calculating earnings per share using the treasury stock method because the exercise price of the options was greater than the average market price of the common shares during the nine-month period.

     The effect of outstanding stock options on diluted weighted average shares outstanding was an increase of 65,346 and 0 shares for the nine-month periods ended September 30, 2004 and 2003, respectively.

     On April 29, 2004, 6,816 shares of restricted stock were granted to the non-management directors serving on the company’s Board of Directors. These shares of restricted stock will vest on October 29, 2004. On May 7, 2004, 348,170 shares of restricted stock were granted to members of management. These shares of restricted stock are scheduled to vest on May 7, 2007. During 2002, the company granted 135,119 shares of restricted stock to certain officers and employees which shares vested during 2003 and 2002. The effect of outstanding restricted stock on diluted weighted average shares outstanding was an increase of 354,986 and 0 shares for the three-month periods ended September 30, 2004 and 2003, respectively. The effect of outstanding restricted stock on diluted weighted average shares outstanding was an increase of 190,648 and 3,098 shares for the nine-month periods ending September 30, 2004 and 2003, respectively. Amortization expense for restricted stock compensation of $0.4 million and $0 was recorded for the three-month periods ended September 30, 2004 and 2003, respectively. Amortization expense for restricted stock compensation of $0.7 million and $0.7 million was recorded for the nine-month periods ended September 30, 2004 and 2003.

Note 7 – Long-Term Sales Contracts

     During 1998, the company entered into three platinum group metals (PGM) supply contracts with its customers that contain guaranteed floor and ceiling prices for a portion of the metal delivered. The company has since amended these contracts to extend the terms and to modify the pricing mechanisms. One of these contracts applies to the

9

company’s production through December 2010, one to the company’s production through December 2006 and the third is expected to be fulfilled in 2007. Under these supply contracts, the company has committed 80% to 100% of its mined palladium production and 70% to 80% of its mined platinum production annually through 2010. Metal sales are priced at a small volume discount to market, subject to floor and ceiling prices. The company’s remaining production is not committed under these contracts and remains available for sale at prevailing market prices.

     The following table summarizes the floor and ceiling price structures for the three PGM supply contracts related to mine production. The first two columns for each commodity represent the percent of total mine production that is subject to floor prices and the weighted average floor price per ounce. The second two columns for each commodity represent the percent of total mine production that is subject to ceiling prices and the weighted average ceiling price per ounce.

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

     The company entered into sales agreements during the first quarter of 2004 to sell the palladium received in the transaction with Norilsk Nickel. Under these agreements, the company will sell approximately 36,500 ounces of palladium per month, ending in the first quarter of 2006, at a slight volume discount to market prices. Separately, under one of these agreements, the company also will sell 3,250 ounces of platinum and 1,900 ounces of rhodium per month, also at a slight volume discount to market price. At its discretion, the company may elect to purchase metal in the open market to meet these sales commitments rather than supplying the metal from inventory. The company has supplied a portion of its platinum and rhodium commitments through open market purchases.

Note 8 – Financial Instruments

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

Commodity Derivatives

     The company enters into fixed forwards and financially settled forwards that are accounted for as cash-flow hedges to hedge the price risk in its secondary recycling activity and mine production. In the fixed forward

10

transactions, metals in the recycled material are sold forward at the time of receipt and delivered against the fixed forward contracts when the ounces are recovered. Financially settled forwards may be used as a mechanism to hedge against fluctuations in metal prices associated with future production. Under financially settled forwards, at each settlement date the company receives the difference between the forward price and the market price if the market price is below the forward price, and the company pays the difference between the forward price and the market price if the market price is above the forward price. The company’s financially settled forwards are settled in cash at maturity.

     As of September 30, 2004, the company was party to financially settled forward agreements covering approximately half of its anticipated platinum sales out of mine production from October of 2004 through September of 2006. These transactions are designed to hedge a total of 150,800 ounces of platinum sales from mine production for the next twenty-four months at an overall average price of approximately $806 per ounce.

     Until these contracts mature, any net change in the value of the hedging instrument is reflected in stockholders equity in accumulated other comprehensive income (AOCI). A net unrealized loss of $3.0 million on these hedging instruments existing at September 30, 2004, is reflected in AOCI. When these instruments are settled, any remaining gain or loss on the cash flow hedges will be offset by losses or gains on the future metal sales and will be recognized at that time in operating income. All commodity instruments outstanding at September 30, 2004 are expected to be settled within the next twenty-four months.

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

Mine Production:

Financially Settled Forwards

Autocatalyst Recycling:

Fixed Forwards

Financially Settled Forwards

Interest Rate Derivatives

     The company entered into two identical interest rate swap agreements fixing the interest rate on $100.0 million of the company’s debt, which were effective March 4, 2002 and matured on March 4, 2004. These interest rate swap agreements qualified as a cash flow hedge and were considered to be highly effective since the change in the value of the interest rate swap offset changes in the future cash flows related to interest payments on the company’s debt. During the nine-month periods ended September 30, 2004 and 2003, hedging losses of $0.3 million and $1.8 million, respectively, were recognized as additional interest expense.

11

Note 9 – Income Taxes

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

Note 10 – Subsequent Events

     Subsequent to the end of the third quarter the company has entered into financially settled forward contracts covering an additional 9,000 ounces of platinum for the period of February 2006 through October 2006 at an overall average price of about $823 per ounce.

12

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

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

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

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

Overview

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

     In 1998, the company entered into three long-term sales contracts that commit most of the mines’ production through 2010. These contracts have floor prices (see Note 7) that, in the recent low price environment for palladium, have been of significant benefit in allowing the company to continue operating profitably. Unless extended or modified, as to which there can be no assurance, these contracts will all expire by 2010. At that time, the company could be fully exposed to market prices and the absence of these contracts after 2010 could negatively affect the company’s operating results.

     As of September 30, 2004, the company had locked in platinum prices in the forward market by entering into financially settled forward transactions covering approximately half of the company’s anticipated platinum mine production for the period from October of 2004 through September of 2006. The company believes that the current wide spread between palladium and platinum prices may narrow if consumers switch from using platinum to palladium, driven by the lower price of palladium, for existing and new applications. The company believes the price of platinum could weaken if this switching occurs and has locked in the price on a portion of future sales. The second and third quarter 2004 transactions lock in the price for 150,800 ounces of platinum sales from mine

13

production for the next twenty-four months at an overall average price of about $806 per ounce. Subsequent to the end of the third quarter the company has entered into financially settled forward contracts covering an additional 9,000 ounces of platinum for the period of February 2006 through October 2006 at an overall price of about $823 per ounce. The hedges are expected to modestly reduce the overall volatility of the company’s earnings and cash flow.

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

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

     The company was obligated by its banks to utilize $50.0 million of the cash proceeds from the Norilsk Nickel transaction to pay down bank debt. During the first quarter of 2004, the company entered into contracts to sell the 877,169 ounces of palladium received from Norilsk Nickel to DaimlerChrysler, Mitsubishi and Engelhard Corporation. The palladium is being sold in equal monthly quantities over the next two years at a slight volume discount to market prices at the time of sale. During 2004, the company has sold approximately 266,000 ounces of this palladium, leaving approximately 611,000 ounces remaining in inventory at September 30, 2004.

     On August 3, 2004, the company completed the refinancing of its previous credit facility. The new credit facility consists of a $140 million six-year term loan facility maturing July 30, 2010, bearing interest at a variable rate plus a margin (LIBOR plus 325 basis points, or approximately 5.13% at September 30, 2004) and a $40 million five-year revolving credit facility expiring July 31, 2009. The revolving credit facility, when drawn, bears interest at a variable rate (LIBOR) plus a margin of 300 basis points. Proceeds of the new term loan facility were applied to pay off the previous credit facility and the remainder for general corporate purposes. The $40 million revolving credit facility includes a letter of credit facility that has been partially utilized to secure a $7.5 million letter of credit provided as surety for certain of the company’s reclamation obligations. The letter of credit carries an annual fee of 3.13%. The remaining unused portion of the revolving credit facility, $32.5 million at September 30,2004, carries an annual commitment fee of 0.75%.

     The new credit facility contains customary financial and other covenants; however, unlike the previous credit facility it does not include a minimum production covenant. For the first and second quarters of 2004, the company secured waivers of the minimum production covenant from the lenders under the previous credit facility. The new credit facility requires that the company offer 25% of the proceeds from sales of the palladium inventory received in the Norilsk Nickel transaction as prepayment against the new credit facility once a certain cumulative level of such sales is reached. As of September 30, 2004, the company has not offered, and has not yet been required to offer any prepayments on its new credit facility related to sales of palladium received in the Norilsk Nickel transaction. The company projects that these prepayments will start in December 2004. The new credit facility also requires that 50% of the company’s annual excess cash flow (as defined in the new credit facility) be offered as prepayments against the new credit facility.

     The company’s primary focus will remain on profitability. Reducing production costs will continue to be a priority. One opportunity to reduce unit production costs may be to increase the production rate at the East Boulder mine. As previously disclosed, the company is gradually increasing production at East Boulder to 1,650 tons of ore

14

per day. While the company had planned to achieve this daily rate by the end of 2004, several issues have been identified which will extend the ramp-up period into 2006. The issues have centered on recognition that the developed state of the mine must be further advanced in order to achieve and maintain the higher production level. The work on improving the developed state will include:

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

     Ore production levels at East Boulder have averaged just over 1,315 tons of ore per day so far this year, up slightly from approximately 1,230 tons of ore per day for the first nine-months of 2003. Full utilization of equipment at the mine will not be attained until after the completion of two new ventilation shafts, which are expected in late 2005 or early 2006.

     The company had also planned to increase production rates at the Stillwater Mine modestly during 2004. The loss of production during the strike and about a 5% reduction in mill head grade realized during the third quarter have eliminated this possibility in 2004. Production and mill head grade at Stillwater have since returned to normal levels and we expect fourth quarter mine production to improve. However, conversion of probable ore reserves to proven at the Stillwater Mine during 2004 to date is below our historical experience and will likely hold down production increases in the near term that might otherwise have been possible. This also may result in lowering the proven portion of the Stillwater Mine ore reserves at year-end 2004.

     The company’s financial results for the nine-months ended September 30, 2004 improved compared to the same period in 2003. Earnings for the first nine months of 2004 totaled $36.6 million, compared to a loss of $22.6 million for the first nine-months of 2003. This improvement is largely due to increased realized prices and additional sales volume of PGMs during the first nine-months of 2004 as compared to the same period in 2003. The increase in sales volumes has resulted from sales in 2004 of palladium received in the Norilsk Nickel stock purchase transaction and from a new contract for secondary processing (i.e. recycling) of catalysts. The 2003 loss also included a one-time deferred tax adjustment related to the Norilsk Nickel transaction that reduced earnings by $15.2 million. Cash flow from operations increased to $100.3 million in the first nine months of 2004, up from $36.8 million in the first nine-months of 2003.

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

     The labor agreement covering the company’s union employees at the Stillwater Mine and the Columbus metal processing facilities expired at noon on July 1, 2004. The company and the union reached tentative agreement on a new labor agreement just prior to expiration and extended the contract expiration until noon on July 12, 2004, in order to allow time for the union membership to vote on the contract. On July 11, 2004, the union leadership notified the company that a vote of their membership had rejected the proposed agreement, and accordingly the bargaining unit went on strike effective at noon on July 12, 2004. On July 19, 2004, the members of the union voted to approve a three-year contract, which provides for a 3% annual salary increase and a contract renewal cash bonus. Employees returned to work beginning with the day shift on July 21, 2004. Costs directly associated with the union strike were approximately $2.4 million. In addition, the company estimates the production loss during the strike at approximately 15,000 ounces of PGMs. Despite the resolution of this strike, we cannot assure that we will not encounter additional strikes or other types of conflicts with labor unions or employees in the future. The labor agreement covering the company’s union employees at the East Boulder Mine is scheduled to expire on June 30, 2005.

15

Stillwater Mining Company
Key Factors
(Unaudited)

16

Stillwater Mining Company
Key Factors (continued)
(Unaudited)

(1)		Sub-grade tons milled includes reef waste material only. Total tons milled includes ore tons and sub-grade tons only.
(2)		Total cash costs for this purpose include costs of mining, processing and administrative expenses at the mine site (including mine site overhead, taxes other than income taxes, royalties, by-product credits from production and credits for secondary materials). For the purposes of reporting total cash cost per ounce statistics for the company’s mine operations, costs related to the secondary recycling of catalysts, offset by sales proceeds included in the company’s revenue, are reflected as an allocated credit to operating costs. Total production costs include total cash costs plus depreciation and amortization. Income taxes, corporate general and administrative expenses and interest income and expense are not included in either total cash costs or total production costs.
(3)		Total cash cost per ton milled and total cash cost per ounce represent Non-GAAP measurements that management regularly uses to monitor and evaluate the performance of its mining operations. Management believes that total cash costs per ounce and total cash costs per ton milled provide an indication of efficiency and productivity at each location and on a consolidated basis, as well as a meaningful basis for comparing results between the company’s mining operating properties. Total operating costs per ounce and per ton milled provide a measure similar to total cash cost per ounce and per ton milled, but exclude royalties and taxes (i.e. non-operating costs that tend to increase with rising PGM prices). Total production costs per ounce and per ton milled are a measure of total costs associated with each mill ton or ounce produced in any period, including depreciation, depletion and amortization costs. The company believes each of these cost measures provides management and investors with a useful indication of the company’s operating performance.

17

Stillwater Mining Company
Key Factors (continued)
(Unaudited)

(4)		The company’s average realized price represents revenues (include the effect of contractual floor and ceiling prices) and hedging gains and losses realized on commodity instruments, but excluding contract discounts, all divided by total ounces sold. The average market price represents the average monthly London PM Fix for palladium, platinum and combined prices and Johnson Matthey for rhodium prices for the actual months of the period.
(5)		Stillwater reports a combined average realized and market price of palladium and platinum based on actual sales of mine production ounces. Prior period amounts have been adjusted to conform with the current year presentation.

18

Stillwater Mining Company
Key Factors (continued)
(Unaudited)

Reconciliation of Non-GAAP measures to cost of revenues

     Total cash cost per ton milled and per ounce represent Non-GAAP measurements that management regularly uses to monitor and evaluate the performance of its mining operations. Management believes that total cash costs per ounce and per ton milled provide an indication of efficiency and productivity at each location and on a consolidated basis, as well as a meaningful basis for comparing results between the company’s mining properties. Total operating costs per ounce and per ton milled provide a measure similar to total cash cost per ounce and per ton milled, but exclude royalties and taxes – i.e., non-operating costs that tend to increase with rising PGM prices. Total production costs per ounce and per ton milled are a measure of total costs associated with each mill ton or ounce produced in any period, including depreciation, depletion and amortization costs. The company believes each of these cost measures provides management and investors with useful indicators of the company’s operating performance.