Stillwater Mining reports record quarterly earnings for the first quarter
[Highlights from] Stillwater Mining Company:
- Net income of $36.2 million or $0.34 per diluted share — nearly triple first quarter 2010 earnings
- Mined PGM production increased to 131,200 ounces
- Continued strong prices for palladium and platinum
Stillwater Mining Company today reported record net income for the 2011 first quarter of $36.2 million, or $0.34 per diluted share, on revenues of $170.1 million. This compares to first quarter of 2010 net income of $13.4 million, or $0.14 per diluted share, on revenues of $133.5 million.
The Company mines palladium and platinum from two underground mines located in south-central Montana. The mines produced a total of 131,200 ounces of palladium and platinum during the first quarter of 2011, a 1.7% improvement over the 129,000 ounce production in the first quarter of 2010 and an 8.3% increase from the 121,100 ounces produced during the fourth quarter of 2010.
Production at the Company's Stillwater Mine increased to 98,600 ounces, an improvement of 2.4% over the 96,300 ounces produced in the first quarter of 2010 and an increase of 13.9% over the 86,600 produced in the fourth quarter of 2010. Production at the Company's East Boulder Mine was 32,600 ounces in the first quarter of 2011, compared to 32,700 ounces in the same quarter of 2010 and a decrease of 5.5% from the 34,500 ounces produced in the fourth quarter of 2010.
Combined sales realizations increased during the first quarter of 2011 for mined palladium and platinum ounces, averaging $994 per ounce, 54.3% above the $644 per ounce realized in the first quarter of 2010, reflecting higher market prices for palladium and platinum and the absence of contract ceiling prices on platinum in 2011. The total quantity of mined palladium and platinum sold decreased to 115,100 ounces in the first quarter of 2011, compared to 135,100 ounces sold during the same period in 2010, as a result of sales timing differences between the two quarters.
Mine production costs increased during the first quarter of 2011 compared to the first quarter of 2010. Total cash costs per mined ounce (a non-GAAP measure defined below) averaged $437 in the first quarter of 2011, compared to total cash costs of $364 per ounce for the first quarter of 2010, and total cash costs of $432 per ounce in the fourth quarter of 2010. The Company's full year 2011 guidance for total cash costs per ounce is about $430, up from the $397 averaged in the 2010 period. The increase in 2011 reflects a rising cost trend in 2010 plus an expectation of continuing general inflation for wages and materials, staffing growth, and the effect of higher average sales realizations on royalties and taxes during 2011. This is partially offset by the slightly higher mine production expected in 2011. The $437 per ounce reported for the 2011 first quarter is a little higher than guidance, in part because of higher royalties and taxes than planned. This results from higher PGM prices than originally projected and also from timing differences in by-product and recycling credits. At this point, the Company is maintaining its total cash costs guidance of $430 per mined ounce for the full period of 2011.
The Stillwater Mine's total cash costs averaged $430 per ounce in the first quarter of 2011, compared to the $339 per ounce achieved in the first quarter of 2010. The East Boulder Mine's total cash costs averaged $459 per ounce during the first quarter of 2011, compared to $439 per ounce during first quarter of 2010. These per ounce increases reflect higher overall operating expenses, including the effect on royalties and taxes of higher PGM prices and increases in maintenance costs.
The Company's smelting and refining complex in Columbus, Montana processes concentrates from the two mines and recycles spent catalyst material received from third parties. A portion of the recycling material is purchased for the Company's own account and the balance is toll processed on behalf of others. In total, the Company processed recycling material containing 115,600 ounces of palladium, platinum and rhodium through the smelter and refinery during the first quarter of 2011, down slightly from the 119,300 ounces recycled during the first quarter of 2010. The Company's recycling segment had net income for the first quarter of 2011 of $2.9 million (including financing income), flat with the net income of $2.9 million reported for the first quarter of 2010.
Reviewing the Company's performance, Francis R. McAllister, Stillwater's Chairman and CEO, commented, "Overall, I am pleased with our performance during first quarter. Palladium prices did trend down during the first quarter, likely as a result of the uncertainty surrounding the effect of rising oil prices and the Japanese earthquake and tsunami damage to the outlook for automobile production. However, I believe these factors will have a relatively short term impact on PGM demand and we will continue to experience the benefits of robust PGM, and specifically palladium, market dynamics over the intermediate to longer term.
"Our total mined PGM production of 131,200 ounces was very strong and higher than expected for the quarter. The first quarter results might suggest mine output is ahead of our annual production guidance of 500,000 combined palladium and platinum ounces. The higher production levels were the result of more tons mined than anticipated, improved ore grades in the lower off shaft area of the Stillwater Mine and resumption of production from the east side of the mine, as we have discussed recently. While I am pleased with this improvement, it is not yet clear to what extent the first quarter production rates will be sustainable in the second and third quarters. Consequently, at least for now, we are maintaining our 2011 guidance estimate of 500,000 PGM ounces.
"The Company continues to make progress in the assessment phase of the recently announced Blitz and Graham Creek development projects, located adjacent to our existing mines. Depending on the quality of the resource, these projects provide an avenue for future extension or expansion of the Company's production. Some assumptions and estimates have been adjusted as we have completed further scoping on these projects. In particular, we have implemented changes to our approach on the Blitz project increasing its cost and scope but shortening initial project development time from 5 years to an estimated 3.5 years, while at the same time accelerating the required development and providing the necessary infrastructure to begin production. Although the Blitz project will share some facilities with the Stillwater Mine, it will be operated independently of the Stillwater operation. The cost is now authorized to be $180.0 million over about six years, compared with the previous spending projection of $68.0 million, which should be sufficient to carry the Blitz project into full production. Although this increase in total cost for the Blitz project is substantial, the effect on 2011 capital expenditures will be negligible, and we are not revising our earlier guidance of $120.0 million for 2011 capital spending at this time. I am particularly excited about these projects as they may represent a new platform for expanding the Company's production from the J-M Reef.
"The recycling business was strong during the first quarter, and we saw significant increases in recycling revenues compared to first quarter last year and fourth quarter of 2010. Recycling volumes fed to the furnace were down slightly early in the quarter but strengthened as the quarter progressed. As planned, during the first quarter of 2011 we commissioned our new state-of-the-art assay laboratory which utilizes an automated x-ray facility that provides very accurate results with much faster turnaround times than conventional fire assay methods.
"We continue to make progress with the Marathon PGM-Copper project. We have now assembled a strong management team for this operation headed by Stan Emms, a successful mining industry veteran. In addition, we recently announced a voluntary harmonization agreement with the Ontario Ministry of Environment to have the Marathon PGM-Copper project be subject to the Ontario Environmental Assessment Act (EAA). In the Province of Ontario, activities associated with mine development, are subject to the provincial EAA, while private mining development projects that trigger the Federal Environmental Assessment Act are reviewed by the federal government. Stillwater requested that a joint federal/provincial review panel be established in order to better coordinate all federal and provincial assessment activities related to the Marathon project. We are hopeful that through this voluntary harmonization agreement, the coordinated review will help to facilitate the approval process. In addition, this effort fits well with Stillwater's corporate culture of transparency and its proactive approach to environmentally and socially responsible development.
"I would also like to add that I am extremely pleased with the performance of our operations teams for many reasons but specifically for their emphasis on safety. Safety is a paramount focus for Stillwater. We truly believe that when we make safety our first priority, effective and efficient production will follow. Our teams continued to demonstrate this focus during the 2011 first quarter. The Company's safety incident rate (including contractors on site), measured in terms of reportable incidents per 200,000 hours worked, averaged a rate of 2.8 during first quarter of 2011. Even though we target an incident rate of zero, this is a very good result."
Cash Flow and Liquidity
At March 31, 2011, the Company's available cash and cash equivalents (excluding $35.1 million of restricted cash) totaled $43.3 million, up $24 million from December 31, 2010. However, including the Company's available-for-sale investments, total available cash and investments at March 31, 2011, was $218.9 million, up $10.5 million from $208.4 million at December 31, 2010. Net working capital — comprised of total current assets (including available cash and short-term investments), less current liabilities — increased over the quarter to $335.8 million at March 31, 2011, from $291.2 million at December 31, 2010. Recycling inventories increased year over year by $32.2 million due both to increased metal prices and inventory volume.
Net cash provided by operating activities (which includes changes in working capital) totaled $33.9 million in the first quarter of 2011, compared to $29.8 million of cash provided in the first quarter of 2010. The increase in cash from operations in the first quarter of 2011 is primarily due to the earnings benefit of higher PGM prices. Capital expenditures were $23.2 million in the first quarter of 2011, up from $10.7 million in the first quarter of 2010.
Outstanding debt at March 31, 2011, was $196.0 million, unchanged from December 31, 2010. The Company's total debt includes $166.5 million outstanding in the form of convertible debentures due in 2028 (with a date of first call in March 2013) and $29.5 million of Exempt Facility Revenue Bonds due in 2020.
First Quarter Results – Details
For the first quarter of 2011, the Company's mine production was 131,200 PGM ounces including 98,600 from the Stillwater Mine and 32,600 ounces at the East Boulder Mine. The production increase at the Stillwater Mine was attributable to several factors including more tons mined than anticipated, improved ore grades in the lower off shaft area and adding production from the east side of the mine.
Revenues for the first quarter of 2011 were $170.1 million, up 27.4% from the $133.5 million recorded in the first quarter of 2010. Proceeds from sales of mined PGMs and by-products totaled $122.0 million in the first quarter of 2011, 28.2% higher than the $95.2 million in the same quarter of 2010, as higher PGM prices in the first quarter of 2011 more than offset the effect of decrease in mined ounces sold during the quarter. Recycling revenues increased 42.7% to $48.1 million from $33.7 million in the first quarter of 2010. There were no resales of purchased metal during the first quarter of 2011. Resales of purchased metal generated $4.6 million in revenue during the first quarter of 2010.
Sales out of mine production totaled 115,100 ounces in the first quarter of 2011 at an overall average realization of $994 per ounce, down from 135,100 ounces at $644 per ounce in the first quarter of 2010. Sales ounces trailed production in the quarter due to normal timing differences. The Company's average realization on palladium sales from mine production was $784 per ounce in the first quarter of 2011, compared to $413 per ounce for the same period in 2010. The Company's average net realization on platinum was $1,782 per ounce in the first quarter of 2011 and $1,428 per ounce in the first quarter of 2010. Comparing these prices to the market, the London Bullion Market Association afternoon posted prices per ounce for palladium and platinum were $766 and $1,773, respectively, on March 31, 2011, and $479 and $1,645, respectively, on March 31, 2010.
During the first quarter of 2011, the Company processed 115,600 total ounces of PGMs from recycled catalytic materials, including both purchased and tolled material. In the first quarter of 2010, the Company processed 119,300 ounces of recycled material. The Company delivered for sale a total of 42,800 ounces of palladium, platinum and rhodium from recycled inventories during the first quarter of 2011 at an overall average price of $1,122 per ounce; for the first quarter of 2010, the Company sold 36,000 recycled ounces at an average realization of $899 per ounce.
Costs of metals sold (before depreciation and amortization expense) increased to $105.4 million in the first quarter of 2011 from $93.5 million in the first quarter of 2010. Mining costs included in costs of metals sold increased to $60.3 million in the 2011 first quarter from $57.9 million in the 2010 first quarter, the result of overall higher operating expenses including the effect on royalties and taxes of higher PGM prices and increases in maintenance costs. Recycling costs, which primarily reflect the cost of acquiring spent catalytic materials for processing, totaled $45.2 million in the first quarter of 2011, much higher than the $31.0 million reported in the first quarter of 2010. The increase was due to higher recycling volumes processed and sold and the related higher market value of the materials acquired for processing.
There were no purchases of metals for resale on the open market during the first quarter of 2011. The cost of purchasing 10,000 ounces of palladium for re-sale in the first quarter of 2010 was $4.6 million.
Depreciation and amortization expense decreased to $16.1 million in the first quarter of 2011 from $18.5 million in the same period of 2010. The decrease is attributable to a lower depreciable base in our fixed asset accounts in 2011, as many assets were depreciated out during 2010.
General and administrative ("G&A") costs, including marketing and exploration expenses, increased to $7.7 million in the first quarter of 2011 from $6.9 million in the same period of 2010. Marketing and exploration spending are being increased substantially during 2011.
Reported net income for the first quarter 2011 of $36.2 million included, by business segment, net income of $45.9 million from mining operations, net income of $2.9 million from recycling activities (including financing income), less $0.3 million of costs associated with the Marathon properties, a $4.1 million income tax provision, about $1.2 million of unallocated net interest expense and corporate costs of $7.0 million. The net profit of $13.4 million recorded for the first quarter 2010 included, by business segment, $19.1 million of income from mining operations and $2.9 million income from recycling activities (including financing income), less corporate costs of $6.9 million, about $1.5 million of unallocated net interest expense and a $0.2 million income tax provision.
Stillwater Mining Company will host its 2011 first quarter results conference call in conjunction with its annual meeting of shareholders, to be convened at approximately 3:30 p.m. Eastern Time on May 3, 2011. The conference call dial-in numbers are (888) 276-0007 (U.S.) and (612) 332-0637 (International). The conference call will be webcast simultaneously via the Company's Web site at www.stillwatermining.com. A replay of the conference call will be available on the Company's Web site and by telephone (800) 475-6701 (U.S.) and (320) 365-3844 (International), access code 202316, for one week following the event.
Stillwater Mining Company is the only U.S. producer of palladium and platinum and is the largest primary producer of platinum group metals outside of South Africa and the Russian Federation. The Company's shares are traded on the New York Stock Exchange under the symbol SWC. Information on Stillwater Mining can be found at its Web site: www.stillwatermining.com.