e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2007.


o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 1-13053

STILLWATER MINING COMPANY

(Exact name of registrant as specified in its charter)


Delaware		81-0480654

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1321 Discovery Drive
Billings, Montana		59102

(Address of principal executive offices)		(Zip Code)

(406) 373-8700

(Registrant’s telephone number, including area code)

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one).

Large Accelerated Filer o Accelerated Filer þ Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES o NO þ

At November 2, 2007 the Company had outstanding 92,277,750 shares of common stock, par value $0.01 per share.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

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


	Three months ended						Nine months ended
	September 30,						September 30,
	2007			2006			2007			2006
Revenues
Mine production	$	63,613		$	73,660		$	210,877		$	210,034
PGM recycling		94,075			104,228			247,977			178,481
Sales of palladium received in the Norilsk Nickel transaction		—			—			—			17,637
Other		5,399			2,929			11,646			31,450

Total revenues		163,087			180,817			470,500			437,602

Costs and expenses
Costs of metals sold
Mine production		54,088			48,135			157,117			142,337
PGM recycling		87,886			95,356			231,932			165,292
Sales of palladium received in Norilsk Nickel transaction		—			—			—			10,785
Other		5,299			2,929			11,504			31,208

Total costs of metals sold		147,273			146,420			400,553			349,622

Depreciation and amortization
Mine production		20,114			19,979			62,134			61,240
PGM recycling		32			24			84			74

Total depreciation and amortization		20,146			20,003			62,218			61,314

Total costs of revenues		167,419			166,423			462,771			410,936

Exploration		500			—			562			332
Marketing		783			2,345			3,996			3,235
General and administrative		5,565			5,948			18,528			18,006

Total costs and expenses		174,267			174,716			485,857			432,509

Operating income (loss)		(11,180	)		6,101			(15,357	)		5,093

Other income (expense)
Other		127			300			109			303
Interest income		2,957			3,345			8,943			8,396
Interest expense		(2,931	)		(2,954	)		(8,507	)		(8,496	)
Gain/(loss) on disposal of property, plant and equipment		(26	)		70			184			(164	)

Income (loss) before income tax provision		(11,053	)		6,862			(14,628	)		5,132

Income tax provision		—			—			—			(10	)


Net income (loss)	$	(11,053	)	$	6,862		$	(14,628	)	$	5,122


Other comprehensive income (loss), net of tax		3,550			21,454			3,821			(8,138	)


Comprehensive income (loss)	$	(7,503	)	$	28,316		$	(10,807	)	$	(3,016	)


Weighted average common shares outstanding
Basic		92,203			91,310			91,908			91,194
Diluted		92,203			92,233			91,908			92,030


Basic income (loss) per share

Net income (loss)	$	(0.12	)	$	0.08		$	(0.16	)	$	0.06


Diluted income (loss) per share

Net income (loss)	$	(0.12	)	$	0.07		$	(0.16	)	$	0.06

See accompanying notes to the financial statements

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


	September 30,			December 31,
	2007			2006
ASSETS
Current assets
Cash and cash equivalents	$	67,358		$	88,360
Restricted cash		4,385			3,785
Investments, at fair market value		36,950			35,497
Inventories		109,917			106,895
Advances on inventory purchases		28,247			24,191
Accounts receivable		11,422			16,008
Deferred income taxes		3,088			5,063
Other current assets		7,444			4,540

Total current assets	$	268,811		$	284,339

Property, plant and equipment (net of $279,684 and $219,520 accumulated depreciation and amortization)		460,606			460,328
Long-term investment		3,556			1,869
Other noncurrent assets		9,234			9,487

Total assets	$	742,207		$	756,023


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	16,933		$	24,833
Accrued payroll and benefits		21,813			20,348
Property, production and franchise taxes payable		9,731			11,123
Current portion of long-term debt and capital lease obligations		1,264			1,674
Fair value of derivative instruments		12,362			15,145
Unearned income		5,932			5,479
Other current liabilities		8,023			6,988

Total current liabilities		76,058			85,590

Long-term debt		127,187			129,007
Fair value of derivative instruments		—			715
Deferred income taxes		3,088			5,063
Accrued workers compensation		10,567			10,254
Asset retirement obligation		9,095			8,550
Other noncurrent liabilities		6,568			4,288

Total liabilities	$	232,563		$	243,467


Stockholders’ equity
Preferred stock, $0.01 par value, 1,000,000 shares authorized; none issued		—			—
Common stock, $0.01 par value, 200,000,000 shares authorized; 92,225,413 and 91,514,668 shares issued and outstanding		922			915
Paid-in capital		624,995			617,107
Accumulated deficit		(104,491	)		(89,863	)
Accumulated other comprehensive loss		(11,782	)		(15,603	)

Total stockholders’ equity		509,644			512,556

Total liabilities and stockholders’ equity	$	742,207		$	756,023

See accompanying notes to the financial statements

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


	Three months ended						Nine months ended
	September 30,						September 30,
	2007			2006			2007			2006
Cash flows from operating activities
Net income (loss)	$	(11,053	)	$	6,862		$	(14,628	)	$	5,122

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		20,146			20,003			62,218			61,314
Lower of cost or market inventory adjustment		3,734			54			5,164			1,194
(Gain)/loss on disposal of property, plant and equipment		26			(70	)		(184	)		164
Stock issued under employee benefit plans		974			1,306			3,903			3,560
Amortization of debt issuance costs		208			199			618			582
Share based compensation		1,231			1,090			3,745			2,616

Changes in operating assets and liabilities:
Inventories		12,378			6,747			(8,279	)		(36,904	)
Advances on inventory purchases		2,245			(344	)		(4,056	)		(18,062	)
Accounts receivable		832			(8,720	)		4,586			6,073
Employee compensation and benefits		1,138			(928	)		1,465			(104	)
Accounts payable		1,733			595			(7,900	)		2,373
Property, production and franchise taxes payable		342			(1,290	)		888			(436	)
Workers compensation		(241	)		310			313			3,936
Asset retirement obligation		185			164			545			482
Unearned income		(1,706	)		(1,170	)		453			2,692
Restricted cash		—			(1,100	)		(600	)		(1,100	)
Other		(1,191	)		1,836			(1,994	)		1,292

Net cash provided by operating activities		30,981			25,544			46,257			34,794


Cash flows from investing activities
Capital expenditures		(22,435	)		(22,398	)		(62,844	)		(67,754	)
Purchase of long-term investments		(1,019	)		—			(1,687	)		—
Proceeds from disposal of property, plant and equipment		47			247			375			510
Purchases of investments		(7,914	)		(3,947	)		(56,054	)		(71,968	)
Proceeds from maturities of investments		10,756			29,985			54,934			99,235

Net cash provided by (used in) investing activities		(20,565	)		3,887			(65,276	)		(39,977	)


Cash flows from financing activities
Payments on long-term debt and capital lease obligations		(266	)		(363	)		(2,230	)		(10,278	)
Payments for debt issuance costs		—			—			—			(579	)
Issuance of common stock		8			2			247			807

Net cash used in financing activities		(258	)		(361	)		(1,983	)		(10,050	)


Cash and cash equivalents
Net increase (decrease)		10,158			29,070			(21,002	)		(15,233	)
Balance at beginning of period		57,200			35,957			88,360			80,260

Balance at end of period	$	67,358		$	65,027		$	67,358		$	65,027

See accompanying notes to the financial statements

Stillwater Mining Company
Notes to Financial Statements
(Unaudited)

Note 1 — General

In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of Stillwater Mining Company (the “Company”) as of September 30, 2007, and the results of its operations and its cash flows for the three- and nine- month periods ended September 30, 2007 and 2006. The results of operations for the three- and nine- month periods are not necessarily indicative of the results to be expected for the full year. The accompanying financial statements in this quarterly report should be read in conjunction with the financial statements and notes thereto included in the Company’s March 31, 2007 and June 30, 2007 Quarterly Reports on Form 10-Q and in the Company’s 2006 Annual Report on Form 10-K.

The preparation of the Company’s financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. The more significant areas requiring the use of management’s estimates relate to mineral reserves, reclamation and environmental obligations, valuation allowance for deferred tax assets, useful lives utilized for depreciation, amortization and accretion calculations, future cash flows from long-lived assets, and fair value of derivative instruments. Actual results could differ from these estimates.

Note 2 — Sales

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 platinum group metals (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 normally sold at market prices to customers, brokers or outside refiners. Copper and nickel by-products, however, are produced at less than commercial grade, so prices for these metals typically reflect a quality discount. By-product sales are reflected as a reduction to costs of metals sold. During the three- month periods ended September 30, 2007 and 2006, total by-product (copper, nickel, gold, silver and mined rhodium) sales were approximately $11.8 million and $12.4 million, respectively. Total by-product sales for the nine- month periods ended September 30, 2007 and 2006 were approximately $40.2 million and $30.6 million, respectively.

During 1998, the Company entered into three long-term sales contracts, covering production from the mines, that contain guaranteed floor and, in some cases, ceiling prices for metal delivered. Metal sales under these contracts, when not affected by these guaranteed floor or ceiling prices, are priced at a slight discount to market. In late 2000 and in 2001, the Company amended these contracts to extend the terms and to modify the pricing mechanisms. One of these contracts expired at the end of 2006, one will expire during 2008 and one applies through 2010. Following the one contract expiration at December 31, 2006, the palladium and platinum commitments under that contract were largely assumed by the remaining contracts. The agreement expiring during 2008 was renewed in the third quarter of 2007, and, together with a follow-on agreement, renews the term through 2012, modifies the pricing mechanisms and revises the sourcing provisions. Under these sales agreements, the Company currently has committed 100% of its palladium production and 70% of its platinum production through 2010. After 2010, at least 20% of the Company’s mine production of palladium is committed through 2012. Please refer to table regarding ceiling and floor prices on the following page. After 2010, the Company’s remaining platinum production is not committed under these contracts and remains available for sale at prevailing market prices.

Sales to significant customers as a percentage of total revenues for the three- and nine- month periods ended September 30, 2007 and 2006 were as follows:


	Three months ended						Nine months ended
	September 30,						September 30,
	2007			2006			2007			2006
Customer A		31	%		31	%		35	%		36	%
Customer B		32	%		17	%		27	%		15	%
Customer C		10	%		18	%			*		11	%
Customer D			*		12	%		10	%			*

		73	%		78	%		72	%		62	%


*		Represents less than 10% of total revenues.

The following table summarizes the floor and ceiling price structures for the long-term sales contracts with General Motors Corporation and Ford Motor Company 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.


	PALLADIUM										PLATINUM
	Subject to					Subject to					Subject to					Subject to
	Floor Prices					Ceiling Prices					Floor Prices					Ceiling Prices
	% of Mine			Avg. Floor		% of Mine			Avg. Ceiling		% of Mine			Avg. Floor		% of Mine			Avg. Ceiling
Year	Production			Price		Production			Price		Production			Price		Production			Price
2007		100	%	$	345		17	%	$	975		70	%	$	425		14	%	$	850
2008		100	%	$	363		20	%	$	975		70	%	$	425		14	%	$	850
2009		100	%	$	364		20	%	$	975		70	%	$	425		14	%	$	850
2010		100	%	$	360		20	%	$	975		70	%	$	425		14	%	$	850
2011		20	%	$	300		0	%		—		—			—		—			—
2012		20	%	$	300		0	%		—		—			—		—			—

Metal delivery commitments under the long-term sales contracts generally fluctuate based upon percentages of actual mine production, with discretionary sourcing flexibility for any additional quantities. These contracts contain termination provisions that allow the purchasers to terminate in the event the Company breaches certain provisions of the contract and the Company does not cure the breach within specified periods ranging from 10 to 30 days of notice. The contracts are not subject to the requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138 Accounting for Derivative Instruments and Certain Hedging Activities and SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, because the contracts qualify for the normal sales exception 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 hedge accounting requirements of SFAS No. 133, SFAS No. 138, or SFAS No. 149.

PGM Recycling:

The Company recycles spent catalyst materials through its processing facilities in Columbus, Montana, recovering palladium, platinum and rhodium from these materials. The Company sells these processed metals to various third parties.

Other activities:

The Company makes open market purchases of PGMs from time to time for resale to third parties. The Company recognized revenue of $5.4 million and $2.9 million on approximately 15,400 and 9,000 ounces of PGMs that were purchased in the open market and re-sold for the three- month periods ended September 30, 2007 and 2006, respectively. For the nine- month periods ended September 30, 2007 and 2006, approximately 33,400 and 35,800 ounces of PGM’s were purchased in the open market and re-sold for approximately $11.6 million and $31.5 million, respectively.

Note 3 – Derivative Instruments

The Company uses various derivative financial instruments to manage the Company’s exposure to changes in interest rates and PGM market commodity prices. 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 forward contracts and financially settled forward contracts to offset the price risk in its PGM recycling activity and on portions of its mine production. In the fixed forward transactions, metals contained in the recycled materials are normally sold forward and subsequently delivered against the fixed forward contracts when the finished ounces are recovered. The Company uses fixed forward transactions primarily to price in advance the metals processed in its recycling business. 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. These financially settled forward contracts are settled in cash at maturity. The Company normally uses financially settled forward contracts to reduce downside price risk associated with deliveries out of future mine production under the Company’s long term sales agreements.

As of September 30, 2007, the Company was party to financially settled forward agreements covering approximately 33% of its anticipated platinum sales out of mine production from October 2007 through June 2008. These transactions are designed to hedge a total of 35,500 ounces of platinum sales from mine production for the next nine months at an overall average price of approximately $1,035 per ounce.

Until these financially settled forward contracts related to mine production mature, any net change in the value of the hedging instrument is reflected in stockholders’ equity in accumulated other comprehensive income (loss) (AOCI). A net unrealized loss of $12.3 million on commodity hedging instruments existing at September 30, 2007, is reflected in AOCI (see Note 6). When these instruments are settled, any remaining gain or loss on the cash flow hedges will be offset by gains or losses on the future metal sales and will be recognized at that time in operating income.

The following is a summary of the Company’s commodity derivatives as of September 30, 2007:

Mine Production:
Financially Settled Forwards


	*Platinum Ounces*		*Average Price*		*Index*
Fourth Quarter 2007		20,500	$	1,000	Monthly London PM Average
First Quarter 2008		9,000	$	1,104	Monthly London PM Average
Second Quarter 2008		6,000	$	1,054	Monthly London PM Average

PGM Recycling: Financially Settled Forwards

	*Palladium Ounces*		*Average Price*
Fourth Quarter 2007		7,581	$	335

PGM Recycling

The Company enters into fixed forward sales relating to PGM recycling of catalyst materials. The Company accounted for these fixed forward sales as cash-flow hedges through the first quarter of 2006; thereafter, they have been accounted for under the normal sales provisions of SFAS No. 133, as amended by SFAS No. 138 and SFAS No. 149. The metals from PGM recycled materials are sold forward at the time of purchase and delivered against the fixed forward contracts when the ounces are recovered. All of these open transactions settle at various periods through November 2007. No hedging gains or losses related to PGM recycling were recognized in the three- or nine- month periods ended September 30, 2007 or 2006. 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. No margin deposits were required or outstanding during the third quarters of 2007 or 2006.

During the third quarter of 2007, the Company entered into certain financially settled forward contracts on recycled materials, which are contracts that do not require the physical delivery of metal upon settlement. These contracts establish a future price for the metal but allow discretion as to the customer receiving the metal. The Company has elected not to account for these derivative contracts as hedges under the provisions of SFAS No. 133 and so is marking these contracts to market at the end of each accounting period. The loss on these contracts at September 30, 2007, was approximately $85,000, and has been recorded as a reduction to recycling revenue.

Interest Rate Derivatives

On July 28, 2006, the Company entered into an interest rate swap agreement that has the effect of fixing the interest rate on $50 million of the Company’s outstanding term loan debt through December 31, 2007. The effective fixed rate of the interest rate swap is 7.628% (see Note 11). The Company accounted for this interest rate swap as a cash-flow hedge during the third quarter of 2006. In the fourth quarter of 2006 and subsequently, the Company has elected not to account for this as a cash flow hedge, and accordingly, has marked this transaction to market. The Company recorded additional interest expense of approximately $12,500 and a credit to interest expense of approximately $35,500 during the three- and nine- month periods ended September 30, 2007, respectively.

Note 4 – Share-Based Payments

The Company sponsors stock option plans (the “Plans”) that enable the Company to grant stock options or nonvested shares to employees and non-employee directors. The Company has options outstanding under three separate plans: the 1994 Incentive Plan, the General Plan and the 2004 Equity Incentive Plan. As of September

30, 2007, there were approximately 7,801,000 shares of common stock authorized for issuance under the Plans, including approximately 5,250,000, 1,400,000 and 1,151,000 authorized for the 2004 Equity Incentive Plan, the General Plan and the 1994 Incentive Plan, respectively. Options for approximately 4,596,000 and 3,205,000 shares were available and reserved under the 2004 Equity Incentive Plan and the General Plan, respectively for grant as of September 30, 2007.

The Compensation Committee of the Company’s Board of Directors administers the Plans and determines the exercise price, exercise period, vesting period and all other terms of instruments issued under the Plans. Officers’ and directors’ options expire ten years after the date of grant. All other options expire five to ten years after the date of grant, depending upon the original grant date. The Company received approximately $8,300 and $1,900 in cash from the exercise of stock options in the three- month periods ended September 30, 2007 and 2006, respectively, and approximately $247,000 and $807,000 for the nine- month periods ended September 30, 2007 and 2006, respectively.

The Company recognizes compensation expense associated with its stock option grants based on their fair market value on the date of grant using a Black-Scholes option pricing model. Stock option grants to employees generally vest in annual installments over a three-year period. The Company recognizes stock option expense ratably over the vesting period of the options. If options are canceled or forfeited prior to vesting, the Company stops recognizing the related expense effective with the date of forfeiture, but does not recapture expense taken previously. The compensation expense, recorded in general and administrative expense, related to the fair value of stock options during the three- month periods ended September 30, 2007 and 2006 was approximately $98,000 and $114,000, respectively, and approximately $299,000 and $291,000 during the nine- month periods ended September 30, 2007 and 2006, respectively. Total compensation cost related to nonvested stock options not yet recognized is approximately $89,000, $211,000, $70,000, and $10,000 for the remaining three months of 2007 and for years 2008, 2009 and 2010, respectively.

Nonvested Shares:

Nonvested shares granted to non-management directors, certain members of management and other employees as of September 30, 2007 and 2006 along with the related compensation expense are detailed in the following table:


						Compensation Expense
		Nonvested		Market		Three months ended				Nine months ended
		Shares		Value on		September 30,				September 30,
Grant Date	Vesting Date	Granted		Grant Date		2007		2006		2007		2006
May 7, 2004	May 7, 2007		348,170	$	4,460,058	$	—	$	371,671	$	495,562	$	1,115,015
May 3, 2005	May 3, 2008		225,346	$	1,654,040	$	137,837	$	137,837	$	413,510	$	413,510
April 27, 2006	October 26, 2006		9,752	$	160,030	$	—	$	63,345	$	—	$	116,690
April 27, 2006	April 27, 2009		288,331	$	4,731,512	$	394,293	$	394,293	$	1,182,878	$	657,154
February 22, 2007	February 22, 2010		426,514	$	5,433,788	$	447,139	$	—	$	1,083,504	$	—
May 3, 2007	November 3, 2007		17,654	$	280,000	$	139,996	$	—	$	233,327	$	—


Total compensation expense of nonvested shares						$	1,119,265	$	967,146	$	3,408,781	$	2,302,369

Non-Employee Directors’ Deferral Plan:

Compensation expense deferred in common stock related to the Non-Employee Directors’ Deferral Plan was approximately $12,000 and $6,250 during the three- month periods ended September 30, 2007 and 2006, respectively, and approximately $36,000 and $18,750 for the nine- month periods ended September 30, 2007 and

2006, respectively. The company match was made in Company common stock and resulted in compensation expense of approximately $2,400, and $1,250 during the three- month periods ended September 30, 2007 and 2006, respectively, and approximately $7,200 and $3,750 for the nine- month periods ended September 30, 2007 and 2006, respectively.

Nonqualified Deferred Company Plan:

Compensation expense deferred in cash under the Nonqualified Deferred Compensation Plan was approximately $62,000 and $72,000 for the third quarters of 2007 and 2006, respectively, and $274,000 and $143,000 for the nine- month periods ended September 30, 2007 and 2006, respectively.

Note 5 – Income Taxes

The Company computes income taxes using the asset and liability approach as defined in SFAS No. 109, Accounting for Income Taxes, 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. At September 30, 2007, the Company has net operating loss carryforwards (NOLs), which expire in 2009 through 2026. 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 and local tax laws, the Company has not recognized any income tax provision or benefit for the periods ended September 30, 2007 and 2006, as any changes in the net deferred tax assets and liabilities have been offset by a corresponding change in the valuation allowance.

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainties in Income Taxes, an Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of September 30, 2007 and January 1, 2007, the Company had no unrecognized tax benefits. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in “Income tax provision” in the Statements of Operations and Comprehensive Income (Loss). There was no interest or penalties for the three- and nine- month periods ended September 30, 2007. The tax years subject to examination by the taxing authorities are the years ending December 31, 2006, 2005, and 2004.

Note 6 – Comprehensive Income (Loss)

Comprehensive income (loss) consists of earnings items and other gains and losses affecting stockholders’ equity that are excluded from current net income. As of September 30, 2007, such items consist of unrealized gains and losses on derivative financial instruments related to commodity price hedging activities and available-for-sale marketable securities.

The following summary sets forth the changes in accumulated other comprehensive loss in stockholders’ equity for each of the first three quarters of 2007 and 2006:


(in thousands)	Available for Sale		Commodity					Accumulated Other
As of September 30, 2007	Securities		Instruments			Interest Rate Swap		Comprehensive Loss
Balance at December 31, 2006	$	177	$	(15,780	)	$	—	$	(15,603	)


Reclassification to earnings		—		7,275			—		7,275
Change in value		137		(12,587	)		—		(12,450	)

Comprehensive income (loss)	$	137	$	(5,312	)	$	—	$	(5,175	)


Balance at March 31, 2007	$	314	$	(21,092	)	$	—	$	(20,778	)

Reclassification to earnings		—		8,093			—		8,093
Change in value		90		(2,737	)		—		(2,647	)

Comprehensive income (loss)	$	90	$	5,356		$	—	$	5,446


Balance at June 30, 2007	$	404	$	(15,736	)	$	—	$	(15,332	)

Reclassification to earnings		—		7,161			—		7,161
Change in value		143		(3,754	)		—		(3,611	)

Comprehensive income (loss)	$	143	$	3,407		$	—	$	3,550


Balance at September 30, 2007	$	547	$	(12,329	)	$	—	$	(11,782	)


(in thousands)	Available for Sale			Commodity						Accumulated Other
As of September 30, 2006	Securities			Instruments			Interest Rate Swap			Comprehensive Loss
Balance at December 31, 2005	$	202		$	(17,604	)	$	—		$	(17,402	)


Reclassification to earnings		—			5,398			—			5,398
Change in value		159			(22,107	)		—			(21,948	)

Comprehensive income (loss)	$	159		$	(16,709	)	$	—		$	(16,550	)


Balance at March 31, 2006	$	361		$	(34,313	)	$	—		$	(33,952	)

Reclassification to earnings		—			9,221			—			9,221
Change in value		70			(22,333	)		—			(22,263	)

Comprehensive income (loss)	$	70		$	(13,112	)	$	—		$	(13,042	)


Balance at June 30, 2006	$	431		$	(47,425	)	$	—		$	(46,994	)

Reclassification to earnings		—			10,010			—			10,010
Change in value		(201	)		11,809			(164	)		11,444

Comprehensive income (loss)	$	(201	)	$	21,819		$	(164	)	$	21,454


Balance at September 30, 2006	$	230		$	(25,606	)	$	(164	)	$	(25,540	)

A portion of the change in value of available-for-sale securities in the table above represents the change in value of mutual fund investments which are classified as non-current assets on the balance sheet at September 30, 2007. The change in value during the three- and nine- month periods ended September 30, 2007 related to the mutual fund investments was approximately $2,000 and $37,000, respectively.

Note 7 – Earnings (Loss) per Share

Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. No adjustments were made to reported net income (loss) in the computation of earnings (loss) per share. The Company currently has only one class of equity shares outstanding.

Outstanding options for the three- and nine- month periods ended September 30, 2007 were excluded from the computation of diluted earnings per share because the Company reported losses and so the effect would have been antidilutive (reduced the net loss per share) using the treasury stock method. The effect of outstanding stock options on diluted weighted average shares outstanding was 52,988 and 92,505 for the three- and nine month periods ended September 30, 2006, respectively.

There was no effect of outstanding nonvested shares on diluted weighted average shares outstanding for the three- and nine- month periods ended September 30, 2007 because the Company reported a net loss in each period and inclusion of any of these shares would have reduced the net loss per share amounts. The effect of outstanding nonvested shares was to increase diluted weighted average shares outstanding by 870,380 and 744,240 shares for the three- and nine month periods ended September 2006, respectively.

Note 8 – Segment Information

The Company operates two reportable business segments: Mine Production and PGM Recycling. These segments are managed separately based on fundamental differences in their operations.

The Mine Production segment consists of two business components: the Stillwater Mine and the East Boulder Mine. The Mine Production segment is engaged in the development, extraction, processing and refining of PGMs. The Company sells PGMs from mine production under long-term sales contracts, through derivative financial instruments and in open PGM markets. The financial results of the Stillwater Mine and East Boulder Mine have been aggregated, as both have similar products, processes, customers, distribution methods and economic characteristics.

The PGM Recycling segment is engaged in the recycling of spent automobile and petroleum catalysts to recover the PGMs contained in those materials. The Company allocates costs of the Smelter and Refinery to both the Mine Production segment and to the PGM Recycling segment for internal and segment reporting purposes because the Company’s smelting and refining facilities support the PGM extraction of both business segments.

The All Other group consists of assets and costs of various corporate and support functions, and for the three- and nine- month periods of 2006 includes assets, revenues and costs associated with the palladium received in the Norilsk Nickel transaction. The program to sell the palladium received in the Norilsk Nickel transaction was completed during the first quarter of 2006.

The Company evaluates performance and allocates resources based on income or loss before income taxes. The following financial information relates to the Company’s business segments:


(in thousands)	Mine			PGM		All
Three months ended September 30, 2007	Production			Recycling		Other			Total

Revenues	$	63,613		$	94,075	$	5,399		$	163,087
Depreciation and amortization	$	20,114		$	32	$	—		$	20,146
Interest income	$	—		$	1,699	$	1,258		$	2,957
Interest expense	$	—		$	—	$	2,931		$	2,931
Income (loss) before income taxes	$	(10,572	)	$	7,856	$	(8,337	)	$	(11,053	)
Capital expenditures	$	22,292		$	127	$	16		$	22,435
Total assets	$	504,972		$	81,975	$	155,260		$	742,207


(in thousands)	Mine		PGM		All
Three months ended September 30, 2006	Production		Recycling		Other			Total

Revenues	$	73,660	$	104,228	$	2,929		$	180,817
Depreciation and amortization	$	19,979	$	24	$	—		$	20,003
Interest income	$	—	$	1,862	$	1,483		$	3,345
Interest expense	$	—	$	—	$	2,954		$	2,954
Income (loss) before income taxes	$	5,616	$	10,710	$	(9,464	)	$	6,862
Capital expenditures	$	22,386	$	—	$	12		$	22,398
Total assets	$	504,661	$	86,968	$	143,257		$	734,886


(in thousands)	Mine			PGM		All
Nine months ended September 30, 2007	Production			Recycling		Other			Total

Revenues	$	210,877		$	247,977	$	11,646		$	470,500
Depreciation and amortization	$	62,134		$	84	$	—		$	62,218
Interest income	$	—		$	5,060	$	3,883		$	8,943
Interest expense	$	—		$	—	$	8,507		$	8,507
Income (loss) before income taxes	$	(8,152	)	$	21,021	$	(27,497	)	$	(14,628	)
Capital expenditures	$	62,410		$	263	$	171		$	62,844
Total assets	$	504,972		$	81,975	$	155,260		$	742,207


(in thousands)	Mine		PGM		All
Nine months ended September 30, 2006	Production		Recycling		Other			Total

Revenues	$	210,034	$	178,481	$	49,087		$	437,602
Depreciation and amortization	$	61,240	$	74	$	—		$	61,314
Interest income	$	—	$	4,305	$	4,091		$	8,396
Interest expense	$	—	$	—	$	8,496		$	8,496
Income (loss) before income taxes	$	6,329	$	17,384	$	(18,581	)	$	5,132
Capital expenditures	$	67,511	$	—	$	243		$	67,754
Total assets	$	504,661	$	86,968	$	143,257		$	734,886

Note 9 — Investments

The cost, gross unrealized gains, gross unrealized losses, and fair value of available-for-sale investment securities by major security type and class of security at September 30, 2007 are as follows:

Gross

unrealized

Fair

(in thousands)

Cost

gains

losses

market value

At September 30, 2007

Federal agency notes

30,526

466

—

30,992

Commercial paper

5,914

—

5,958

Mutual funds

449

—

486

36,889

547

—

37,436

The mutual funds included in the investment table above are classified as non-current assets on the balance sheet.

Note 10 – Inventories

For purposes of inventory accounting, the market value of inventory is generally deemed equal to the Company’s current cost of replacing the inventory, provided that: (1) the market value of the inventory may not exceed the estimated selling price of such inventory in the ordinary course of business less reasonably predictable costs of completion and disposal, and (2) the market value may not be less than net realizable value reduced by an allowance for a normal profit margin. In order to reflect costs in excess of market values, the Company, during the third quarter 2007, reduced the aggregate inventory carrying value of certain components of its in-process and finished good inventories by $3.7 million. A $54,000 reduction of the aggregate inventory carrying value was recorded for the same period of 2006. During the first nine months of 2007 and 2006, the carrying value of inventory was reduced by $5.2 million and $1.2 million, respectively.

The costs of PGM inventories as of any date are determined based on combined production costs per ounce and include all inventoriable production costs, including direct labor, direct materials, depreciation and amortization and other overhead costs relating to mining and processing activities incurred as of such date. Inventories reflected in the accompanying balance sheet consisted of the following:


	September 30,		December 31,
(in thousands)	2007		2006
Metals inventory
Raw ore	$	727	$	596
Concentrate and in-process		34,790		37,086
Finished goods		57,053		53,081

		92,570		90,763
Materials and supplies		17,347		16,132

	$	109,917	$	106,895

Note 11 – Long-Term Debt

Credit Agreement

On August 3, 2004, the Company entered into a $180 million credit facility with a syndicate of financial institutions. The credit facility consists of a $140 million six-year term loan facility maturing on July 30, 2010 and a $40 million five-year revolving credit facility expiring July 31, 2009. The revolving credit facility includes a letter of credit facility. At September 30, 2007, the interest rate on the term loan was 7.4375%. Substantially all the property and assets of the Company are pledged as security under the credit facility.

As of September 30, 2007, the Company has $98.6 million outstanding under the term loan facility. At September 30, 2007, the Company had obtained letters of credit in the amount of $23.6 million, as partial surety for certain of its long-term reclamation obligations, which reduced amounts available under the revolving credit facility to $16.4 million.

The following is a schedule of required principal payments to be made in quarterly installments on the amounts outstanding under the term loan facility at September 30, 2007, without regard to the prepayments required to be offered out of excess cash flow, or paid at the Company’s discretion:


	Credit Facility
	Scheduled Repayments
Year ended	(in thousands)

2007 (October — December)	$	255
2008		1,019
2009		1,019
2010		96,305

Total	$	98,598

Subsequent to the close of this year’s third quarter, the Company obtained an amendment and waiver to certain provisions in the Credit Agreement. The changes include an increase to the covenant limits on annual capital expenditures for 2007, 2008 and 2009; revised language to accommodate additional palladium sales commitments under the newly signed automotive agreement; and clarification to the definition of Debt in the agreement. The amendment and waiver also increases the current 225-basis-point spread over LIBOR in the term loan and revolving credit facility to 250 basis points over LIBOR.

Note 12 – Regulations and Compliance

On May 20, 2006, new federal regulations went into effect that by May 20, 2008 will tighten the maximum permissible diesel particulate matter (DPM) exposure limit for underground miners from the current level of 308 mg/m3 of elemental carbon to a new limit of 160 mg/m3 of total carbon. The Company utilizes a significant number of diesel-powered vehicles in its mining operations. Appropriate measurement methods and emission control standards do not yet exist that would ensure compliance in the Company’s mining environment with this new standard. The Company is aggressively exploring existing technologies to reduce DPM exposures to the lowest levels currently achievable and is actively working with MSHA, National Institute for Occupational Safety and Health (NIOSH) and various other companies in the mining industry to share best practices and consider compliance alternatives. The Company’s compliance efforts in this area include using cleaner-burning biodiesel blends, replacing a portion of its underground equipment fleet with battery-powered units, and experimenting with other emerging emission control technologies. While the initial results in each case are promising and the Company believes that MSHA will continue to support these efforts, in the absence of full compliance there can be no assurance that the Company will not be held in violation of the standard and be subject to an MSHA enforcement action.

MSHA has the statutory authority to issue citations for non-compliance and, in situations where it determines the health and safety of miners is at significant risk, to order cessation of mining operations until the risk is alleviated.

Item 2. Management’s Discussion and Analysis of 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 three- and nine- month periods, ended September 30, 2007. It should be read in conjunction with the financial statements included in this quarterly report, in the Company’s March 31, 2007 and June 30, 2007 Quarterly Reports on Form 10-Q and in the Company’s 2006 Annual Report on Form 10-K.

Overview

Stillwater Mining Company mines, processes, refines and markets palladium, platinum and minor amounts of other metals from the J-M Reef, an extensive trend of Platinum Group Metal (PGM) mineralization located in Stillwater and Sweet Grass Counties in south central Montana. The Company operates two mines, Stillwater and East Boulder, within the J-M Reef, each with substantial underground operations, a surface mill and a concentrator. The Company also operates a smelter and base metals refinery at Columbus, Montana. Concentrates produced at the two mines are transported to the smelter and refinery where they are processed into a high-grade PGM filter cake that is sent to third-party refiners for final processing. Most of the finished palladium and platinum produced from mining is sold under contracts with major automotive manufacturers for use in automotive catalytic converters. These contracts include floor and ceiling prices on palladium and platinum. (Please see the table in Note 2 to this quarter’s financial statements for further detail on these floor and ceiling prices.)

The Company also recycles spent catalyst materials through its processing facilities in Columbus, Montana, recovering palladium, platinum and rhodium from these materials. The Company has agreements to purchase spent automotive catalyst from third-party collectors, and also processes material owned by others under toll processing arrangements.

The Company reported a net loss for the third quarter of 2007 of $11.1 million, or $0.12 per fully diluted share, on revenues of $163.1 million, compared to a net income of $6.9 million, or $.07 per diluted share on revenues of $180.8 million in the third quarter of 2006. The 2007 third-quarter and year-to-date results primarily reflect lower overall mine production, particularly at the Stillwater Mine. Several factors have affected production levels during 2007. As reported previously, the Stillwater Mine and Columbus smelter and refinery incurred a seven-day strike during July 2007 in conjunction with the negotiation of a new labor agreement. The disruption of these labor negotiations resulted in sharply lower production at the Stillwater Mine during June and July. The Company has also been involved in a number of transitional efforts, including a change in work schedules at the Stillwater Mine, a sharp cutback in contracted mining services during 2007, and ongoing changes in mining methods at both mines that demand different sets of work skills. All of these transitional initiatives have been introduced in an effort to increase efficiency and reduce mining costs. However, largely as a result of these changes, workforce attrition rates during 2007 have been higher than experienced previously, reducing the average experience level of the Company’s workforce. As a result, overall Company productivity has declined somewhat in 2007. To date through September, mine production during 2007 is now below 2006 by about 40,000 ounces, 6,000 ounces at the East Boulder Mine and 34,000 ounces at the Stillwater Mine, respectively.

These transitional issues are likely to continue during the fourth quarter of 2007. Consequently, management has reduced its production guidance for the full year to reflect the impact of these issues. Based on a preliminary review and subject to adjustment, mine output for all of 2007 is now expected to be approximately 550,000 ounces. Full-year mine production in 2006 was 601,000 ounces.

Total recycling activities have strengthened modestly during the first nine months of 2007 as new supply sources have been added and the market remains highly competitive. Recycling volumes fed into the Company’s processing facilities during the third quarter of 2007 increased to 98,600 ounces compared to about 90,300 ounces of processed PGMs for the comparable period of 2006, a 9.2% increase. For the nine months recycling volumes totaled 278,600 ounces in 2007 as compared to about 238,700 ounces in 2006, a 16.7% increase.

Market prices for platinum-group metals were generally higher in the third quarter of 2007 than a year ago. However, the Company’s sales realizations to a large extent are only indirectly tied to market prices. In the case of palladium, minimum selling prices in the automotive contracts have tended to provide the Company with average revenues in excess of market. On the other hand, platinum revenues have been heavily constrained by ceiling prices on a portion of the mine production and by forward sales contracts entered into in the past at notional prices well below today’s market price. During the third quarter of 2007 and 2006, the cost to the Company of these financially settled forward contracts totaled $7.2 million and $10.0 million, respectively. The volume of the Company’s platinum production covered by these financially settled forwards will drop off sharply after 2007, enabling average platinum realizations thereafter to more closely track the market price. (Please see Note 3 to the Company’s third quarter 2007 financial statements for further detail.)

During this year’s third quarter, the Company also announced that it has executed an amendment to and a renewal of one of its existing PGM automotive supply agreements. While this customer has required for competitive reasons that the specific details of these contract modifications remain confidential, the terms do include a renewed supply agreement through 2012, broader Company discretion in sourcing of PGMs and a favorable minimum selling price provision.

The Company’s balance of cash and cash equivalents (excluding restricted cash) was $67.4 million at September 30, 2007, up $10.2 million from June 30, 2007. Including the Company’s available-for-sale investments in highly liquid federal agency notes and commercial paper, the Company’s total available liquidity at September 30, 2007, is $104.3 million, up $7.4 million from $96.9 million from the end of the second quarter of 2007. This increase in liquidity is accounted for by a decrease of $16.5 million during the 2007 third quarter in working capital requirements of the recycling business and a reduction in capital expenditures. In addition to cash and liquid investments, the Company also had $16.4 million available to it under undrawn revolving credit lines at September 30, 2007.

In summary, the Company is endeavoring to achieve long term consistent profitability with respect to its mining operations. To date, management does not believe that this objective has been achieved. Profitability depends on the market price for metals and a number of factors outside the control of management. Recognizing its objectives and the Company’s historical dependence on its mines, management outlined its three broad strategic areas of focus in the 2006 Annual Report on Form 10-K: transformation of the mining methods employed in the Stillwater and East Boulder Mines; development of new markets for palladium; and, growth and diversification of the Company’s business to the extent than an opportunity is presented which the Board of Directors believes is complementary to the Company’s business and furthers the best interests of shareholders. Following is a brief update on 2007 year-to-date activity in each of these areas of focus.

Transformation of Mine Production Methods

The Company is engaged in a series of operating initiatives at the Stillwater and East Boulder Mines that are intended to increase efficiency, reduce unit costs of production, and increase total PGM ounces produced.

Total ore tons mined, the grade of the extracted ore and metallurgical recovery percentages drive the Company’s ultimate production of palladium and platinum. The Company reports net mine production as ounces contained in the mill concentrate, adjusted for processing losses expected to be incurred in smelting and refining. The Company considers an ounce of metal “produced” at the time it is shipped from the mine site. Depreciation and amortization costs are inventoried at each stage of production.

Ore production at the Stillwater Mine averaged 1,573 and 1,761 tons of ore per day during the third quarter and the first nine months of 2007, respectively; this compares to an average of 2,041 tons and 1,992 tons of ore per day during the third quarter and first nine months of 2006, respectively. The decline in production during 2007 reflects labor issues and the sharply reduced use of contract miners during 2007, along with lower productivity as a result of miner attrition and a lower average level of mining experience in the workforce, as well as other operational challenges within the mining transition.

The rate of ore production at the East Boulder Mine averaged 1,430 and 1,502 tons of ore per day during the third quarter and the first nine months of 2007, respectively, compared to an average of 1,186 and 1,488 tons of ore per day during the third quarter and first nine months of 2006. East Boulder continues to perform about as planned in 2007, and has not been subject to the disruptions Stillwater Mine has experienced this year. However, the transition in mining methods at East Boulder, where essentially all previous mining was conducted using bulk mining methods (primarily sub-level extraction), is more extensive and therefore more challenging, particularly in view of the lower in-situ ore grades there.

In addressing the long-term economic viability and sustainability of its mines, the Company has focused on five transformational objectives. These objectives include overlapping efforts to (1) strengthen safety and ensure environment compliance, (2) improve the developed state of the mines by increasing proven reserves and upgrading infrastructure, (3) shift mining methods away from highly mechanized mining and toward more selective extraction, (4) increase overall production rates toward the permitted capacity of each mine, and (5) reduce total mining support costs through improved mining efficiencies. During the first nine months of 2007, the Company continued its excellent performance in safety and environmental compliance, maintained its accelerated capital development program to expand infrastructure and increase proven reserves, and continued its move toward more selective extraction methods.

Anticipated benefits of the more selective mining methods include improved ore grades and access to previously uneconomic mineralized material, significant reductions in waste material mined and overall development requirements, less spending on capital equipment acquisition and maintenance, and ultimately much lower capital and operating costs per ounce of production. This is a continuing effort that will be implemented progressively over the next three to five years. Tonnage from captive cut-and-fill mining stopes was 588 tons per day during the third quarter, compared to 607 tons per day averaged during the second quarter of 2007. Also, mechanical ramp-and-fill mining in the Upper West portion of the Stillwater Mine during the third quarter averaged 298 tons per day, compared to an average of 288 tons per day during the second quarter of 2007. The East Boulder Mine showed an increase in production from ramp-and-fill mining to 201 tons per day during the third quarter up from 159 tons per day during the second quarter of 2007.

The grade of the Company’s ore reserves, measured in combined palladium and platinum ounces per ton, is a composite average of samples in all ore reserve areas. As is common in underground mines, the grade of ore mined and the recovery rate realized varies from area to area. In particular, mill head grade varies significantly between the Stillwater and East Boulder mines, as well as within different areas of each mine. However, the composite average grade at each mine tends to be fairly stable. For the three- and nine- month periods ended September 30, 2007, the average mill head grade for all tons processed from the Stillwater Mine was 0.58 and 0.55 ounces per ton of ore, respectively, compared to the average grade in 2006 for the same periods of 0.58 and 0.60, respectively. For the three- and nine- month periods ended September 30, 2007, the average mill head grade for all tons processed from the East Boulder Mine was 0.37 and 0.38 PGM ounces per ton of ore, respectively, compared to 0.39 and 0.39 during the same periods in 2006. The somewhat lower ore grades at East Boulder during 2007 are attributable in part to normal variations within the J-M Reef and in part to experimental efforts to develop lateral mining drifts within the reef itself (reef laterals) in certain areas.

These experimental efforts to develop lateral mining drifts along the reef rather than in the footwall adjacent to the reef (footwall laterals), were discussed briefly last quarter. The reef lateral drifts necessarily are wider than the reef itself and so result in somewhat higher dilution (and therefore in a little lower average realized ore grade). However, if this approach is successful, it could improve the efficiency of primary development efforts in the mine.

During the three- and nine- month periods ended September 30, 2007, the Company’s mining operations produced a total of 98,700 and 312,200 ounces of palladium, respectively, and 29,900 and 93,600 ounces of platinum, respectively. For the same periods in 2006, the mines produced 117,000 and 345,000 ounces of palladium, respectively, and 34,000 and 101,000 ounces of platinum, respectively.

The Company continues its accelerated program of primary development at both mines, although the effort is slowing slightly as this additional development nears completion. For the three- and nine- month periods ended September 30, 2007, primary development (excluding laterals developed in the reef) totaled approximately 8,600 and 29,000 feet, respectively. Definitional drilling for the quarter totaled approximately 116,000 feet. Management believes this investment in mine development, although resource intensive, is essential for more efficient and productive mining operations over the longer term. Capital spending requirements should decline in future years as the current development targets are achieved.

Market Development

The Company channels its efforts to develop and broaden markets for palladium through the Palladium Alliance International (the “Alliance”), a trade organization established for that purpose in early 2006. The Alliance’s principal goals include establishing palladium’s jewelry market presence as a specific elegant brand of precious metal, distinct from platinum and white gold, and instituting a system of standards for use of the palladium brand that will emphasize palladium’s rarity and value. The Alliance is dedicated to nurturing palladium’s jewelry role, and building demand, by sponsoring technical articles in jewelry trade publications illustrating methods of fabricating palladium jewelry, providing a website with information on palladium suppliers and retailers (www.luxurypalladium.com), organizing presentations at industry trade shows and supporting targeted image advertising in critical jewelry markets. So far in 2007, the Alliance has funded several palladium television commercial spots presented in Shanghai and Beijing and coordinated an effort to broaden and unify image-building marketing efforts among palladium producers and fabricators.

Growth and Diversification

Management is pursuing various opportunities to diversify its current mining and processing operations. This is a multi-faceted effort. The Company’s recycling operations have grown substantially over the past several years, reducing the degree of financial dependence solely on performance of the Company’s mines in each period. The commitment to the recycling business will continue for the remainder of 2007 and 2008 with the addition of a second smelter furnace within the Columbus processing facilities; the new furnace will accommodate expansion of both mining production and recycling volumes over the next several years, as well as, potentially improving metal recoveries and reducing process risk.

Also, as announced previously, late last year the Company invested $1.9 million to purchase approximately an 11% interest in Pacific North West Capital Corp., a Canadian exploration company with substantial exploration expertise that has identified several promising PGM targets. The Company invested an additional $0.7 million in Pacific North West Capital Corp. during the first nine months of 2007 to maintain its 10% interest and to fund exploration activities. On July 3, 2007, the Company invested $1.5 million in Benton Resource Corp., another Canadian exploration company, providing Stillwater with an opportunity for future participation in Benton’s Goodchild Project as well as an equity interest in Benton itself.

Investments in generative exploration projects are inherently long-term and fairly speculative in nature, but are intended to build a portfolio of attractive opportunities for the future. The Company also is continuously evaluating various later-stage mineral development projects, and in some cases even acquisition of operating properties, when they appear to offer good investment value and mesh with Stillwater’s corporate expertise. The Company is proceeding deliberately in these growth and diversification efforts.

The Company is also continually engaged in reviewing a variety of transactions or opportunities that are believed to benefit the best interests of shareholders. In this regard, management is concerned with the approaching expiration of its automotive contracts and the volatility of metal prices, both of which are leading the Company to consider proposals intended to strengthen its balance sheet. In view of the controlling share ownership position held by Norilsk Nickel, 49,813,222 shares of common stock, or 54%, at September 30, 2007, the Company further expects to discuss its future direction and alternatives with Norilsk Nickel in order to benefit from identified opportunities that may be proposed.

Federal Regulations

As discussed in Note 12 to the Company’s financial statements, MSHA published a final rule in the Federal Register on May 18, 2006, that addressed diesel particulate matter exposure of underground metal and nonmetal miners. The final rule phases in the final limit of 160 Total Carbon (“TC”) micrograms per cubic meter of air (160TC µg/m3) over a two-year period. Consequently, on May 20, 2006, the interim limit became 308 micrograms of elemental carbon (“EC”) per cubic meter of air (308EC µg/m3), which is the same as the prior interim limit; on January 20, 2007, the limit was adjusted to 350TC µg/m3; and on May 20, 2008, the final limit of 160TC µg/m3 will become effective. MSHA has stated its intention to convert the TC limits to comparable EC limits later through a separate rulemaking.

Appropriate measurement methods and emission control standards do not yet exist that would ensure continuous compliance in the Company’s mining environment with this new standard. Mine operators must continue to use engineering and administrative controls supplemented by respiratory protection to reduce miners’ exposures to the prescribed limits. The final rule establishes new requirements for medical evaluation of miners required to wear respiratory protection and transfer of miners who are medically unable to wear a respirator and deletes the existing provision that restricts newer mines from applying for an extension of time in which to meet the final concentration limit.

The Company is aggressively exploring existing technologies to reduce DPM exposures to the lowest levels currently achievable and is actively working with MSHA, NIOSH and various companies in the mining industry to share best practices and consider compliance alternatives. The Company’s compliance efforts in this area include using cleaner-burning biodiesel blends, replacing a portion of its underground equipment fleet with battery-powered units, and experimenting with other emerging emission control technologies. While the initial results in each case are promising and the Company believes that MSHA will continue to support these efforts, in the absence of full compliance there can be no assurance that the Company will not be held in violation of the standard and be subject to an MSHA enforcement action.

PGM Recycling

PGMs (palladium, platinum and rhodium) contained in spent catalytic converter materials are purchased from third-party suppliers or received under tolling agreements and are processed by the Company through its metallurgical complex. A sampling facility crushes and samples the spent catalysts prior to their being blended for smelting in the electric furnace. The spent catalytic material is sourced from third parties, who collect primarily from automobile repair shops and automobile yards that disassemble old cars for the recycling of their parts. The Company also regularly processes spent PGM catalysts from petroleum refineries.

The Company’s level of recycling activity has expanded over the past several years. During this year’s third quarter, the Company processed recycled materials at a rate of approximately 15.5 tons per day, down from approximately 17.2 tons per day in the third quarter of 2006; however, the contained PGM ounces increased to 98,600 ounces in the third quarter of 2007, up from about 90,300 ounces in the same period of 2006. Revenues from PGM recycling were $94.1 million for the third quarter of 2007 compared to $104.2 million in revenue for the same period in 2006. This revenue decrease of $10.1 million reflects strong inventory flows in the third quarter of 2006 partially offset by higher underlying PGM prices in 2007. Recycling volumes are expected to remain steady during the remainder of 2007.

In acquiring recycled automotive catalysts, the Company regularly advances funds to its suppliers in order to facilitate its procurement efforts. At this time the Company’s recycling business is substantially dependent upon one such supplier who supplies PGMs to the Company on an exclusive basis. The Company works closely with its suppliers to monitor this business and the related advances. A portion of these advances is secured by material in supplier inventory, but a substantial portion is not secured and remains at risk. While the Company believes these advances are fully collectible, there is no assurance that the suppliers will be able to repay them in full. Nonpayment would likely result in a write-off which could be material.

Corporate and Other Matters

As discussed in Note 3 to the financial statements, at September 30, 2007, the Company had secured platinum prices in the forward market on a portion of future sales by entering into financially settled forward transactions covering approximately 35,500 ounces of platinum or about 33% of the Company’s anticipated

platinum mine production for the period from October 2007 through June 2008 at an average price of about $1,035 per ounce. The Company entered into these transactions in the past in order to reduce the Company’s financial exposure to any sharp decline in platinum prices during the capital intensive portion of the mine transformation program. These hedges were intended to reduce the overall volatility of the Company’s earnings and cash flow. Under these hedging arrangements, in return for protection against downward movements in the platinum price, the Company gives up the benefit of increases in the platinum price on the hedged ounces. The Company recorded hedging expense totaling $7.2 million and $22.5 million for financially-settled forward contracts that settled below market price during the three- and nine- month periods ended September 30, 2007, respectively. For the three- and nine- month periods ended September 30, 2006, the Company recorded corresponding hedging expense of $10.0 million and $24.6 million, respectively. These amounts are recorded as a reduction of mine production revenue.

The Company is party to a $180 million credit facility dated August 3, 2004, comprised of a $140 million term loan facility and a $40 million revolving credit facility. Additional discussion of this facility is provided in the Company’s 2006 Annual Report on Form 10-K. As of September 30, 2007, the Company had $98.6 million outstanding under its term loan credit facility. At September 30, 2007, the Company had undrawn letters of credit outstanding in the amount of $23.6 million as partial surety for certain of its long-term reclamation obligations, which left the remaining amount available under the revolving credit facility at $16.4 million. Approximately $1.3 million of the Company’s outstanding long-term debt (including $1.0 million associated with the term loan facility) was classified as a current liability at September 30, 2007, reflecting principal amounts required to be repaid within the next twelve months.

On July 28, 2006, the Company entered into an interest rate swap agreement that has the effect of fixing the interest rate on $50 million of the Company’s outstanding term loan debt through December 31, 2007. The effective fixed rate of the interest rate swap is 7.628%. The Company accounted for this interest rate swap as a cash-flow hedge during the third quarter of 2006. In the fourth quarter of 2006, the Company elected not to account for this as a cash flow hedge, and accordingly, marked this transaction to market. The Company recorded additional interest expense of approximately $12,500 and a credit to interest expense of approximately $35,500 during the three- and nine- month periods ended September 30, 2007, respectively.

In preparing the 2007 business plan, the Company projected its future compliance with the financial covenants in the credit facility. While the business plan shows the Company remaining in compliance with all financial ratios through the life of the credit facility, it also shows the capital expenditure forecasts for 2007 and 2008 exceeding the covenant limits in the credit agreement. The Company has met with the affected lenders and discussed the business rationale for the covenant overruns, and the lenders have indicated their preliminary support for an amendment to cure the problem. Consequently, the Company expects to amend the agreement to be in compliance with the debt covenant limits.

At September 30, 2007, the Company had posted surety bonds with the State of Montana in the amount of $19.1 million and had obtained a $7.5 million letter of credit to satisfy the current $21.8 million of financial guarantee requirements determined by the regulatory agencies. Federal and state regulators are currently in the process of finalizing an updated environmental impact statement and are expected to recommend a substantial increase in these financial guarantees. The Company has adequate financial resources to meet these increased obligations.

Results of Operations

The Company reported a net loss of $11.1 million for the third quarter of 2007 compared to a net income of $6.9 million for the third quarter of 2006. Recycling margins (including financing income) decreased to $7.9 million in the third quarter of 2007, from $10.7 million in the third quarter of 2006, reflecting lower recycling sales volumes in the 2007 quarter. The third quarter of 2006 included significant sales volume growth flowing into the period out of inventories accumulated in the prior quarter. Overall mining margins in the 2007 third quarter showed a loss of $10.6 million, compared to positive earnings of $5.6 million in the same quarter of last year. As discussed previously, the weaker results from mining mostly reflected lower Stillwater Mine output in the 2007 third quarter associated with labor issues, attrition, and reduced use of mining contractors.

Three- month period ended September 30, 2007 compared to the three- month period ended September 30, 2006.

Revenues. Revenues decreased by 9.8%, to $163.1 million, for the third quarter of 2007, compared to $180.8 million for the third quarter of 2006. The following analysis covers key factors contributing to the decrease in revenues:

Revenues, PGM ounces sold and PGM prices


	Three months ended
	September 30,				Increase/			Percentage
(in thousands)	2007		2006		(Decrease)			Change
Revenues	$	163,087	$	180,817	$	(17,730	)		10	%


Mine Production Ounces Sold:

Palladium		102		114		(12	)		(11	%)
Platinum		26		36		(10	)		(28	%)

Total		128		150		(22	)		(15	%)


Other PGM Activities Ounces Sold:

Palladium		44		49		(5	)		(10	%)
Platinum		35		49		(14	)		(29	%)
Rhodium		6		7		(1	)		(14	%)

Total		85		105		(20	)		(19	%)


By-products from Mining Ounces/Pounds Sold:⁽¹⁾
Rhodium (oz.)		1		1		—			0	%
Gold (oz.)		2		3		(1	)		(33	%)
Silver (oz.)		2		1		1			100	%
Copper (lb.)		216		502		(286	)		(57	%)
Nickel (lb.)		303		384		(81	)		(21	%)

Average realized price per ounce

Mine Production:
Palladium	$	383	$	370	$	13			4	%
Platinum	$	950	$	877	$	73			8	%
Combined	$	499	$	492	$	7			1	%

Other PGM Activities:
Palladium	$	361	$	332	$	29			9	%
Platinum	$	1,292	$	1,180	$	112			9	%
Rhodium	$	5,913	$	4,852	$	1,061			22	%

By-products from mining:⁽¹⁾
Rhodium ($/oz.)	$	6,142	$	4,629	$	1,513			33	%
Gold ($/oz.)	$	699	$	614	$	85			14	%
Silver ($/oz.)	$	13	$	12	$	1			8	%
Copper ($/lb.)	$	4.21	$	3.09	$	1.12			36	%
Nickel ($/lb.)	$	14.25	$	12.12	$	2.13			18	%

Average market price per ounce

Palladium	$	348	$	324	$	24			7	%
Platinum	$	1,291	$	1,216	$	75			6	%
Combined	$	541	$	528	$	13			2	%


⁽¹⁾		By-product metals sold reflect contained metal. Realized prices for by-products reflect net values (discounted due to product form and transportation and marketing charges) per unit received. By-product sales are not recorded as revenue but as a reduction to costs of metals sold.

Revenues from sales of mine production were $63.6 million in the third quarter of 2007, compared to $73.7 million for the same period in 2006, a 13.7% decrease. The overall decrease in mine production revenues reflects a 15.0% decrease in the total quantity of metals sold - 127,500 ounces in the third quarter of 2007 compared to 150,000 ounces in the same period of 2006. The Company’s average combined realized price on sales of palladium and platinum from mining operations (net of hedging losses on platinum) increased slightly to $499 per ounce in the third quarter of 2007, compared to $492 per ounce in the same quarter of 2006.

Revenues from PGM recycling decreased to $94.1 million in the third quarter of 2007, from $104.2 million for the same period in 2006. Volumes of recycled metal sold during the third quarter of 2007 decreased to approximately 70,300 ounces, compared to approximately 96,000 ounces in the same period of 2006, reflecting in part the timing of inventory flows in the third quarter of 2006. The Company’s combined average realization on recycling sales (which include palladium, platinum and rhodium) was $1,332 per ounce in the third quarter of 2007, up from $1,084 per ounce in the third quarter of last year.

Costs of metals sold. Costs of metals sold increased to $147.3 million in the third quarter of 2007, from $146.4 million in the third quarter of 2006. The slightly higher cost in 2007 was driven primarily by higher acquisition costs for recycling catalysts as the underlying value of the contained metal increased.

The costs of metals sold from mine production were $54.1 million for the third quarter of 2007, compared to $48.1 million for the third quarter of 2006, a 12.5% increase. The increase primarily reflects higher mining costs in the third quarter of 2007, which were distorted somewhat by distractions associated with the strike. The third-quarter 2007 costs also included a $3.7 million lower-of-cost-or-market adjustment. A $54,000 reduction of the inventory carrying value was recorded for the same period of 2006.

Total consolidated cash costs per ounce produced, a non-GAAP measure of extraction efficiency, in the third quarter of 2007 increased significantly to $346 per ounce, compared to $245 per ounce in the third quarter of 2006. This increase resulted from low mine production, and from lower recycling and by-product credits during the third quarter of 2007 that are treated as offsets against the direct costs of mining.

The costs of metals sold from PGM recycling activities were $87.9 million in the third quarter of 2007, compared to $95.4 million in the third quarter of 2006, a 7.9% decrease. The decrease was due to the lower volumes of PGM ounces sold in the third quarter of 2007.

Production. During the third quarter of 2007, the Company’s mining operations produced approximately 128,600 ounces of PGMs, including approximately 98,700 and 29,900 ounces of palladium and platinum, respectively. This is down from the approximately 151,000 ounces of PGMs produced in the third quarter of 2006, including approximately 117,000 and 34,000 ounces of palladium and platinum, respectively. The shortfall in 2007 was mostly attributable to weaker output from Stillwater Mine, as discussed previously.

The Company’s third quarter 2007 mine production included 85,400 ounces from the Stillwater Mine, a 21.8% decrease from the same quarter last year, and 43,200 ounces from East Boulder Mine, a 2.6% increase from the same quarter last year. For the comparable quarter of 2006, Stillwater Mine produced 109,200 ounces and East Boulder produced 42,100 ounces.

Recycled ounces processed grew to 98,600 ounces in the third quarter of this year from about 90,300 ounces in the third quarter of 2006.

General and administrative. General and administrative expenses in the third quarter of 2007 were $6.8 million, compared to $8.3 million during the third quarter of 2006, an 18.1% decrease. The higher costs in the third quarter of 2006 were mainly due to the timing of the Company’s marketing expenditures to promote palladium in worldwide jewelry markets through the Palladium Alliance International, spending approximately $2.3 million on marketing in last year’s third quarter. While the Company continues its efforts to market palladium, costs associated with this marketing effort were largely spent earlier in 2007, and decreased to $0.8 million in this year’s third quarter.

Interest income and expense. Interest expense was almost unchanged at $2.9 million and $3.0 million in the third quarters of 2007 and 2006, respectively. The Company’s total debt balance declined to $128.5 million at September 30, 2007 from $131.1 million at September 30, 2006, but interest rates increased slightly between the periods. Interest income decreased by $0.3 million to $3.0 million in the third quarter of 2007 compared to $3.3 million in the third quarter last year. The Company’s balance of cash, cash equivalents, and other liquid investments earning interest (excluding restricted cash) increased to $104.3 million at September 30, 2007 from $93.5 million at September 30, 2006.

Other comprehensive income (loss). For the third quarter of 2007, other comprehensive loss included the total change in the fair value of derivatives of $3.8 million, reduced by $7.2 million of hedging loss recognized in current earnings. For the same period of 2006, other comprehensive loss included a change in the fair value of derivatives of $11.8 million reduced by $10.0 million in hedging loss recognized in current earnings.

Nine-month period ended September 30, 2007, compared to the nine-month period ended September 30, 2006.

Revenues. Revenues were $470.5 million for the first nine months of 2007, compared to $437.6 million for the same period of 2006, an increase of 7.5%. The following discussion covers key factors affecting revenues:

Revenues, PGM ounces sold and PGM prices


	Nine months ended
	September 30,				Increase/			Percentage
(in thousands)	2007		2006		(Decrease)			Change
Revenues	$	470,500	$	437,602	$	32,898			8	%


Mine Production Ounces Sold:

Palladium		327		339		(12	)		(4	%)
Platinum		92		100		(8	)		(8	%)

Total		419		439		(20	)		(5	%)


Other PGM Activities Ounces Sold:

Palladium		113		157		(44	)		(28	%)
Platinum		94		90		4			4	%
Rhodium		18		20		(2	)		(10	%)

Total		225		267		(42	)		(16	%)


By-products from Mining Ounces/Pounds Sold:⁽¹⁾
Rhodium (oz.)		3		3		—			0	%
Gold (oz.)		8		8		—			0	%
Silver (oz.)		6		5		1			20	%
Copper (lb.)		684		848		(164	)		(19	%)
Nickel (lb.)		870		1,215		(345	)		(28	%)

Average realized price per ounce

Mine Production:
Palladium	$	382	$	370	$	12			3	%
Platinum	$	937	$	845	$	92			11	%
Combined	$	504	$	478	$	26			5	%

Other PGM Activities:
Palladium	$	351	$	302	$	49			16	%
Platinum	$	1,228	$	1,106	$	122			11	%
Rhodium	$	5,641	$	3,892	$	1,749			45	%

By-products from mining:⁽¹⁾
Rhodium ($/oz.)	$	6,069	$	4,372	$	1,697			39	%
Gold ($/oz.)	$	671	$	597	$	74			12	%
Silver ($/oz.)	$	13	$	11	$	2			18	%
Copper ($/lb.)	$	3.31	$	2.94	$	0.37			13	%
Nickel ($/lb.)	$	17.98	$	8.62	$	9.36			109	%

Average market price per ounce

Palladium	$	355	$	320	$	35			11	%
Platinum	$	1,256	$	1,147	$	109			10	%
Combined	$	551	$	504	$	47			9	%


⁽¹⁾		By-product metals sold reflect contained metal. Realized prices for by-products reflect net values (discounted due to product form and transportation and marketing charges) per unit received. By-product sales are not recorded as revenue but as reduction to costs of metals sold.

Revenues from mine production were almost unchanged at $210.9 million in the first nine months of 2007, compared to $210.0 million for the same period in 2006. The slight increase in mine production revenues was mostly due to increased PGM sales realizations, as the quantity of metals sold declined to 419,000 ounces in the first nine months of 2007, compared to 439,000 ounces in the same period of 2006, a 4.6% decrease. Ounces sold attributable to East Boulder Mine production decreased to approximately 134,300 in the first three quarters of 2007 from approximately 144,000 ounces in the same period of 2006. Sales attributable to production from the Stillwater Mine decreased to approximately 284,400 ounces in the first three quarters of 2007, from approximately 295,000 ounces in the first three quarters of last year. East Boulder continues its transition away from sublevel extraction and toward more selective mining methods. The Stillwater production problems discussed above took place during June and July and as a result affected third-quarter 2007 sales volumes.

Revenues from PGM recycling were $248.0 million for the first nine months of 2007, compared to $178.5 million for the same period in 2006, a 38.9% increase. This increase in revenues from PGM recycling resulted mostly from growth in the quantity of recycled PGMs sold to 192,000 ounces in the first nine months of 2007, compared to approximately 169,000 ounces in the same period of 2006 and a $227 per ounce increase in the combined average realized price for these metals (including platinum, palladium and rhodium) to $1,282 per ounce for the first nine months of 2007 from $1,055 per ounce for the first three quarters of 2006.

For the first nine months of 2006, revenues from sales of palladium received in the Norilsk Nickel transaction and other sales activities totaled $46.2 million, including $17.6 million from contractual sales out of the palladium inventory from the Norilsk Nickel transaction, and $28.6 million from other metals acquired for resale. These sales and all related sales commitments associated with the Norilsk Nickel transaction ended in the first quarter of 2006.

Costs of metals sold. Costs of metals sold overall for the Company were $400.6 million for the first nine months of 2007, compared to $349.6 million for the same period of 2006, a 14.6% increase.

The costs of metals sold from mine production were $157.1 million for the first nine months of 2007, compared to $142.3 million for the same period of 2006, a 10.4% increase. This increase primarily reflects higher mining costs during the first three quarters of 2007, including the effects of lower productivity surrounding the mid-year union contract negotiations and the schedule change at the Stillwater Mine. The Company recognized a $5.2 million lower-of-cost-or-market adjustment in inventory for the nine- month period ended September 30, 2007; this compared to a lower-of-cost-or-market adjustment of $1.2 million recorded in the first three quarters of 2006.

Total consolidated cash costs per ounce produced, a non-GAAP measure, in the first nine months of 2007 increased to $324 per ounce compared to $293 per ounce in the same period of 2006. Analysis of this difference between the two periods indicates that recycling and by-product credits have not been sufficient in 2007 to offset the effects of higher labor and materials costs in mining, with the remaining difference more than accounted for by increased severance tax and royalty costs in 2007 associated with higher metals prices.

The costs of metals sold from PGM recycling activities were $232.0 million in the first nine months of 2007, compared to $165.3 million in the same period of 2006. The significant growth has been driven by two principal factors: first, an increase in ounces sold to approximately 192,000 ounces in the first nine months of this year from approximately 169,000 ounces in the first three quarters of 2006; and, second, an increase in the average cost per ounce – driven mostly by the cost of raw catalyst material, and reflecting growth in the underlying value of the metal it contains – to $1,208 per ounce (for platinum, palladium and rhodium) in the first three quarters of 2007 from $983 per ounce during the first three quarters of 2006.

The costs of metals sold from sales of palladium received in the Norilsk Nickel transaction and other sales activities were $42.0 million in the first nine months of 2006. There were no corresponding costs associated with the Norilsk Nickel transaction in the first nine months of 2007 as these sales ended in the first quarter of 2006.

Production. During the first nine months of 2007, the Company’s mining operations produced approximately 405,800 ounces of PGMs, including approximately 312,200 and 93,600 ounces of palladium and platinum, respectively. This compares with approximately 446,000 ounces of PGMs in the first nine months of 2006, including approximately 345,000 and 101,000 ounces of palladium and platinum, respectively, a 9.0%

period-on-period decrease in total PGM production. The Stillwater Mine produced approximately 267,900 ounces of PGMs in the first nine months of 2007, compared with approximately 301,000 ounces of PGMs in the same period of 2006, an 11.0 % decrease. Production at the Stillwater Mine was affected by lower productivity surrounding the labor negotiations and strike, workforce attrition following a schedule change, ground conditions and mechanical problems with new underground mining equipment. The East Boulder Mine produced approximately 137,900 ounces of PGMs in the first nine months of 2007, compared with approximately 145,000 ounces of PGMs for the same period of 2006, a 4.9% decrease, in line with Company expectations and reflecting the difficult transition away from bulk mechanical mining toward more selective extraction methods.

General and administrative. General and administrative expenses in the first nine months of 2007 were $18.5 million, compared to $18.0 million during the same period of 2006. The increase resulted from increased compensation costs including amortization of deferred stock awards granted earlier in 2007. Marketing expense for the first nine months of 2007 was $4.0 million compared to $3.2 million for the comparable period in 2006.

Interest expense of $8.5 million in the first nine months of 2007 remained unchanged from the same period in 2006. The effect of higher interest rates over the past year was fully offset by the reduction in the Company’s outstanding debt balance. Interest income increased to $8.9 million for the first nine months of 2007 from $8.4 million in the comparable period of 2006. This increase primarily was driven by higher interest rates.

Other comprehensive income (loss). For the first nine months of 2007, other comprehensive loss includes a change in the fair value of derivatives of $19.1 million offset by a reclassification to earnings of $22.5 million, for commodity hedging instruments. For the same period of 2006, other comprehensive loss included a change in value of $32.6 million for commodity instruments and a reclassification to earnings of $24.6 million.

Liquidity and Capital Resources

The Company’s cash and cash equivalents totaled $67.4 million at September 30, 2007, up $10.2 million from June 30, 2007. By including the Company’s available-for-sale investments in highly liquid federal agency notes and commercial paper, the Company’s total available liquidity at September 30, 2007, was $104.3 million, up $7.4 million from $96.9 million at the end of the second quarter of 2007. Working capital comprised of marketable inventories (see Note 10 to the Company’s financial statements) and advances thereon in the Company’s PGM recycling business totaled about $80.6 million at the end of the third quarter of 2007, up from $70.9 million at the beginning of the year, but down significantly from $97.1 million at the end of the second quarter of 2007. The Company also had $16.4 million available to it under undrawn revolving credit lines at September 30, 2007.

The Company’s plan includes spending a total of about $36 million during 2007 and 2008 to add a second smelting furnace and other process enhancements at its processing facilities in Columbus, Montana. The second furnace will mitigate an operational risk, as virtually all of the Company’s metal production is dependent on the availability of the smelter facility. Sometime in the future, the Company once again will need to take down the existing smelter furnace for several weeks to replace its refractory brick lining. In the past, the smelter simply stockpiled material during the rebricking and processed it following the outage; however, total throughput demand at the furnace has now increased to a level where that may no longer be feasible. The second furnace may also allow for extending the residence time of matte in the furnace, which should improve PGM furnace recoveries.

Net cash provided from operating activities was $31.0 million in the third quarter of 2007 compared to $25.5 million provided from operating activities in the same period of 2006, reflecting the reduction of recycling-related operating capital. Capital expenditures were unchanged at $22.4 million in the third quarters of 2007 and 2006. The Company paid down $0.3 million of its debt obligations during the third quarter of 2007, in accordance with the terms of its credit agreement and capital leases. Outstanding debt at September 30, 2007 was $128.5 million.

Credit Facility

As of September 30, 2007, the Company had $98.6 million outstanding under the term loan facility. At September 30, 2007, the Company had obtained letters of credit in the amount of $23.6 million as partial surety for certain of its long-term reclamation obligations, which reduced amounts available under the revolving credit facility to $16.4 million at September 30, 2007. As of September 30, 2007, $1.0 million of the long-term debt under this facility was classified as a current liability (see Note 11 to the Company’s financial statements).

Contractual Obligations

The Company is obligated to make future payments under various contracts such as debt and capital lease agreements. The following table represents significant contractual cash obligations and other commercial commitments and the related interest payments as of September 30, 2007:


(in thousands)	2007⁽¹⁾		2008		2009		2010		2011		Thereafter		Total
Term loan facility	$	255	$	1,019	$	1,019	$	96,305	$	—	$	—	$	98,598
Capital lease obligations		60		—		—		—		—		—		60
Special Industrial Education Impact Revenue Bonds		93		190		97		—		—		—		380
Exempt Facility Revenue Bonds		—		—		—		—		—		30,000		30,000
Operating leases		78		275		240		240		240		699		1,772
Asset retirement obligations		—		—		—		—		—		69,479		69,479
Payments of interest		3,264		10,525		10,120		6,590		2,400		20,400		53,299
Other noncurrent liabilities		—		17,400		—		—		—		—		17,400

Total	$	3,750	$	29,409	$	11,476	$	103,135	$	2,640	$	120,578	$	270,988


⁽¹⁾		Amounts represent cash obligations for October – December 2007.

Debt obligations referred to in the table above are presented as due for repayment under the current terms of the loan agreements and before any effect of payments out of excess cash flow. Amounts included in other noncurrent liabilities that are anticipated to be paid in 2008 include workers’ compensation costs, property taxes and severance taxes. Interest payments noted in the table above assume no early extinguishments of debt and no changes in interest rates.

Critical Accounting Policies

Listed below are the accounting policies that the Company believes are critical to its financial statements due to the degree of uncertainty regarding estimates or assumptions involved and the magnitude of the liability, revenue or expense being reported.

Ore Reserve Estimates

Certain accounting policies of the Company depend on its estimate of proven and probable ore reserves including depreciation and amortization of capitalized income tax valuation allowances, post-closure reclamation costs, asset impairment and mine development expenditures. The Company updates its proven and probable ore reserves annually, following the guidelines for ore reserve determination contained in the SEC’s Industry Guide No. 7.

Mine Development Expenditures — Capitalization and Amortization

Mining operations are inherently capital intensive, generally requiring substantial capital investment for the initial and concurrent development and infrastructure of the mine. Many of these expenditures are necessarily incurred well in advance of actual extraction of ore. Underground mining operations such as those conducted by the Company require driving tunnels and sinking shafts that provide access to the underground orebody and

construction and development of infrastructure, including electrical and ventilation systems, rail and other forms of transportation, shop facilities, material handling areas and hoisting systems. Ore mining and removal operations require significant underground facilities used to conduct mining operations and to transport the ore out of the mine to processing facilities located above ground.

Contemporaneously with mining, additional development is undertaken to provide access to ongoing extensions of the orebody, allowing more ore to be produced. In addition to the development costs that have been previously incurred, these ongoing development expenditures are necessary to access and support all future mining activities.

Mine development expenditures incurred to date to increase existing production, develop new orebodies or develop mineral property substantially in advance of production are capitalized. Mine development expenditures consist of vertical shafts, multiple surface adits and underground infrastructure development including footwall laterals, ramps, rail and transportation, electrical and ventilation systems, shop facilities, material handling areas, ore handling facilities, dewatering and pumping facilities. Many such facilities are required not only for current operations, but also for all future planned operations.

Expenditures incurred to sustain existing production and access specific ore reserve blocks or stopes provide benefit to ore reserve production over limited periods of time (secondary development) and are charged to operations as incurred. These costs include ramp and stope access excavations from primary haulage levels (footwall laterals), stope material rehandling/laydown excavations, stope ore and waste pass excavations and chute installations, stope ventilation raise excavations and stope utility and pipe raise excavations.

The Company calculates amortization of capitalized mine development costs by the application of an amortization rate to current production. The amortization rate is based upon un-amortized capitalized mine development costs, and the related ore reserves. Capital expenditures are added to the un-amortized capitalized mine development costs as the related assets are placed into service. In the calculation of the amortization rate, changes in ore reserves are accounted for as a prospective change in estimate. Ore reserves and the further benefit of capitalized mine development costs are based on significant management assumptions. Any changes in these assumptions, such as a change in the mine plan or a change in estimated proven and probable ore reserves could have a material effect on the expected period of benefit resulting in a potentially significant change in the amortization rate and/or the valuations of related assets. The Company’s proven ore reserves are generally expected to be extracted utilizing its existing mine development infrastructure. Additional capital expenditures will be required to access the Company’s estimated probable ore reserves. These anticipated capital expenditures are not included in the current calculation of depreciation and amortization.

The Company’s mine development costs include the initial costs incurred to gain primary access to the ore reserves, plus the ongoing development costs of footwall laterals and ramps driven parallel to the reef that are used to access and provide support for the mining stopes in the reef.

The Company accounts for mine development costs as follows:

Unamortized costs of the shaft at the Stillwater Mine and the initial development at the East Boulder Mine are treated as life-of-mine infrastructure costs, to be amortized over total proven and probable reserves at each location; and

All ongoing development costs of footwall laterals and ramps, including similar development costs will be amortized over the ore reserves in the immediate and relevant vicinity of the development.

The calculation of the amortization rate, and therefore the annual amortization charge to operations, could be materially impacted to the extent that actual production in the future is different from current forecasts of production based on proven and probable ore reserves. This would generally occur to the extent that there were significant changes in any of the factors or assumptions used in determining ore reserves. These factors could include: (1) an expansion of proven and probable ore reserves through development activities, (2) differences between estimated and actual costs of mining due to differences in grade or metal recovery rates, and (3) differences between actual commodity prices and commodity price assumptions used in the estimation of ore reserves.

Derivative Instruments

From time to time, the Company enters into derivative financial instruments, including fixed forwards and financially settled forwards to manage the effect of changes in the prices of palladium and platinum on the Company’s revenue. It also has entered into an interest rate swap transaction under the provisions of the Credit Agreement. The Company accounts for its derivatives in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, 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. SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138 Accounting for Derivative Instruments and Certain Hedging Activities and SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, provides an exception for certain derivative transactions that meet the criteria for “normal purchases and normal sales” transactions; effective April 1, 2006, the Company began applying the normal purchase and sale exception for certain forward sales of recycled material that require physical delivery of metal. If the derivative transaction is designated as a hedge, and to the extent such hedge is determined to be highly effective, changes in fair value are either (a) offset by the change in fair value of the hedged asset or liability (if applicable) or (b) reported as a component of other comprehensive income (loss) in the period of change, and subsequently recognized in the determination of net income (loss) in the period the offsetting hedged transaction occurs. The Company primarily uses derivatives to hedge metal prices and interest rates. As of September 30, 2007, the net unrealized loss on outstanding derivatives associated with commodity instruments is valued at $12.3 million, and is reported as a component of accumulated other comprehensive loss. Because these hedges are highly effective, the Company expects any ultimate gains or losses on the hedging instruments will be largely offset by corresponding changes in the value of the hedged transaction.

Income Taxes

Income taxes are determined using the asset and liability approach in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes. This method gives consideration to the future tax consequences of temporary differences between the financial reporting basis and the tax basis of assets and liabilities based on currently enacted tax rates. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Each quarter, management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. A valuation allowance has been provided at September 30, 2007, for the portion of the Company’s net deferred tax assets, which, more likely than not, will not be realized (see Note 5 to the Company’s financial statements). Based on the Company’s current financial projections, and in view of the level of tax depreciation and depletion deductions available, it appears unlikely that the Company will owe any income taxes for the foreseeable future. However, if average realized PGM prices were to increase substantially in the future, the Company could owe income taxes prospectively on the resulting higher than projected taxable income.

Post-closure Reclamation Costs

The Company recognizes the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation ultimately is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss at the time of settlement.

Accounting for reclamation obligations requires management to make estimates for each mining operation of the future costs the Company will incur to complete final reclamation work required to comply with existing laws and regulations. Actual costs incurred in future periods could differ from amounts estimated. Additionally, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required to be performed by the Company. Any such increases in future costs could materially affect the amounts charged to operations for reclamation and remediation.

Asset Impairment

In accordance with the methodology prescribed by 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 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 and capital and reclamation expenditures, all based on life-of-mine plans and projections. If the assets are impaired, a calculation of fair market value is performed, and if fair market value is lower than the carrying value of the assets, the assets are reduced to their fair market value.

Stillwater Mining Company
Key Factors
(Unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
	2007		2006		2007		2006
OPERATING AND COST DATA FOR MINE PRODUCTION

*Consolidated:*
Ounces produced (000)
Palladium		99		117		312		345
Platinum		29		34		94		101

Total		128		151		406		446

Tons milled (000)		277		308		891		957
Mill head grade (ounce per ton)		0.51		0.54		0.50		0.51
Sub-grade tons milled (000) ⁽¹⁾		16		17		53		46
Sub-grade tons mill head grade (ounce per ton)		0.12		0.13		0.12		0.13
Total tons milled (000) ⁽¹⁾		293		325		944		1,003
Combined mill head grade (ounce per ton)		0.49		0.51		0.48		0.49
Total mill recovery (%)		91		90		91		91

Total operating costs per ounce (Non-GAAP)	$	272	$	188	$	258	$	240
Total cash costs per ounce (Non-GAAP) ^{(2) (3)}	$	346	$	245	$	324	$	293
Total production costs per ounce (Non-GAAP) ^{(2) (3)}	$	506	$	377	$	478	$	431
Total operating costs per ton milled (Non-GAAP)	$	120	$	87	$	111	$	107
Total cash costs per ton milled (Non-GAAP) ^{(2) (3)}	$	152	$	114	$	139	$	130
Total production costs per ton milled (Non-GAAP)^{(2) (3)}	$	222	$	175	$	206	$	192
*Stillwater Mine:*
Ounces produced (000)
Palladium		65		84		205		232
Platinum		20		25		63		69

Total		85		109		268		301

Tons milled (000)		145		188		481		544
Mill head grade (ounce per ton)		0.64		0.63		0.60		0.60
Sub-grade tons milled (000)⁽¹⁾		16		17		53		46
Sub-grade tons mill head grade (ounce per ton)		0.12		0.13		0.12		0.13
Total tons milled (000) ⁽¹⁾		161		205		534		590
Combined mill head grade (ounce per ton)		0.58		0.58		0.55		0.60
Total mill recovery (%)		92		91		92		92

Total operating costs per ounce (Non-GAAP)	$	229	$	179	$	228	$	231
Total cash costs per ounce (Non-GAAP) ^{(2) (3)}	$	299	$	234	$	293	$	283
Total production costs per ounce (Non-GAAP) ^{(2) (3)}	$	431	$	348	$	424	$	403
Total operating costs per ton milled (Non-GAAP)	$	121	$	96	$	114	$	118
Total cash costs per ton milled (Non-GAAP) ^{(2) (3)}	$	159	$	124	$	147	$	145
Total production costs per ton milled (Non-GAAP)^{(2) (3)}	$	229	$	185	$	213	$	206

Stillwater Mining Company
Key Factors (continued)
(Unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
	2007		2006		2007		2006
OPERATING AND COST DATA FOR MINE PRODUCTION (Continued)

*East Boulder Mine:*
Ounces produced (000)
Palladium		34		33		107		113
Platinum		9		9		31		32

Total		43		42		138		145

Tons milled (000)		132		120		410		413
Mill head grade (ounce per ton)		0.37		0.39		0.38		0.39

Sub-grade tons milled (000) ⁽¹⁾		—		—		—		—
Sub-grade tons mill head grade (ounce per ton)		—		—		—		—

Total tons milled (000) ⁽¹⁾		132		120		410		413
Combined mill head grade (ounce per ton)		0.37		0.39		0.38		0.39
Total mill recovery (%)		90		89		90		89

Total operating costs per ounce (Non-GAAP)	$	359	$	211	$	317	$	259
Total cash costs per ounce (Non-GAAP) ^{(2) (3)}	$	438	$	274	$	384	$	314
Total production costs per ounce (Non-GAAP) ^{(2) (3)}	$	653	$	453	$	584	$	489

Total operating costs per ton milled (Non-GAAP)	$	118	$	74	$	107	$	90
Total cash costs per ton milled (Non-GAAP) ^{(2) (3)}	$	144	$	96	$	129	$	110
Total production costs per ton milled (Non-GAAP)^{(2) (3)}	$	214	$	158	$	196	$	171

Stillwater Mining Company
Key Factors (continued)
(Unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
(in thousands, where noted)	2007		2006		2007		2006
SALES AND PRICE DATA

Ounces sold (000)
Mine production:
Palladium (oz.)		102		114		327		339
Platinum (oz.)		26		36		92		100

Total		128		150		419		439

Other PGM activities: ⁽⁶⁾
Palladium (oz.)		44		49		113		157
Platinum (oz.)		35		49		94		90
Rhodium (oz.)		6		7		18		20

Total		85		105		225		267


By-products from mining: ⁽⁷⁾
Rhodium (oz.)		1		1		3		3
Gold (oz.)		2		3		8		8
Silver (oz.)		2		1		6		5
Copper (lb.)		216		502		684		848
Nickel (lb.)		303		384		870		1,215

Average realized price per ounce ⁽⁵⁾
Mine production:
Palladium	$	383	$	370	$	382	$	370
Platinum	$	950	$	877	$	937	$	845
Combined ⁽⁵⁾	$	499	$	492	$	504	$	478

Other PGM activities: ⁽⁶⁾
Palladium	$	361	$	332	$	351	$	302
Platinum	$	1,292	$	1,180	$	1,228	$	1,106
Rhodium	$	5,913	$	4,852	$	5,641	$	3,892

By-products from mining: ⁽⁷⁾
Rhodium ($/oz.)	$	6,142	$	4,629	$	6,069	$	4,372
Gold ($/oz.)	$	699	$	614	$	671	$	597
Silver ($/oz.)	$	13	$	12	$	13	$	11
Copper ($/lb.)	$	4.21	$	3.09	$	3.31	$	2.94
Nickel ($/lb.)	$	14.25	$	12.12	$	17.98	$	8.62

Average market price per ounce ⁽⁵⁾
Palladium	$	348	$	324	$	355	$	320
Platinum	$	1,291	$	1,216	$	1,256	$	1,147
Combined ⁽⁵⁾	$	541	$	528	$	551	$	504


(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” include period costs of mining, processing and administration at the mine site (including mine site overhead and credits for metals produced other than palladium and platinum from mine production). Norilsk Nickel transaction expenses and interest income and expense are not included in total cash costs.

(3)		“Total cash cost” per ton represents a non-U.S. Generally Accepted Accounting Principles (GAAP) measurement that management uses to monitor and evaluate the efficiency of its mining operations. See table “Reconciliation of Non-GAAP measures to costs of revenues” and accompanying discussion.

(4)		The Company’s average realized price represents revenues, which include the effect of contract floor and ceiling prices, hedging gains and losses realized on commodity instruments and contract discounts, divided by ounces sold. The average market price represents the average London PM Fix for the actual months of the period.

(5)		The Company reports a combined average realized and market price of palladium and platinum at the same ratio as ounces that are produced from the refinery.

(6)		Ounces sold and average realized price per ounce from other PGM activities primarily relate to ounces produced from processing of catalyst materials and palladium received in the Norilsk Nickel transaction.

(7)		By-product metals sold reflect contained metal. Realized prices reflect net values (discounted due to product form and transportation and marketing charges) per unit received.

Reconciliation of Non-GAAP Measures to Costs of Revenues

The Company utilizes certain non-GAAP measures as indicators in assessing the performance of its mining and processing operations during any period. Because of the processing time required to complete the extraction of finished PGM products, there are typically lags of one to three months between ore production and sale of the finished product. Sales in any period include some portion of material mined and processed from prior periods as the revenue recognition process is completed. Consequently, while costs of revenues (a GAAP measure included in the Company’s Statement of Operations and Comprehensive Income (Loss)) appropriately reflects the expense associated with the materials sold in any period, the Company has developed certain non-GAAP measures to assess the costs associated with its producing and processing activities in a particular period and to compare those costs between periods.

While the Company believes that these non-GAAP measures may also be of value to outside readers, both as general indicators of the Company’s mining efficiency from period to period and as insight into how the Company internally measures its operating performance, these non-GAAP measures are not standardized across the mining industry and in most cases will not be directly comparable to similar measures that may be provided by other companies. These non-GAAP measures are only useful as indicators of relative operational performance in any period, and because they do not take into account the inventory timing differences that are included in costs of revenues, they cannot meaningfully be used to develop measures of earnings or profitability. A reconciliation of these measures to costs of revenues for each period shown is provided as part of the following tables, and a description of each non-GAAP measure is provided below.

Total Costs of Revenues: For the Company as a whole, this measure is equal to total costs of revenues, as reported in the Statement of Operations and Comprehensive Income (Loss). For the Stillwater Mine, East Boulder Mine, and other PGM activities, the Company segregates the expenses within total costs of revenues that are directly associated with each of these activities and then allocates the remaining facility costs included in total cost of revenues in proportion to the monthly volumes from each activity. The resulting total costs of revenues measures for Stillwater Mine, East Boulder Mine and other PGM activities are equal in total to total costs of revenues as reported in the Company’s Statement of Operations and Comprehensive Income (Loss).

Total Production Costs (Non-GAAP): Calculated as total costs of revenues (for each mine or combined) adjusted to exclude gains or losses on asset dispositions, costs and profit from recycling activities, and timing differences resulting from changes in product inventories. This non-GAAP measure provides a comparative measure of the total costs incurred in association with production and processing activities in a period, and may be compared to prior periods or between the Company’s mines.

When divided by the total tons milled in the respective period, Total Production Cost per Ton Milled (Non-GAAP) - measured for each mine or combined — provides an indication of the cost per ton milled in that period. Because of variability of ore grade in the Company’s mining operations, production efficiency underground is frequently measured against ore tons produced rather than contained PGM ounces. Because ore tons are first actually weighed as they are fed into the mill, mill feed is the first point at which production tons are measured precisely. Consequently, Total Production Cost per Ton Milled (Non-GAAP) is a general measure of production efficiency, and is affected both by the level of Total Production Costs (Non-GAAP) and by the volume of tons produced and fed to the mill.

When divided by the total recoverable PGM ounces from production in the respective period, Total Production Cost per Ounce (Non-GAAP) - measured for each mine or combined — provides an indication of the cost per ounce produced in that period. Recoverable PGM ounces from production are an indication of the amount of PGM product extracted through mining in any period. Because extracting PGM material is ultimately the objective of mining, the cost per ounce of extracting and processing PGM ounces in a period is a useful measure for comparing extraction efficiency between periods and between the Company’s mines. Consequently, Total Production Cost per Ounce (Non-GAAP) in any period is a general measure of extraction efficiency, and is affected by the level of Total Production Costs (Non-GAAP), by the grade of the ore produced and by the volume of ore produced in the period.

Total Cash Costs (Non-GAAP): This non-GAAP measure is calculated by excluding the depreciation and amortization and asset retirement costs from Total Production Costs (Non-GAAP) for each mine or combined. The Company uses this measure as a comparative indication of the cash costs related to production and processing in any period.

When divided by the total tons milled in the respective period, Total Cash Cost per Ton Milled (Non-GAAP) - measured for each mine or combined — provides an indication of the level of cash costs incurred per ton milled in that period. Because of variability of ore grade in the Company’s mining operations, production efficiency underground is frequently measured against ore tons produced rather than contained PGM ounces. Because ore tons are first weighed as they are fed into the mill, mill feed is the first point at which production tons are measured precisely. Consequently, Total Cash Cost per Ton Milled (Non-GAAP) is a general measure of production efficiency, and is affected both by the level of Total Cash Costs (Non-GAAP) and by the volume of tons produced and fed to the mill.

When divided by the total recoverable PGM ounces from production in the respective period, Total Cash Cost per Ounce (Non-GAAP) - measured for each mine or combined — provides an indication of the level of cash costs incurred per PGM ounce produced in that period. Recoverable PGM ounces from production are an indication of the amount of PGM product extracted through mining in any period. Because ultimately extracting PGM material is the objective of mining, the cost per ounce of extracting and processing PGM ounces in a period is a useful measure for comparing extraction efficiency between periods and between the Company’s mines. Consequently, Total Cash Cost per Ounce (Non-GAAP) in any period is a general measure of extraction efficiency, and is affected by the level of Total Cash Costs (Non-GAAP), by the grade of the ore produced and by the volume of ore produced in the period.

Total Operating Costs (Non-GAAP): This non-GAAP measure is derived from Total Cash Costs (Non-GAAP) for each mine or combined by excluding royalty, tax and insurance expenses from Total Cash Costs (Non-GAAP). Royalties, taxes and insurance costs are contractual or governmental obligations outside of the control of the Company’s mining operations, and in the case of royalties and most taxes, are driven more by the level of sales realizations rather than by operating efficiency. Consequently, Total Operating Costs (Non-GAAP) is a useful indicator of the level of production and processing costs incurred in a period that are under the control of mining operations.

When divided by the total tons milled in the respective period, Total Operating Cost per Ton Milled (Non-GAAP) - measured for each mine or combined — provides an indication of the level of controllable cash costs incurred per ton milled in that period. Because of variability of ore grade in the Company’s mining operations, production efficiency underground is frequently measured against ore tons produced rather than contained PGM

ounces. Because ore tons are first actually weighed as they are fed into the mill, mill feed is the first point at which production tons are measured precisely. Consequently, Total Operating Cost per Ton Milled (Non-GAAP) is a general measure of production efficiency, and is affected both by the level of Total Operating Costs (Non-GAAP) and by the volume of tons produced and fed to the mill.

When divided by the total recoverable PGM ounces from production in the respective period, Total Operating Cost per Ounce (Non-GAAP) - measured for each mine or combined — provides an indication of the level of controllable cash costs incurred per PGM ounce produced in that period. Recoverable PGM ounces from production are an indication of the amount of PGM product extracted through mining in any period. Because ultimately extracting PGM material is the objective of mining, the cost per ounce of extracting and processing PGM ounces in a period is a useful measure for comparing extraction efficiency between periods and between the Company’s mines. Consequently, Total Operating Cost per Ounce (Non-GAAP) in any period is a general measure of extraction efficiency, and is affected by the level of Total Operating Costs (Non-GAAP), by the grade of the ore produced and by the volume of ore produced in the period.

Reconciliation of Non-GAAP Measures to Costs of Revenues


	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands)	2007			2006			2007			2006
*Consolidated:*
Reconciliation to consolidated costs of revenues:
Total operating costs (Non-GAAP)	$	35,010		$	28,445		$	104,817		$	106,991
Royalties, taxes and other		9,419			8,604			26,725			23,767

Total cash costs (Non-GAAP)	$	44,429		$	37,049		$	131,542		$	130,758
Asset retirement costs		185			164			545			483
Depreciation and amortization		20,115			19,979			62,134			61,240
Depreciation and amortization (in inventory)		277			(140	)		(93	)		(294	)

Total production costs (Non-GAAP)	$	65,006		$	57,052		$	194,128		$	192,187
Change in product inventories		6,638			3,281			15,607			35,963
Costs of recycling activities		87,886			95,356			231,932			165,292
Recycling activities — depreciation		32			24			84			74
Add: Profit from recycling activities		7,857			10,710			21,020			17,420
Loss or (gain) on sale of assets and other costs		26			70			(184	)		(164	)

Total consolidated costs of revenues	$	167,445		$	166,493		$	462,587		$	410,772

*Stillwater Mine*:
Reconciliation to costs of revenues:
Total operating costs (Non-GAAP)	$	19,520		$	19,587		$	61,140		$	69,609
Royalties, taxes and other		6,007			5,927			17,457			15,740

Total cash costs (Non-GAAP)	$	25,527		$	25,514		$	78,597		$	85,349
Asset retirement costs		129			119			380			349
Depreciation and amortization		10,778			12,385			35,341			36,572
Depreciation and amortization (in inventory)		357			(30	)		(719	)		(710	)

Total production costs (Non-GAAP)	$	36,791		$	37,988		$	113,599		$	121,560
Change in product inventories		(667	)		(138	)		2,714			(4,624	)
Add: Profit from recycling activities		5,149			7,665			13,722			12,041
Loss or (gain) on sale of assets and other costs		(40	)		(9	)		(245	)		(180	)

Total costs of revenues	$	41,233		$	45,506		$	129,790		$	128,797

*East Boulder Mine:*
Reconciliation to costs of revenues:
Total operating costs (Non-GAAP)	$	15,490		$	8,858		$	43,677		$	37,382
Royalties, taxes and other		3,412			2,677			9,268			8,027

Total cash costs (Non-GAAP)	$	18,902		$	11,535		$	52,945		$	45,409
Asset retirement costs		56			45			165			134
Depreciation and amortization		9,337			7,594			26,793			24,668
Depreciation and amortization (in inventory)		(80	)		(110	)		626			416

Total production costs (Non-GAAP)	$	28,215		$	19,064		$	80,529		$	70,627
Change in product inventories		2,006			490			1,389			(1,406	)
Add: Profit from recycling activities		2,708			3,045			7,298			5,379
Loss or (gain) on sale of assets and other costs		23			79			23			52

Total costs of revenues	$	32,929		$	22,678		$	89,216		$	74,652

*Other PGM activities:* ⁽¹⁾
Reconciliation to costs of revenues:
Change in product inventories	$	5,299		$	2,929		$	11,504		$	41,993
Recycling activities — depreciation		32			24			84			74
Costs of recycling activities		87,886			95,356			231,932			165,292
Loss or (gain) on sale of assets and other costs		43			—			38			(36	)

Total costs of revenues	$	93,260		$	98,309		$	243,558		$	207,323


⁽¹⁾		Other PGM activities include recycling and sales of palladium received in the Norilsk Nickel transaction and other.

FORWARD LOOKING STATEMENTS: FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION

Some statements contained in this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and, therefore, involve uncertainties or risks that could cause actual results to differ materially. These statements may contain words such as “believes,” “anticipates,” “plans,” “expects,” “intends,” “estimates” or similar expressions. These statements are not guarantees of the Company’s future performance and are subject to risks, uncertainties and other important factors that could cause our actual performance or achievements to differ materially from those expressed or implied by these forward-looking statements. Such statements include, but are not limited to, comments regarding expansion plans, costs, grade, production and recovery rates, permitting, labor matters, financing needs, the terms of future credit facilities and capital expenditures, increases in processing capacity, cost reduction measures, safety, timing for engineering studies, and environmental permitting and compliance, litigation and the palladium and platinum market. Additional information regarding factors that could cause results to differ materially from management’s expectations is found in the section entitled “Risk Factors” in the Company’s 2006 Annual Report on Form 10-K.

The Company intends that the forward-looking statements contained herein be subject to the above-mentioned statutory safe harbors. Investors are cautioned not to rely on forward-looking statements. The Company disclaims any obligation to update forward-looking statements.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

The Company is exposed to market risk, including the effects of adverse changes in metal prices and interest rates as discussed below.

Commodity Price Risk

The Company produces and sells palladium, platinum and associated by-product metals directly to its customers and also through third parties. As a result, financial performance can be materially affected when prices for these commodities fluctuate. In order to manage commodity price risk and to reduce the impact of fluctuation in prices, the Company enters into long-term contracts and from time to time uses various derivative financial instruments. Because the Company hedges only with instruments that have a high correlation with the value of the hedged transactions, changes in the fair value of the derivatives are expected to be offset by changes in the value of the hedged transactions.

The Company currently is party to long-term sales contracts with General Motors Corporation and Ford Motor Company. The contracts together cover significant portions of the Company’s mined PGM production through 2012 and stipulate floor and ceiling prices for some of the covered production. A third long-term sales contract, with Mitsubishi Corporation, expired at the end of 2006; most of the production dedicated to the Mitsubishi contract was absorbed under the other contracts.

Since the third quarter of 2005, the major U.S. bond rating agencies have significantly downgraded the corporate ratings of General Motors Corporation and Ford Motor Company, both key customers. As a result, the debt of these companies no longer qualifies as investment grade. The Company’s business is substantially dependent on its contracts with Ford and General Motors, particularly when the floor prices in these contracts are significantly greater than the market price of palladium. Under applicable law, these contracts may be void or voidable if General Motors or Ford becomes insolvent or files for bankruptcy. The loss of either of these contracts could require the Company to sell at prevailing market prices, which might expose it to lower metal prices as compared to the floor prices under the contracts. In such an event, the Company’s operating plans could be threatened. In addition, under the Company’s credit facility, a default or modification of these contracts could prohibit additional loans or require the immediate repayment of outstanding loans. Thus, particularly in periods of relatively low PGM prices, termination of these contracts could have a material adverse impact on the Company’s operations and viability. Citing the decline in the financial positions of Ford and General Motors, as

well as cash flow concerns following completion of the program to sell off the palladium received in the 2003 Norilsk Nickel transaction and the continuing high cost of operations, Standard and Poor’s and Moody’s each downgraded the Company’s corporate and senior debt credit ratings by one level during 2006.

The Company has entered into fixed forwards and financially settled forwards to offset the price risk in its PGM recycling and mine production activities. In the fixed forward transactions, metals contained in the spent catalytic materials are normally sold forward and are subsequently delivered against the fixed forward contracts when the finished 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, accounted for as cash flow hedges, the Company receives, at each settlement date, 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 net in cash at maturity.

As of September 30, 2007, the Company was party to financially settled forward agreements covering approximately 33% of its anticipated platinum sales from mine production from October 2007 through June 2008. These transactions cover a total of 35,500 ounces of platinum sales from mine production at an overall average price of approximately $1,035 per ounce. Because the market price of platinum was approximately $1,377 per ounce at the end of the third quarter 2007, the Company has recorded unrealized hedging losses of approximately $12.3 million in Accumulated Other Comprehensive Loss as of September 30, 2007 (see Note 6 to the Company’s financial statements). Because these hedges are highly effective, 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, 2007, are expected to be settled within the next nine months.

The Company also enters into fixed forward sales relating to processing of spent PGM catalysts. These transactions require physical delivery of metal and cannot settle net. Consequently, effective with purchases of spent catalysts on or after April 1, 2006, the Company accounts for these forward sales commitments related to purchases of recycled material under the “normal purchase and sale” exception in SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. Sales of metals from PGM recycling are sold forward on the pricing date and subsequently are physically delivered against the forward sales commitments when the ounces are recovered. These forward sales commitments typically have terms of three months or less; all of these transactions were settled as of September 30, 2007 (see Note 3 to the Company’s financial statements). There was no unrealized loss related to PGM recycling on these instruments due to changes in metal prices at September 30, 2007 and 2006.

Beginning in the third quarter of 2007, the Company has also entered into certain financially settled forward sales agreements pertaining to a portion of its palladium production from recycled materials. Because they settle net, these derivative instruments do not qualify under the “normal purchase and sale” exception in SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. The Company has elected not to designate these derivative transactions as accounting hedges, and so has marked them to market at September 30, 2007. The corresponding loss on these derivatives during the third quarter of 2007 was approximately $85,000, and has been recorded as a reduction to recycling revenue.

The Company purchases catalyst materials from third parties for recycling activities to recover PGMs. At September 30 2007, working capital comprised of marketable inventories (see Note 10 to the Company’s financial statements) and advances thereon in the Company’s PGM recycling business totaled about $80.6 million, up from $70.9 million at the beginning of the year, but down from $97.1 million at the end of the second quarter of 2007. The Company advances cash for purchase and collection of spent catalyst materials. These advances are reflected as advances on inventory purchases on the balance sheet until such time as the material has been received and title has transferred to the Company. The Company has a security interest in the materials that have been produced but not yet received by the Company, however, until such time as the material has been procured, a portion of the advances are unsecured.

Interest Rate Risk

As of September 30, 2007, the Company had $98.6 million outstanding under its $140 million term loan facility, bearing interest at a variable rate of 7.4375% based upon LIBOR (5.1875% at September 30, 2007) plus a 2.25% margin (See Note 11 to the Company’s financial statements). At the current LIBOR, this represents an interest cost of approximately $7.4 million per year. Although the margin on this debt is fixed, the LIBOR component is subject to short-term fluctuations in market interest rates. The Company also has in place an interest rate swap agreement through December 31, 2007, effectively fixing the rate on a notional principal amount of $50 million at 7.628%. Taking into account the effect of the interest rate swap, during 2007 each 1% increase in LIBOR increases the Company’s estimated annual interest cost by approximately $0.6 million. After 2007, when the interest rate swap expires, the same change in LIBOR will increase annual interest cost by about $1.0 million.

Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

Management believes, to the best of its knowledge, that (i) this report does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements complete, accurate and not misleading, and (ii) the financial statements, and other financial information included in this report, fairly present in all material respects the Company’s financial condition, results of operations and cash flows as of, and for, the periods represented in this report.

(b) Internal Control Over Financial Reporting. In reviewing internal control over financial reporting at September 30, 2007, management determined that during the third quarter of 2007 there have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in various claims and legal actions arising in the ordinary course of business, including employee injury claims. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, results of operations or liquidity, and the likelihood that a loss contingency will occur in connection with these claims is remote.

Stockholder Litigation

In 2002, nine 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 July 2002, the court consolidated these actions, and in May 2003, the case was transferred to federal district court in Montana. In May 2004, defendants filed a motion to dismiss plaintiffs’ second amended complaint, and in June 2004, plaintiffs filed their opposition and defendants filed their reply.

Defendants have reached an agreement in principle with plaintiffs to settle the federal class action. The proposed settlement of the federal class action was preliminarily approved by the Montana District Court on May 4, 2007, and is subject to final court approval following notice to the class and a hearing, which currently is scheduled for December 17, 2007. Under the proposed agreement, the settlement amount will be paid by the Company’s insurance carrier and will not involve any out-of-pocket payment by the Company or the individual defendants, and all claims against Company and individual defendants will be dismissed with prejudice. The proposed settlement of the federal class action is also conditioned on approval by the Delaware Chancery Court of the proposed settlement to resolve the claims alleged in the related stockholder derivative lawsuit, unless the parties mutually agree in writing to proceed with settlement of the federal class action without such final court approval and dismissal of the derivative lawsuit. The Delaware Chancery Court will consider the terms of the proposed derivative action settlement on December 7, 2007. In light of the proposed settlement of the federal class action, the hearing on defendants’ motion to dismiss has been taken off calendar, without prejudice to their right to reinstate the motion in the event the proposed settlement does not become final.

On June 20, 2002, a stockholder derivative lawsuit was filed on behalf of the Company against certain of its current and former directors in Delaware Chancery Court. It contains claims for breach of fiduciary duty, contribution and indemnification against the named directors arising out of allegations that the named directors failed to maintain proper accounting controls and permitted materially misleading statements about the Company’s financial performance to be issued. The derivative action seeks damages allegedly on behalf of the stockholders of Stillwater. No relief is sought against the Company, which is named as a nominal defendant. The named director defendants have reached an agreement in principle to settle the derivative action. The proposed settlement of the derivative action is subject to final approval by the Delaware Chancery Court following notice to the Company’s shareholders and a hearing. The hearing currently is scheduled for December 7, 2007.

Item 6. Exhibits

Exhibits: See attached exhibit index

EXHIBITS


*Number*		*Description*
10.1		Articles of Agreement between Stillwater Mining Company (Stillwater Mine & Mill, and the Processing and Warehouse facilities) and United Steel Workers (USW) Local 11-0001, ratified July 16, 2007 (incorporated by reference to Exhibit 10.1 to the Form 10-Q filed on August 7, 2007).

10.2		Supplemental Memorandum of Understanding between Stillwater Mining Company (Stillwater Mine & Mill, and the Processing and Warehouse facilities) and United Steel Workers (USW) Local 11-0001, ratified September 4, 2007 (filed herewith).

10.3		Third Amendment Agreement to Palladium and Platinum Sales Agreement between Stillwater Mining Company and General Motors Corporation, dated August 8, 2007 (portions of the agreement have been omitted pursuant to a confidential treatment request), (filed herewith).

10.4		Palladium and Rhodium Sales Agreement, made as of August 8, 2007, between Stillwater Mining Company and General Motors Corporation (portions of the agreement have been omitted pursuant to a confidential treatment request), (filed herewith).

31.1		Rule 13a-14(a)/15d-14(a) Certification – Chief Executive Officer, dated, November 6, 2007

31.2		Rule 13a-14(a)/15d-14(a) Certification – Vice President and Chief Financial Officer, dated, November 6, 2007

32.1		Section 1350 Certification, dated, November 6, 2007

32.2		Section 1350 Certification, dated, November 6, 2007


	STILLWATER MINING COMPANY (Registrant)
Date: November 6, 2007	By:	/s/ Francis R. McAllister
		Francis R. McAllister
		Chairman and Chief Executive Officer (Principal Executive Officer)



	By:	/s/ Gregory A. Wing
		Gregory A. Wing
		Vice President and Chief Financial Officer (Principal Financial Officer)