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 June 30, 2008.


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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company 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 August 7, 2008 the Company had outstanding 93,139,891 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						Six months ended
	June 30,						June 30,
	2008			2007			2008			2007
Revenues
Mine production	$	103,743		$	74,893		$	185,032		$	147,264
PGM recycling		108,214			83,914			194,630			153,902
Other		6,874			2,156			12,215			6,247

Total revenues		218,831			160,963			391,877			307,413

Costs and expenses
Costs of metals sold
Mine production		61,915			54,718			114,554			103,029
PGM recycling		101,491			77,871			183,574			144,046
Other		6,882			2,184			12,185			6,205

Total costs of metals sold		170,288			134,773			310,313			253,280

Depreciation and amortization
Mine production		21,747			21,628			42,394			42,020
PGM recycling		48			28			96			52

Total depreciation and amortization		21,795			21,656			42,490			42,072

Total costs of revenues		192,083			156,429			352,803			295,352

Exploration		500			1			500			62
Marketing		2,404			1,112			3,735			3,213
General and administrative		7,483			6,289			13,825			12,963
(Gain)/loss on disposal of property, plant and equipment		154			(95	)		152			(210	)

Total costs and expenses		202,624			163,736			371,015			311,380

Operating income (loss)		16,207			(2,773	)		20,862			(3,967	)

Other income (expense)
Other		92			(16	)		145			(18	)
Interest income		2,924			3,023			6,011			5,986
Interest expense		(1,728	)		(2,750	)		(6,258	)		(5,576	)


Income (loss) before income tax provision		17,495			(2,516	)		20,760			(3,575	)

Income tax provision		(322	)		—			(375	)		—


Net income (loss)	$	17,173		$	(2,516	)	$	20,385		$	(3,575	)


Other comprehensive income, net of tax		5,904			5,446			5,992			271

Comprehensive income (loss)	$	23,077		$	2,930		$	26,377		$	(3,304	)

Weighted average common shares outstanding
Basic		92,926			91,927			92,740			91,759
Diluted		100,952			91,927			93,166			91,759

Basic earnings (loss) per share

Net income (loss)	$	0.18		$	(0.03	)	$	0.22		$	(0.04	)


Diluted earnings (loss) per share

Net income (loss)	$	0.18		$	(0.03	)	$	0.22		$	(0.04	)

See accompanying notes to the financial statements

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


	June 30,			December 31,
	2008			2007
ASSETS
Current assets
Cash and cash equivalents	$	100,761		$	61,436
Restricted cash		26,580			5,885
Investments, at fair market value		1,990			27,603
Inventories		182,763			118,663
Advances on inventory purchases		53,798			28,396
Trades receivables		15,397			12,144
Deferred income taxes		7,474			4,597
Other current assets		7,216			6,092

Total current assets	$	395,979		$	264,816

Property, plant and equipment (net of $339,883 and $301,212 accumulated depreciation and amortization)		465,777			465,054
Long-term investments		3,903			3,556
Other noncurrent assets		10,858			8,981

Total assets	$	876,517		$	742,407

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	23,959		$	17,937
Accrued payroll and benefits		24,032			20,944
Property, production and franchise taxes payable		11,544			10,528
Current portion of long-term debt		195			1,209
Fair value of derivative instruments		—			6,424
Unearned income		847			788
Other current liabilities		20,669			11,144

Total current liabilities		81,246			68,974
Long-term debt		210,933			126,841
Deferred income taxes		7,474			4,597
Accrued workers compensation		9,166			9,982
Asset retirement obligation		10,939			10,506
Other noncurrent liabilities		4,663			4,103

Total liabilities	$	324,421		$	225,003

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; 93,032,522 and 92,405,111 shares issued and outstanding		930			924
Paid-in capital		634,934			626,625
Accumulated deficit		(83,735	)		(104,120	)
Accumulated other comprehensive loss		(33	)		(6,025	)

Total stockholders’ equity		552,096			517,404

Total liabilities and stockholders’ equity	$	876,517		$	742,407

See accompanying notes to the financial statements

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


	Three months ended						Six months ended
	June 30,						June 30,
	2008			2007			2008			2007
Cash flows from operating activities
Net income (loss)	$	17,173		$	(2,516	)	$	20,385		$	(3,575	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization		21,795			21,656			42,490			42,072
Lower of cost or market inventory adjustment		—			1,430			—			1,430
(Gain)/loss on disposal of property, plant and equipment		154			(95	)		152			(210	)
Asset retirement obligation		219			182			433			360
Stock issued under employee benefit plans		1,538			1,484			2,941			2,930
Amortization of debt issuance costs		263			206			2,686			410
Share based compensation		1,355			1,345			2,381			2,513

Changes in operating assets and liabilities:
Inventories		(61,846	)		(15,688	)		(66,218	)		(20,658	)
Advances on inventory purchases		(14,908	)		(7,014	)		(25,402	)		(6,301	)
Trade receivables		1,397			(1,615	)		(3,253	)		3,754
Employee compensation and benefits		1,467			631			3,091			327
Accounts payable		7,604			(1,096	)		6,022			(9,633	)
Property, production and franchise taxes payable		353			136			1,576			546
Workers compensation		(342	)		(199	)		(816	)		554
Unearned income		105			4,081			59			2,159
Restricted cash		—			(600	)		—			(600	)
Other		6,239			(2,214	)		9,103			(803	)

Net cash (used in) provided by operating activities		(17,434	)		114			(4,370	)		15,275

Cash flows from investing activities
Capital expenditures		(20,778	)		(18,812	)		(41,603	)		(40,408	)
Purchases of long-term investments		—			(668	)		(347	)		(668	)
Proceeds from disposal of property, plant and equipment		197			126			215			328
Purchases of investments		(1,887	)		(25,148	)		(11,392	)		(48,140	)
Proceeds from maturities of investments		14,350			27,181			36,521			44,178

Net cash used in investing activities		(8,118	)		(17,321	)		(16,606	)		(44,710	)

Cash flows from financing activities
Payments on long-term debt and capital lease obligations		(86	)		(1,081	)		(98,422	)		(1,964	)
Payments for debt issuance costs		(77	)		—			(5,072	)		—
Proceeds from issuance of convertible debentures		—			—			181,500			—
Restricted cash		—			—			(20,695	)		—
Issuance of common stock		23			219			2,990			239

Net cash (used in) provided by financing activities		(140	)		(862	)		60,301			(1,725	)

Cash and cash equivalents
Net (decrease) increase		(25,692	)		(18,069	)		39,325			(31,160	)
Balance at beginning of period		126,453			75,269			61,436			88,360

Balance at end of period	$	100,761		$	57,200		$	100,761		$	57,200

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 June 30, 2008, and the results of its operations and its cash flows for the three- and six- month periods ended June 30, 2008 and 2007. The results of operations for the three- and six- 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, 2008 Quarterly Report on Form 10-Q and in the Company’s 2007 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, gold and silver 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 (rhodium of 99.9%) 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 June 30, 2008 and 2007, total by-product (copper, nickel, gold, silver and mined rhodium) sales were approximately $14.3 million and $14.5 million, respectively. Total by-product sales for the six- month periods ended June 30, 2008 and 2007 were approximately $27.6 million and $28.4 million, respectively.

The Company has entered into long-term sales contracts with Ford Motor Company and General Motors Corporation, 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 the guaranteed floor or ceiling prices, are priced at a slight discount to market. Under these sales contracts, the Company currently has committed 100% of its palladium production and 70% of its platinum production from mining through 2010. After 2010, approximately 35% of the Company’s total mine production of palladium is committed for sale in 2011 and 2012 under these contracts. None of the Company’s platinum production after 2010 is committed for sale under these contracts.

The following table summarizes the floor and ceiling price structures for the long-term sales contracts with Ford Motor Company and General Motors Corporation 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
2008		100	%	$	359		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		—			—		—			—		—			—
2012		20	%	$	300		—			—		—			—		—			—

The long-term 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 therefore also are not subject to the accounting requirements of SFAS No. 133, SFAS No. 138, or SFAS No. 149.

PGM Recycling

The Company purchases spent catalyst materials from third parties and processes these materials in its facilities in Columbus, Montana to recover palladium, platinum and rhodium to sell to various third parties. The Company’s recycling business is currently highly dependent on the performance of one supplier. The Company also has various spot purchase and tolling agreements with other suppliers of spent catalytic materials, but the volumes from them are less significant.

The Company advances cash for purchase and collection of these spent catalyst materials to its suppliers. These advances are reflected as Advances on inventory purchases on the Company’s balance sheet until the Company physically receives the material and title has transferred to the Company. Once the material is received, the associated advance is reclassified into Inventories. Finance charges on these advances collected in advance of being earned are reflected as unearned income on the Company’s balance sheet.

The Company holds a security interest in materials procured by suppliers but not yet received by the Company. However, until the suppliers have actually procured the promised material, a portion of the Advances on inventory purchases on the Company’s balance sheet remains unsecured. This unsecured portion is fully at risk should the suppliers fail to deliver the promised material or experience other financial difficulties. Any determination that a supplier is unable to deliver the promised material or otherwise repay these advances would likely result in a significant charge against earnings.

At the same time the Company purchases material for recycling, it enters into a contract for future delivery of the PGMs contained in the material at a price consistent with the purchase cost. The contract commits the Company to deliver finished metal on a specified date that corresponds to the expected out-turn date for the metal from the final refiner. This arrangement largely eliminates the Company’s exposure to fluctuations in market prices during processing, but it also creates an obligation to deliver metal in the future that could be subject to operational risks. If the Company were unable to complete the processing of the recycled material by the contractual delivery date, it could be required to purchase substitute finished metal in the open market to cover its commitments, and then would bear the cost (or benefit) of any change in market price relative to the price stipulated in the delivery contract.

Other activities

The Company makes open market purchases of PGMs from time to time for resale to third parties. The Company recognized revenue of $6.9 million and $2.2 million on approximately 15,200 and 6,000 ounces of PGMs that were purchased in the open market and re-sold for the three- month periods ended June 30, 2008 and 2007, respectively. For the six- month periods ended June 30, 2008 and 2007, approximately 27,400 and 18,000 ounces of PGMs were purchased in the open market and re-sold for approximately $12.2 million and $6.2 million, respectively.

Total Sales

Total sales to significant customers as a percentage of total revenues for the three- and six- month periods ended June 30, 2008 and 2007 were as follows:


	Three months ended						Six months ended
	June 30,						June 30,
	2008			2007			2008			2007
Customer A		37	%		36	%		37	%		36	%
Customer B		18	%		28	%		19	%		24	%
Customer C		12	%		*			13	%		*
Customer D		11	%		*			*			*
Customer E		*			*			*			14	%

		78	%		64	%		69	%		74	%


*		Represents less than 10% of total revenues.

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. Some of these derivative transactions are designated as hedges. 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 regularly enters into fixed forward contracts and financially settled forward contracts to offset the price risk in its PGM recycling activity. From time to time it also uses them on portions of its mine production. In fixed forward transactions, the Company agrees to deliver a stated quantity of metal on a specific future date at a price stipulated in advance. The Company uses fixed forward transactions primarily to price in advance the metals acquired for processing in its recycling business. Under financially settled forward transactions, 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 and do not require physical delivery of metal at settlement. The Company normally uses financially settled forward contracts with third parties to reduce its exposure to price risk on metal it is obligated to deliver under the long-term sales agreements.

Mine Production

On June 30, 2008, the Company settled its last remaining financially settled forward agreements covering future anticipated platinum sales out of mine production. Consequently, after June 30, 2008, the Company is no longer party to any further hedges on its mined platinum production. Losses on hedges of mined platinum

during the second quarter and first six months of 2008 totaled $5.8 million on 6,000 ounces hedged and $12.8 million on 15,000 ounces hedged, respectively.

As of June 30, 2007, the Company was party to financially-settled forward sales agreements covering approximately 39% of its expected sales out of mine production for the period from July 2007 through June 2008. Losses on these hedges for the three- and six- month periods ending June 30, 2007 totaled $8.1 million and $15.4 million, respectively.

PGM Recycling

The Company enters into fixed forward sales relating to PGM recycling of catalyst materials. The Company accounts for these fixed forward sales 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 transactions open as of June 30, 2008, will settle at various periods through December 2008. 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 hedged prices by a predetermined margin limit. No margin deposits were required or outstanding during the second quarters of 2008 or 2007.

From time to time the Company also enters into financially settled forward contracts on recycling material for which it has not entered into a fixed forward sale. Such contracts are utilized when the Company wishes to establish a firm forward price for recycled metal as of a specific future date. The Company entered into several such financially settled forward contracts during the second quarter and first six months of 2008, although none were outstanding as of June 30, 2008. The Company generally has not elected to use hedge accounting for these transactions, so they are marked to market at the end of each accounting period with the change in the fair value of the derivatives being reflected in the income statement. The corresponding net realized gain on these derivatives during the second quarter of 2008 was approximately $0.3 million and the net realized loss on these derivatives during the first half of 2008 was approximately $0.2 million and has been recorded as a component of recycling revenue.

The following is a summary of the Company’s commodity derivatives as of June 30, 2008:

PGM Recycling:
Fixed Forwards


	Platinum				Palladium				Rhodium
Settlement Period	Ounces		Avg. Price		Ounces		Avg. Price		Ounces		Avg. Price
Third Quarter 2008		35,780	$	2,067		25,787	$	469		4,963	$	9,679
Fourth Quarter 2008		2,399	$	2,066		1,938	$	471		1,169	$	9,554

Interest Rate Derivatives

At June 30, 2007, the Company had in place an interest rate swap agreement that had the effect of fixing the interest rate on $50 million of the Company’s outstanding term loan debt. The effective fixed rate of the interest rate swap was 7.628%. The Company elected not to account for this as a cash flow hedge, and accordingly, marked this transaction to market by recording a credit to interest expense of approximately $44,000 and $47,500 during the three- month and six- month periods ended June 30, 2007, respectively. The interest rate swap terminated on December 31, 2007.

Note 4 — Share-Based Payments

Stock Plans

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. During 2004, the 1994 Incentive Plan was terminated and in early 2008, the General Plan was terminated. Shares of common stock that have been authorized for issuance under the 1994 Incentive Plan and the General Plan were 1,400,000 and 1,151,000, respectively. While no additional options may be issued under these two plans, options issued prior to the termination dates under the 1994 Incentive Plan and the General Plan remain outstanding. A total of 5,250,000 shares of common stock have been authorized for issuance under the 2004 Equity Incentive Plan, of which approximately 3,716,000 shares remain reserved and available for grant as of June 30, 2008.

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. Directors’ options vest over a six month period after date of grant. Officers’ and employees’ options vest ratably over a three year period after date of grant. 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 $22,500 and $219,000 in cash from the exercise of stock options in the three- month periods ended June 30, 2008 and 2007, respectively, and approximately $3.0 million and $239,000 for the six- month periods ended June 30, 2008 and 2007, respectively.

Non-vested Shares

Nonvested shares granted to non-management directors, certain members of management and other employees as of June 30, 2008 and 2007 along with the related compensation expense (recorded in general and administrative expense) are detailed in the following table:


								Compensation Expense
		Nonvested		Market		Three months ended				Six months ended
		Shares		Value on		June 30,				June 30,
Grant Date	Vesting Date	Granted		Grant Date		2008		2007		2008		2007
May 7, 2004	May 7, 2007		348,170	$	4,460,058	$	—	$	123,890	$	—	$	495,562
May 3, 2005	May 3, 2008		225,346	$	1,654,040	$	36,861	$	137,837	$	147,446	$	275,673
April 27, 2006	April 27, 2009		288,331	$	4,731,512	$	316,143	$	394,293	$	632,285	$	788,585
February 22, 2007	February 22, 2010		426,514	$	5,433,788	$	346,372	$	447,966	$	708,427	$	636,365
May 3, 2007	November 3, 2007		17,654	$	280,000	$	—	$	93,331	$	—	$	93,331
February 4, 2008	February 4, 2011		16,741	$	225,000	$	18,828	$	—	$	30,442	$	—
March 6, 2008	March 6, 2011		287,592	$	5,283,065	$	438,800	$	—	$	564,243	$	—
May 8, 2008	November 8, 2008		19,719	$	280,010	$	93,337	$	—	$	93,337	$	—

Total compensation expense of nonvested shares						$	1,250,341	$	1,197,317	$	2,176,180	$	2,289,516

Total compensation cost related to nonvested shares, noted in the table above, not yet recognized is approximately $1.8 million, $3.3 million, $2.1 million and $0.3 million, for the remaining six months of 2008 and for years 2009, 2010 and 2011, respectively, assuming no nonvested shares are forfeited.

Non-Employee Directors’ Deferral Plan

Compensation expense deferred in common stock related to the Non-Employee Directors’ Deferral Plan was approximately $9,800 and $14,000 during the three- month periods ended June 30, 2008 and 2007, respectively, and approximately $20,600 and $24,000 for the six- month periods ended June 30, 2008 and 2007, respectively. The company match was made in Company common stock and resulted in compensation expense of approximately $2,000 and $2,800 during the three- month periods ended June 30, 2008 and 2007, respectively, and approximately $4,100 and $4,800 for the six- month periods ended June 30, 2008 and 2007, respectively.

Nonqualified Deferred Company Plan

Compensation expense deferred in cash under the Nonqualified Deferred Compensation Plan was approximately $41,000 and $61,000 for the second quarters of 2008 and 2007, respectively, and $78,000 and $212,000 for the six- month periods ended June 30, 2008 and 2007, respectively.

Stock Options

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 June 30, 2008 and 2007 was approximately $93,300 and $132,000, respectively, and approximately $180,400 and $200,000 during the six- month periods ended June 30, 2008 and 2007, respectively. Total compensation cost related to nonvested stock options not yet recognized is approximately $169,800, $175,300, $55,100, and $7,500 for the remaining six months of 2008 and for years 2009, 2010 and 2011, 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 June 30, 2008, the Company has net operating loss carryforwards (NOLs), which expire in 2009 through 2027. The Company has reviewed its net deferred tax assets and has provided a valuation allowance to reflect the estimated amount of net deferred tax assets which management considers, more likely than not, will not be realized. The Company has recognized an income tax provision for the quarters ended June 30, 2008 and 2007 related to Federal alternative minimum tax and statutory minimum payments required under certain state and local tax laws. Changes in the Company’s net deferred tax assets and liabilities have been offset by a corresponding change in the valuation allowance.

As of June 30, 2008 and 2007, the Company had no unrecognized tax uncertainties. The Company’s policy is to recognize interest and penalties on unrecognized tax uncertainties in the Income tax provision within the Statements of Operations and Comprehensive Income (Loss). There were no interest or penalties assessed or paid for the three- month and six- month periods ended June 30, 2008. The Company’s tax years that remain subject to examination by the taxing authorities are those ending December 31, 2007, 2006, 2005 and 2004.

As of June 30, 2008, the Company has accrued approximately $322,000 and $375,000 for its estimated alternative minimum tax obligations associated with earnings for the second quarter and first half of 2008, respectively. The Company has substantial alternative minimum tax loss carryforwards available, but under the alternative minimum tax structure, such loss carryforwards can only be utilized to offset 90% of the alternative minimum tax obligation in any period.

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 (loss). As of June 30, 2008 and 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 income (loss) in stockholders’ equity for the first six months of 2008 and 2007:


							Accumulated Other
(in thousands)	Available for Sale			Commodity			Comprehensive Income
As of June 30, 2008	Securities			Instruments			(Loss)
Balance at December 31, 2007	$	508		$	(6,533	)	$	(6,025	)


Reclassification to earnings		—			6,957			6,957
Change in value		(508	)		(6,361	)		(6,869	)

Comprehensive income (loss)	$	(508	)	$	596		$	88


Balance at March 31, 2008	$	—		$	(5,937	)	$	(5,937	)

Reclassification to earnings		—			5,837			5,837
Change in value		(33	)		100			67

Comprehensive income (loss)	$	(33	)	$	5,937		$	5,904


Balance at June 30, 2008	$	(33	)	$	—		$	(33	)


						Accumulated Other
(in thousands)	Available for Sale		Commodity			Comprehensive Income
As of June 30, 2007	Securities		Instruments			(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	)

Note 7 — Long-Term Debt

Convertible Debentures

On March 12, 2008, the Company issued and sold $181.5 million aggregate principal amount of senior convertible debentures due 2028 (“debentures”). The debentures pay interest at 1.875% per annum, payable semi-annually on March 15 and September 15 of each year, commencing September 15, 2008. The debentures will mature on March 15, 2028, subject to earlier repurchase or conversion. Each $1,000 principal amount of debentures is initially convertible, at the option of the holders, into approximately 42.5351 shares of the Company’s common stock, at any time prior to the maturity date. The conversion rate is subject to certain adjustments, but will not be adjusted for accrued interest or any unpaid interest. The conversion rate initially represents a conversion price of $23.51 per share. Holders of the debentures may require the Company to repurchase all or a portion of their debentures on March 15, 2013, March 15, 2018 and March 15, 2023, or upon the occurrence of certain events including a change in control. The Company may redeem the debentures for cash beginning on or after March 22, 2013.

The debentures were sold to an “accredited investor” within the meaning of Rule 501 under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon the private placement exemption afforded by Section 4(2) of the Securities Act. The initial investor offered and resold the debentures to “qualified institutional buyers” under Rule 144A of the Securities Act. MMC Norilsk Nickel, or one of its affiliates, with

the approval of the Company’s public directors, purchased $80 million of the debentures, thereby maintaining their majority ownership position in the Company.

In connection with the issuance of the debentures, the Company agreed to file a shelf registration statement with the Securities and Exchange Commission (SEC) for the resale of the debentures and the common stock issuable upon conversion of the debentures and to use reasonable best efforts to cause it to become effective, within an agreed-upon period. The Company also agreed to periodically update the shelf registration and to keep it effective until the earlier of (1) the date the debentures or the common stock issuable upon conversion of the debentures is eligible to be sold to the public pursuant to Rule 144 of the Securities Act or (2) the date on which there are no outstanding registrable securities. Management has evaluated the terms of the debentures, which include the call feature, redemption feature, and the conversion feature, under applicable accounting literature, including SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” and concluded that none of these features should be separately accounted for as derivatives.

In connection with the issuance of the debentures, the Company incurred approximately $5.1 million of issuance costs, which primarily consisted of investment banking fees and legal and other professional fees. These costs are classified within Other Assets and are being amortized as interest expense using the effective interest method over the term from issuance through the first date that the holders can require repurchase of the debentures, which is March 15, 2013. Amortization expense related to the issuance costs of the debentures was approximately $0.3 million for the three- and six- month periods ended June 30, 2008, respectively, and the interest expense on the debentures was $0.9 million and $1.0 million for the three- and six- month periods ended June 30, 2008, respectively. The Company made no cash payments for interest on the debentures during the first six months of 2008.

The Company used a portion of the proceeds of the debenture offering to retire $98.3 million of term debt and terminate a $40 million revolving credit line under its previous credit facility. Interest expense for the first six months of 2008 includes approximately $2.2 million for the non-cash write-off of unamortized issuance costs on the prior facility. In conjunction with terminating the revolving credit line, the Company posted $20.7 million of restricted cash to collateralize stand-by letters of credit that remained outstanding under that facility.

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, revenues and expenses of various corporate and support functions.

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 June 30, 2008	Production		Recycling		Other			Total

Revenues	$	103,743	$	108,214	$	6,874		$	218,831
Depreciation and amortization	$	21,747	$	48	$	—		$	21,795
Interest income	$	—	$	2,005	$	919		$	2,924
Interest expense	$	—	$	—	$	1,728		$	1,728
Income (loss) before income taxes	$	19,933	$	8,674	$	(11,112	)	$	17,495
Capital expenditures	$	20,460	$	135	$	183		$	20,778
Total assets	$	514,928	$	179,014	$	182,575		$	876,517


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

Revenues	$	74,893		$	83,914	$	2,156		$	160,963
Depreciation and amortization	$	21,628		$	28	$	—		$	21,656
Interest income	$	—		$	1,799	$	1,224		$	3,023
Interest expense	$	—		$	—	$	2,750		$	2,750
Income (loss) before income taxes	$	(1,358	)	$	7,814	$	(8,972	)	$	(2,516	)
Capital expenditures	$	18,574		$	99	$	139		$	18,812
Total assets	$	502,207		$	97,877	$	148,026		$	748,110


(in thousands)	Mine		PGM		All
Six months ended June 30, 2008	Production		Recycling		Other			Total

Revenues	$	185,032	$	194,630	$	12,215		$	391,877
Depreciation and amortization	$	42,394	$	96	$	—		$	42,490
Interest income	$	—	$	3,631	$	2,380		$	6,011
Interest expense	$	—	$	—	$	6,258		$	6,258
Income (loss) before income taxes	$	27,939	$	14,585	$	(21,764	)	$	20,760
Capital expenditures	$	41,143	$	212	$	248		$	41,603
Total assets	$	514,928	$	179,014	$	182,575		$	876,517


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

Revenues	$	147,264	$	153,902	$	6,247		$	307,413
Depreciation and amortization	$	42,020	$	52	$	—		$	42,072
Interest income	$	—	$	3,360	$	2,626		$	5,986
Interest expense	$	—	$	—	$	5,576		$	5,576
Income (loss) before income taxes	$	2,425	$	13,164	$	(19,164	)	$	(3,575	)
Capital expenditures	$	40,117	$	136	$	155		$	40,408
Total assets	$	502,207	$	97,877	$	148,026		$	748,110

Note 9 — Investments

The cost, gross unrealized gains and losses, and fair value of available-for-sale investment securities by major security type and class of security at June 30, 2008 are as follows:


			Gross		Gross
			unrealized		unrealized		Fair
(in thousands)	Cost		gains		losses		market value
At June 30, 2008

Commercial paper	$	1,991	$	—	$	1	$	1,990
Mutual funds		596		—		32		564

Total	$	2,587	$	—	$	33	$	2,554

The mutual funds included in the investment table above represent long-term investments which 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 three- and six- month periods ended June 30, 2007, reduced the aggregate inventory carrying value of certain components of its in-process and finished good inventories by $1.4 million. No reduction of the aggregate inventory carrying value was recorded for the three- or six- month periods ended June 30, 2008.

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:


	June 30,		December 31,
(in thousands)	2008		2007
Metals inventory
Raw ore	$	1,964	$	1,061
Concentrate and in-process		59,534		36,933
Finished goods		102,139		62,933

		163,637		100,927
Materials and supplies		19,126		17,736

Total inventory	$	182,763	$	118,663

Note 11 — Earnings (Loss) per Common 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 the Company’s dilutive outstanding stock options or nonvested shares were exercised and the Company’s convertible debt was converted. Reported net income was adjusted for the interest expense (including amortization expense of deferred debt fees) and the related income tax effect for the convertible debentures for the three- and six- month periods ended June 30, 2008. No adjustments were made to reported net income (loss) in the computation of basic

earnings (loss) per share or diluted earnings (loss) per share for the three- and six- month periods ended June 30, 2007. The Company currently has only one class of equity shares outstanding.

A reconciliation of the numerators and denominators of the basic and diluted per-share computations for income for the three- and six- month periods ended June 30, 2008 is shown in the following table:


	Three Months Ended						Six Months Ended
(in thousands, except per share amounts)	June 30, 2008						June 30, 2008
			Weighted						Weighted
			Average						Average
	Income		Shares		Per Share		Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount
Income	$	17,173					$	20,385

Basic EPS
Income available to
common stockholders		17,173		92,926	$	0.18		20,385		92,740	$	0.22


Effect of Dilutive Securities
Stock options		—		54				—		66
Nonvested shares		—		252				—		360
1.875% Convertible debentures		1,082		7,720				—		—


Diluted EPS
Income available to common stockholders + assumed conversions	$	18,255		100,952	$	0.18	$	20,385		93,166	$	0.22

Outstanding options to purchase 831,690 and 820,715 of weighted shares of common stock were excluded from the computation of diluted earnings per share for the three- month and six- month periods ended June 30, 2008, respectively, because the market price was lower than the exercise price, and therefore the effect would have been antidilutive. Outstanding options for the three- month and six- month periods ended June 30, 2007 excluded from the computation of diluted earnings (loss) per share were 75,630 and 74,158, respectively, because the effect would have been antidilutive and inclusion of these options would have reduced the net loss per share.

Outstanding nonvested shares of 279,810 and 337,741 were excluded from the computation of diluted earnings (loss) per share for the three- month and six- month periods ended June 30, 2007, respectively, because the Company reported a net loss and inclusion of any of these nonvested shares would have reduced the net loss per share amounts.

All 7.72 million shares of common stock applicable to the outstanding convertible debentures were included in the computation of diluted weighted average shares for the second quarter of 2008. The shares of common stock applicable to the debentures were excluded from the computation of diluted weighted average shares for the six month period ended June 30, 2008.

Note 12 — Regulations and Compliance

On May 20, 2006, new federal regulations went into effect that as of May 20, 2008, tightened the maximum permissible diesel particulate matter (DPM) exposure limit for underground miners from the prior level of 308 mg/m3 of elemental carbon to the new limit of 160 mg/m3 of total carbon. The Company utilizes a significant number of diesel-powered vehicles in its mining operations. It is not yet clear if appropriate measurement methods and emission control standards exist that will ensure compliance with this new standard in the Company’s mining environment. The Company is aggressively utilizing existing and exploring alternative technologies to reduce DPM exposures to the lowest levels currently achievable and is actively working with Mine Safety and Health Administration (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 catalytic converters and

DPM filters, cleaner-burning biodiesel fuel 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. The Company was granted a special one-year extension of time to comply with the new DPM standards in certain areas of its Stillwater Mine, subject to specified conditions; this extension is scheduled to expire on November 28, 2008. The East Boulder Mine has obtained a similar extension applicable to certain areas of the mine, also for a period of one year commencing on May 21, 2008, subject to specified conditions being met during the period of the special extension.

Note 13 — Fair Value Measurements

The Company adopted SFAS No. 157, Fair Value Measurements, effective January 1, 2008 for all financial assets and liabilities and any other assets and liabilities that are recognized or disclosed at fair value on a recurring basis. The adoption of SFAS No. 157 had no material effect on the Company’s financial condition, results of operations or cash flows.

SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer the liability (an exit price) in an orderly transaction between market participants and also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy within SFAS No. 157 distinguishes among three levels of inputs that may be utilized when measuring fair value: Level 1 inputs (using quoted prices in active markets for identical assets or liabilities), Level 2 inputs (using inputs other than level 1 prices such as quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability) and Level 3 inputs (unobservable inputs supported by little or no market activity and based on internal assumptions used to measure assets and liabilities). The classification of each financial asset or liability within the above hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Financial assets and liabilities measured at fair value on a recurring basis as at June 30, 2008, consisted of the following:


(in thousands)			Fair Value Measurements
	Total		Level I		Level 2		Level 3
Mutual funds	$	564		—	$	564		—
Investments		1,990		—		1,990		—

The fair value of mutual funds and investments, consisting of commercial paper, is based on market prices which are readily available. Unrealized gains or losses on mutual funds and investments are recorded in accumulated other comprehensive income (loss).

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 six- month periods ended June 30, 2008. It should be read in conjunction with the financial statements included in this quarterly report, in the Company’s March 31, 2008 Quarterly Report on Form 10-Q and in the Company’s 2007 Annual Report on Form 10-K.

Overview

Stillwater Mining Company extracts, 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 and a supporting surface mill and concentrator. The Company also operates smelting and base-metal refining facilities at Columbus, Montana. Concentrates produced at the two mines are transported to the smelter and refinery where they are further processed into a PGM filter cake that is sent to third-party refiners for final processing. Substantially all finished palladium and about 70% of the platinum produced from mining is sold under contracts with two major automotive manufacturers for use in automotive catalytic converters. These contracts include floor and, in some cases, ceiling prices on palladium and platinum.

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 in place agreements to purchase spent automotive catalyst from third-party collectors, and also processes material owned by others under toll processing arrangements. Recycling volumes fed into the Company’s processing facilities during the second quarter of 2008 increased significantly from the volumes processed in the second quarter of 2007, totaling 115,000 ounces compared to 93,000 ounces of processed PGMs, a 23.7% increase. For the first six months of 2008, recycling volumes totaled 193,000 ounces as compared to 180,000 ounces in 2007, a 7.2% increase. While the higher volumes processed and increased market prices for PGMs during the first six months of 2008 benefited recycling earnings, it has also resulted in a substantial increase in the Company’s marketable inventories and other working capital. The working capital requirement for recycling, comprised of working inventories and associated advances, was approximately $172.8 million at June 30, 2008, compared to approximately $93.7 million at March 31, 2008 and $83.7 million at the end of 2007.

The Company reported net income for the second quarter 2008 of $17.2 million, or $0.18 per diluted share, on revenues of $218.8 million. This compares to a net loss of $2.5 million, or $0.03 per diluted share on revenues of $161.0 million in the second quarter of 2007. The improved financial performance in the second quarter of 2008 was attributable to higher market prices for PGMs and, to a lesser extent, to higher recycling volumes processed for sale. Platinum realizations were somewhat constrained in both periods by a contractual ceiling price of $850 per ounce on 14% of the platinum ounces sold from mine production and by forward sales entered into in the past at prices well below current market. These forward sales affected 6,000 ounces of platinum in the second quarter of 2008 at an average price of $1,054 per ounce and 28,000 ounces in the corresponding quarter of 2007 at an average price of $1,000 per ounce. The Company’s average realized price for mined platinum in the second quarter of 2008, taking these constraints into account, was about $1,687 per ounce, up from about $949 per ounce in the second quarter of 2007. Palladium prices remained above the minimum floor prices in the automotive contracts during the second quarter of 2008, as the average realization on palladium sales from mine production increased to about $448 per ounce from the $386 per ounce reported in last year’s second quarter.

The last of the forward sales commitments on platinum settled at June 30, 2008. The Company’s Board may consider forward sales commitments on mine production in the future as circumstances warrant. The Board does not have any current intention of continuing such program at this time. During the second quarter of 2008 and 2007, the losses recognized upon settlement of these financially settled forward contracts reduced the Company’s reported revenues by $5.8 million and $8.1 million, respectively.

Despite the higher market prices for PGMs in the second quarter of 2008 and the associated strong earnings improvement, several factors continued to constrain financial performance. Mine production of about 38,000 ounces at the East Boulder Mine was below expectations while Stillwater Mine production of about 88,000 ounces was in line with expectations. While various factors contributed to the production shortfall in the quarter, manpower shortages of miners with appropriate skill sets and logistical issues continue to limit planned ramp ups. Stillwater Mine is now implementing some process changes that should improve mining efficiency and better coordinate activities within the mine. Similar efforts are planned at East Boulder during the third and fourth

quarters of this year. In addition to these operational challenges, during the first six months of 2008 costs for some critical supplies, including diesel fuel and electric power, have risen significantly at both mines.

The membership of USW Local 11-0001, which represents union employees at the East Boulder Mine, ratified a new four-year labor agreement on July 8, 2008, without experiencing any labor interruption. The new agreement provides for 4% annual wage increases for the represented workforce and modifies some provisions of the bonus structure at the mine.

Despite the steps being taken to strengthen the Company’s mining operations; management notes that these improvements will take some time to implement fully. In particular, production in the third quarter of 2008 is expected to continue at current levels due to difficulties in securing additional experienced manpower in the existing strained mining industry labor market. Consequently, mine production for the year is now projected between 515,000 and 525,000 ounces, down from the 550,000 to 565,000 ounce guidance provided previously. However, management also believes that growth in the recycling business is likely to offset in part the financial effect of this lower mine production.

Guidance on projected total cash costs and capital expenditures for the year 2008 also has been reviewed. The Company’s previous guidance projecting 2008 average total cash costs in the range of $355 to $375 per produced ounce has been increased to a range of $380 to $395 per ounce, reflecting the lower production guidance. Capital expenditure guidance of $110 million in 2008 has been revised downward to about $100 million, reflecting a slower start than expected on construction of the second electric smelting furnace and also a slight reduction in some of the year’s planned mine development, consistent with manpower limitations while maintaining the developed state of the mines.

The Company’s balance of cash and cash equivalents (excluding restricted cash) was $100.8 million at June 30, 2008, down $25.7 million from March 31, 2008, but up $39.4 million from the end of 2007. Including the Company’s available-for-sale investments, the Company’s total available liquidity at June 30, 2008, was $102.8 million, down $38.1 million from $140.9 million at the end of the first quarter of 2008. This decrease in liquidity is more than accounted for by an increase of about $79.0 million during the 2008 second quarter in working capital requirements of the recycling business. Recycling working capital, comprised of product inventories and advances, has increased as a result of growth in recycling throughput volumes as well as from higher PGM prices. Essentially all of the recycling material in inventory is committed for sale at the time it is acquired, subject only to the time required to extract and process the contained PGMs.

As noted last quarter, in light of the attention to liquidity issues associated with the sub-prime lending crisis, the Company has reviewed its cash and investments in detail and has concluded that the effect of the sub-prime market issues on the Company’s reported assets and overall liquidity is negligible.

Strategic Initiatives

During the second quarter of 2008, management continued to emphasize three broad strategic areas of focus that have been addressed extensively over the past several years: increasing mining efficiency in the Stillwater and East Boulder Mines, developing and fostering emerging markets for palladium; and growing and diversifying the Company’s business activities. Following is a brief summary of current efforts in each of these areas of focus.

1. Transformation of Mining Methods to Increase Mining Efficiency

The Company normally defines mining efficiency in terms of total cash costs per ounce of PGMs extracted. Mining efficiency, then, is affected by the total cost of labor and materials incurred in mining and processing ore and by net PGM production. In general, lowering costs or increasing net production will benefit mining efficiency. Labor and materials costs are influenced by the mix of mining methods used, by the type and volume of equipment employed in the mines, by the effectiveness of mine planning and by the state of general economic conditions. Total ore tons mined, the grade of the extracted ore, and metallurgical recovery percentages drive the Company’s net palladium and platinum production.

The Company continued its transition toward more selective mining methods in the second quarter of 2008. At the East Boulder Mine, which prior to 2006 used sublevel extraction almost exclusively, approximately 56% of the material fed to the concentrator during the second quarter of 2008 was mined using selective mining methods. At the Stillwater Mine, which first introduced selective mining methods in the Upper West area of the mine at the beginning of 2007, approximately 86% of the mined tons fed to the mill in the 2008 second quarter were extracted using selective mining methods. As already noted, the Company’s objective in this transition is to tailor the mining method used in each mining area to best fit the economics of that area. However, manpower constraints related to the availability of highly skilled and more seasoned miners have limited the Company’s ability to take full advantage of selective methods to date.

The anticipated benefits of applying more selective mining methods include improved ore grades and access to previously uneconomic mineralized material, significant reductions in both waste material mined and in overall development requirements, less spending on capital equipment purchases and maintenance, and so lower capital and operating costs per ounce of production.

The mine transformation effort is also highly interdependent with the Company’s new-miner training program. Efforts to maintain or increase production rates and to utilize more selective mining methods will depend upon the availability and retention of enough trained miners. The Company is developing a portion of the required workforce through its miner training program, which attracts new miner trainees primarily from local communities. In addition, the Company is continuing its efforts to hire more experienced miners, both locally and from other mining districts. Retention of skilled miners continues to be a challenge in a very competitive mining labor market.

The Company’s highest operating priority is the safety of its employees. Safety reportable incident rates in the second quarter and first half of 2008 remained very favorable compared to national averages for metals and mining; however, efforts continue to drive the incident rates toward zero. The Company undertook an independent audit of its safety practices during the first quarter 2008 and is currently implementing the recommendations developed from that audit process. Additionally, the Company also has empowered special employee teams with the task of developing additional safety improvements.

The Company has concluded that in order to mine efficiently, at any point in time each mine needs at least 40 months of proven reserves ready to be mined. At current production rates, the Stillwater Mine now is close to that level, while the East Boulder Mine is still short of that goal. Consequently, the Company continues to invest in mine development at a somewhat higher rate than would be necessary just to sustain the existing level of proven reserves, in order to build toward the 40-month objective. However, as mentioned above, slight reductions in capital development are possible while maintaining the developed state of the operations considering the limitations of additional stoping manpower. Capital spending of $20.8 million in the 2008 second quarter included infrastructure and mine development investment of $9.8 million at the Stillwater Mine and $3.9 million at the East Boulder Mine. Year-to-date, such supporting investment totals $21.6 million at Stillwater and $8.7 million at East Boulder.

For the three- and six- month periods ended June 30, 2008, primary development totaled approximately 7,500 and 17,800 feet, respectively, while definitional drilling for the three- and six- month periods ended June 30, 2008, totaled approximately 131,000 and 286,000 feet respectively. Management believes this investment in mine development, although it has required a substantial commitment of capital and mining resources, is critical to long-term efficient and productive mining operations.

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. The average ore grade realized at the Stillwater Mine was 0.55 ounces and 0.56 ounces per ton during the three- and six- month periods ended June 30, 2008, respectively. For the comparable period of 2007, the average ore grades were about 0.58 ounces per ton. At the East Boulder Mine the average ore grade realized during the three- and six- month periods ended June 30, 2008 was about 0.44 ounces and 0.43 ounces per ton,

respectively. During the same three- and six- month periods of 2007, the corresponding ore grade at East Boulder Mine was about 0.37 ounces and 0.38 ounces per ton, respectively.

Ore production at the Stillwater Mine averaged 1,853 and 1,791 tons of ore per day during the second quarter and the first six months of 2008, respectively; this compares to an average of 1,741 tons and 1,856 tons of ore per day during the second quarter and first six months of 2007, respectively. This level of mine production in both 2007 and 2008 reflects in part the mine’s continuing challenges with hiring additional skilled and experienced miners as well as the time required to bring newer miners up to full productivity. The training effort is continuing satisfactorily, although the full benefits likely will only be realized progressively over time as the newer miners steadily gain experience. Management also continues its efforts to review and strengthen other operating and maintenance training programs within the mines.

The rate of ore and sub-grade reef production at the East Boulder Mine averaged 1,218 and 1,310 tons per day during the second quarter and the first six months of 2008, respectively, compared to an average of 1,640 and 1,538 tons per day during the second quarter and first six months of 2007. Because East Boulder has excess mill capacity, the mine processes sub-grade material whenever economics justify doing so. Production in the second quarter and the first six months of 2008 included 990 tons and 1,092 tons per day, respectively, of ore at an average grade of 0.44 ounces per ton, along with about 229 tons and 219 tons per day, respectively, of sub-grade material not included in ore reserves at an average grade of about 0.19 and 0.18 ounces per ton, respectively, resulting in a combined effective grade of about 0.39 ounces per ton. For the second quarter of 2007, the combined effective grade at East Boulder was about 0.37 ounces per ton. The lower production tonnages at East Boulder in the second quarter of 2008 as compared to the corresponding quarter of 2007 stemmed from significant manpower constraints and the transition in mining methods.

During the second quarter and first six months of 2008, the Company’s mining operations produced a total of approximately 97,100 and 196,600 ounces of palladium, respectively, and about 29,200 and 58,600 ounces of platinum, respectively. For the same periods in 2007, the mines produced 102,400 and 213,400 ounces of palladium, respectively, and 30,700 and 63,800 ounces of platinum, respectively.

During the second quarter, the Company continued its general effort to improve mining efficiency by identifying opportunities to reduce costs or employ assets more efficiently. The initial effort was around the maintenance function at the Stillwater mine and was followed by an in-depth review of the ore and waste handling infrastructures. This process will continue into production and planning areas as well as examining management of materials and supplies inventories and implementing new computer functionality in several areas. By utilizing a cross functional “team based” approach, the process has generated a high level of engagement within the workforce. The Company will continue to use this approach at its other operations to remove operational constraints.

2. Market Development

The Company has directed most of 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.

In March 2008, the industry announced that, following a comprehensive study involving independent consultants and the Palladium Alliance International, under the auspices of the International Platinum Group Metals Association, a decision was made to plan and implement a market development program for palladium jewelry. The initiative will initially focus on China and the U.S., and will be led by Norilsk Nickel, the largest

palladium producer, supported by several palladium producers in South Africa and by Stillwater Mining Company. The objective is to establish a clear and specific brand position for palladium in jewelry which, in partnership with jewelry designers, manufacturers and retailers, will achieve a sustainable market with growth opportunities for palladium applications. Efforts have continued in this direction during the second quarter of 2008.

3. Growth and Diversification

Management is reviewing 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 continues as reported in the first quarter of 2008 with construction of a second smelter furnace now in progress 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. Completion of the furnace project is expected in late 2008 or early 2009.

The Company has invested in two small exploration companies that target PGMs and other precious metals. The first of these, Pacific North West Capital Corp., is a Canadian exploration company with a portfolio of several prospective PGM opportunities; the Company currently is participating financially in an exploration effort at Good News Bay in Alaska led by this company. The other company is Benton Resource Corp., another Canadian exploration company with an attractive resource position in the Goodchild project, a nickel-PGM target north of Marathon, Ontario, Canada, as well as several other interesting holdings.

These investments in generative exploration projects are inherently long-term and fairly speculative in nature, but they give the Company access to proven exploration teams and are intended to establish 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.

Corporate and Other Matters

Federal Regulations

As discussed in Note 12 to the Company’s financial statements, new federal regulations went into effect on May 20, 2008 that tightened the maximum permissible diesel particulate matter (DPM) exposure limit for underground miners from 308 µg/m3 of elemental carbon to the new limit of 160 µg/m3 of total carbon. The Company utilizes a significant number of diesel-powered vehicles in its mining operations. It is not clear that appropriate measurement methods and emission control standards exist that will ensure compliance in the Company’s mining environment with this new standard.

The Company is aggressively utilizing existing and exploring alternative 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 catalytic converters and DPM filters, using cleaner-burning biodiesel fuel 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.

Mine has obtained a similar extension applicable to certain areas of the mine for a period of one year (commencing May 21, 2008), subject to specified conditions being met during the period of the special extension.

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 by third parties, 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.

Recycling activity has expanded significantly in the last five years. During this year’s second quarter, the Company processed recycled materials at a rate of approximately 20.9 tons per day, up from approximately 17.2 tons per day in the second quarter of 2007. During the first six months of this year, the Company processed recycled materials at a rate of approximately 17.1 tons per day, up from approximately 16.8 tons per day in the first six months of 2007.

Revenues from PGM recycling were $108.2 million and $194.6 million for the three- and six- month periods ended June 30, 2008, respectively, compared to $83.9 million and $153.9 million in revenue for the same periods in 2007. This revenue increase reflects both the higher catalyst volumes processed and higher underlying PGM prices in 2008 compared to 2007.

Other Debt Matters

As discussed in Note 7 to the Company’s June 30, 2008 financial statements above, on March 12, 2008, the Company issued $181.5 million of 1.875% debentures due March 15, 2028. The initial conversion price on these debentures is $23.51 per share, representing the potential for 7.72 million additional common shares outstanding if fully converted. MMC Norilsk Nickel, or one of its affiliates, with the approval of the Company’s public directors, purchased $80 million of the debentures, thereby maintaining their majority ownership position in the Company. The Company used the proceeds from this offering to retire the remaining $98.3 million outstanding balance on its term loan and to provide $20.7 million of cash collateral for standby letters of credit previously supported by the associated revolving credit facility. During the second quarter 2008, the Company has utilized a portion of the remaining proceeds to fund growth in its recycling business.

At June 30, 2008, the Company had posted surety bonds with the State of Montana in the amount of $15.2 million and had obtained a $7.5 million letter of credit to satisfy the current $22.7 million of financial guarantees provided to the regulatory agencies. The state is currently in the process of finalizing an updated environmental impact statement and is expected to require a substantial increase in these financial guarantees. The Company has adequate financial resources to meet these increased obligations.

Results of Operations

The Company reported net income of $17.2 million for the second quarter of 2008 compared to a net loss of $2.5 million for the second quarter of 2007. The second quarter of 2008 benefited from much higher sales realizations, driven both by higher PGM market prices and by lower volumes of platinum hedged forward at prices unfavorable to the current market price.

Earnings from mining operations strengthened between the 2008 and 2007 second quarters, increasing to a net income of $19.9 million from a loss of $1.4 million in the second quarter of 2007, as the higher PGM prices in 2008 more than offset the quarter’s lower sales volumes and higher operating costs. Earnings from recycling (including financing income) increased modestly quarter-on-quarter, growing to $8.7 million in the 2008 second quarter from about $7.8 million in the same period in 2007, the result of slightly higher metals

Three- month period ended June 30, 2008 compared to the three- month period ended June 30, 2007.

Revenues Total revenues increased by 35.9% to $218.8 million for the second quarter of 2008 compared to $161.0 million for the second quarter of 2007. The following analysis covers key factors contributing to the increase in revenues:

SALES AND PRICE DATA


	Three months ended
	June 30,				Increase			Percentage
(in thousands, except for average prices)	2008		2007		(Decrease)			Change
Revenues	$	218,831	$	160,963	$	57,868			36	%

Ounces Sold
Mine Production:
Palladium (oz.)		107		116		(9	)		(8	%)
Platinum (oz.)		33		32		1			3	%

Total		140		148		(8	)		(5	%)


Other PGM Activities: ⁽³⁾
Palladium (oz.)		41		32		9			28	%
Platinum (oz.)		28		31		(3	)		(10	%)
Rhodium (oz.)		6		6		—			—

Total		75		69		6			9	%


By-products from Mining: ⁽⁴⁾
Rhodium (oz.)		1		1		—			—
Gold (oz.)		3		3		—			—
Silver (oz.)		3		2		1			50	%
Copper (lb.)		213		85		128			151	%
Nickel (lb.)		241		261		(20	)		(8	%)

Average realized price per ounce ⁽¹⁾
Mine Production:
Palladium ($/oz.)	$	448	$	386	$	62			16	%
Platinum ($/oz.)	$	1,687	$	949	$	738			78	%
Combined ($/oz.)⁽²⁾	$	740	$	506	$	234			46	%

Other PGM Activities:⁽³⁾
Palladium ($/oz.)	$	444	$	355	$	89			25	%
Platinum ($/oz.)	$	1,771	$	1,225	$	546			45	%
Rhodium ($/oz.)	$	8,298	$	5,923	$	2,375			40	%

By-products from mining:⁽⁴⁾
Rhodium ($/oz.)	$	9,599	$	6,160	$	3,439			56	%
Gold ($/oz.)	$	898	$	655	$	243			37	%
Silver ($/oz.)	$	17	$	13	$	4			31	%
Copper ($/lb.)	$	3.67	$	3.39	$	0.28			8	%
Nickel ($/lb.)	$	11.76	$	22.74	$	(10.98	)		(48	%)

Average market price per ounce⁽²⁾
Palladium ($/oz.)	$	444	$	368	$	76			21	%
Platinum ($/oz.)	$	2,026	$	1,289	$	737			57	%
Combined ($/oz.) ⁽²⁾	$	816	$	564	$	252			45	%


(1)		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 of the daily London Metals Exchange PM Fix for the actual months of the period.

(2)		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 base metal refinery.

(3)		Ounces sold and average realized price per ounce from other PGM activities relate to ounces produced from processing of catalyst materials and ounces purchased in the open market for resale.

(4)		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.

Net revenues from sales of mine production were $103.7 million in the second quarter of 2008, compared to $74.9 million for the same period in 2007, a 38.5% increase. Reported revenues were net of hedging losses on forward sales of platinum of $5.8 million on 6,000 ounces hedged in the second quarter of 2008, and $8.1 million on 28,000 ounces hedged in the second quarter of 2007. The increase in mine production revenues reflects higher average realized prices in 2008, which more than offset the effect of lower sales volumes. The Company’s average combined realized price on sales of palladium and platinum from mining operations was $740 per ounce in the second quarter of 2008, compared to $506 per ounce in the same quarter of 2007. The total quantity of mined metals sold decreased by 5.3% to approximately 140,300 ounces in the second quarter of 2008 compared to 148,100 ounces sold during the same time period in 2007.

Revenues from PGM recycling grew by 29.0% between the second quarter of 2007 and the second quarter of this year, increasing to $108.2 million in the second quarter of 2008 from $83.9 million for the same period in 2007. The increase in PGM recycling revenues is the result of much higher prices realized for PGM sales thus far in 2008 as compared to 2007, while volumes sold decreased slightly. The Company’s combined average realization on recycling sales (which include palladium, platinum and rhodium) was $1,813 per ounce in the second quarter of 2008, up 37.8% from $1,316 per ounce in the second quarter of last year. Recycled ounces sold decreased to 59,300 ounces in the second quarter of this year from about 63,500 ounces in the second quarter of 2007.

The Company also purchases PGMs for resale from time to time. During the second quarter of 2008 the Company recognized revenue of about $6.9 million on approximately 15,200 ounces of palladium purchased in the open market and re-sold. In the second quarter of 2007, revenue from such sales totaled approximately $2.2 million on 6,000 ounces of palladium purchased in the open market and re-sold.

Costs of metals sold The Company’s total costs of metals sold (before depreciation, amortization, and corporate overhead) increased to about $170.3 million in the second quarter of 2008 from approximately $134.8 million in the second quarter of 2007, a 26.3% increase. The higher cost in 2008 was driven primarily by higher acquisition costs for recycling material, based on the higher value of the contained metals, and to a lesser extent by higher costs for fuel and contracted services.

The costs of metals sold from mine production totaled $61.9 million for the second quarter of 2008, compared to $54.7 million for the second quarter of 2007, a 13.2% increase. Most of the increase in 2008 was attributable to higher fuel costs and to outside contractor expense. In the second quarter of 2007, the Company recognized a $1.4 million lower-of-cost-or-market adjustment to reflect a realizable value of metals lower than cost of inventory. The Company did not recognize a corresponding adjustment in the second quarter of 2008 because the higher net realizable metal values exceeded the cost of metal in inventory.

Total consolidated cash costs per ounce produced, a non-GAAP measure of extraction efficiency, in the second quarter of 2008 increased substantially to $394 per ounce, compared to $320 per ounce in the second quarter of 2007. More than half of this increase was attributable to higher operating costs, and the remainder to lower mine production in the second quarter of 2008 compared to last year’s second quarter.

The costs of metals sold from PGM recycling activities were $101.5 million in the second quarter of 2008, compared to $77.9 million in the second quarter of 2007, a 30.3% increase. Most of the increase is attributable to the higher cost per ton to acquire recycling material as the value of the contained metals has increased.

The costs of metals sold from the 15,200 ounces of palladium purchased for resale was $6.9 million in the second quarter of 2008. In comparison, the cost to acquire 6,000 ounces of palladium in the second quarter of 2007 was $2.2 million. The increased cost was primarily attributable to the increased quantity of palladium ounces purchased in the second quarter of 2008, and secondarily the result of the higher palladium prices in 2008.

Production During the second quarter of 2008, the Company’s mining operations produced approximately 126,200 ounces of PGMs, including approximately 97,100 and 29,200 ounces of palladium and platinum, respectively. This is significantly less than the approximately 133,100 ounces of PGMs produced in

the second quarter of 2007, including approximately 102,400 and 30,700 ounces of palladium and platinum, respectively. The lower production in the 2008 second quarter is mostly attributable to the continuing challenges with hiring additional manpower in a very tight mining industry labor market. Production at the Stillwater Mine increased approximately 4.1% to about 88,000 ounces in the second quarter of 2008 from nearly 84,500 ounces in the second quarter of 2007, while production at East Boulder Mine decreased by 21.8% or about 38,000 ounces from 48,600 ounces over the same period. The East Boulder shortfall was primarily impacted by a shortage of manpower and appropriate skill sets related to the challenge of changing to more selective mining methods.

Marketing, general and administrative Total marketing, general and administrative expenses in the second quarter of 2008 were $10.4 million, compared to approximately $7.4 million during the second quarter of 2007, a 41.0% increase. During the second quarter of 2008, the Company’s continued its marketing efforts for palladium, largely in support of the Palladium Alliance International, spending approximately $2.4 million on marketing in the second quarter of 2008 compared to $1.1 million in the same period of 2007.

Interest income and expense Total interest income for the second quarter of 2008 decreased slightly to $2.9 million from $3.0 million in the corresponding quarter of 2007. This interest income included approximately $2.0 million and $1.8 million of earned interest from the Company’s recycling operations in the three month periods ended June 30, 2008 and 2007, respectively. Interest expense in the second quarter of 2008 was approximately $1.7 million, compared to $2.8 million for the same period in 2007, reflecting the lower rate of interest on the convertible debentures issued in 2008.

Other comprehensive income (loss) For the second quarter of 2008, other comprehensive income (loss) included the total change in the fair value of derivatives of $0.1 million and $5.8 million of hedging loss recognized in current earnings. For the same period of 2007, other comprehensive income (loss) included a change in the fair value of derivatives of $2.7 million reduced by $8.1 million in hedging loss recognized in current earnings.

Six- month period ended June 30, 2008, compared to the six- month period ended June 30, 2007.

Revenues Total revenues were $391.9 million for the first six months of 2008, compared to $307.4 million for the same period of 2007, for an increase of 27.5%. The following table illustrates the key factors affecting revenues in each period:

SALES AND PRICE DATA


	Six months ended
	June 30,				Increase			Percentage
(in thousands except for average prices)	2008		2007		(Decrease)			Change
Revenues	$	391,877	$	307,413	$	84,464			27	%

Ounces Sold
Mine Production:
Palladium		209		225		(16	)		(7	%)
Platinum		61		66		(5	)		(8	%)

Total		270		291		(21	)		(7	%)


Other PGM Activities: ⁽³⁾
Palladium		79		69		10			14	%
Platinum		58		59		(1	)		(2	%)
Rhodium		10		12		(2	)		(17	%)

Total		147		140		7			5	%


By-products from Mining:⁽⁴⁾
Rhodium (oz.)		2		2		—			—
Gold (oz.)		5		6		(1	)		(17	%)
Silver (oz.)		5		4		1			25	%
Copper (lb.)		514		468		46			10	%
Nickel (lb.)		522		567		(45	)		(8	%)

Average realized price per ounce ⁽¹⁾
Mine Production:
Palladium ($/oz.)	$	431	$	382	$	49			13	%
Platinum ($/oz.)	$	1,547	$	931	$	616			66	%
Combined ($/oz.) (2)	$	685	$	506	$	179			35	%

Other PGM Activities: ⁽³⁾
Palladium ($/oz.)	$	426	$	345	$	81			23	%
Platinum ($/oz.)	$	1,602	$	1,189	$	413			35	%
Rhodium ($/oz.)	$	7,486	$	5,497	$	1,989			36	%

By-products from mining:⁽⁴⁾
Rhodium ($/oz.)	$	8,919	$	6,039	$	2,880			48	%
Gold ($/oz.)	$	919	$	661	$	258			39	%
Silver ($/oz.)	$	17	$	13	$	4			31	%
Copper ($/lb.)	$	3.38	$	2.89	$	0.49			17	%
Nickel ($/lb.)	$	12.09	$	19.98	$	(7.89	)		(39	%)

Average market price per ounce⁽²⁾
Palladium ($/oz.)	$	443	$	355	$	88			25	%
Platinum ($/oz.)	$	1,947	$	1,238	$	709			57	%
Combined ($/oz.) ⁽²⁾	$	785	$	555	$	230			41	%


(1)		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 of the daily London Metals Exchange PM Fix for the actual months of the period.

(2)		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 base metal refinery.

(3)		Ounces sold and average realized price per ounce from other PGM activities relate to ounces produced from processing of catalyst materials and ounces purchased in the open market for resale.

(4)		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.

Net revenues from sales of mine production were $185.0 million in the first six months of 2008, compared to $147.3 million for the same period in 2007, a 25.6% increase. Reported revenues were net of hedging losses on forward sales of platinum of $12.8 million on 15,000 ounces hedged in the first half of 2008, and $8.1 million on 54,500 ounces hedged in the same period in 2007. The increase in mine production revenues reflects higher average realized prices in 2008, which more than offset the effect of lower sales volumes. The Company’s average combined realized price on sales of palladium and platinum from mining operations was $685 per ounce in the first six months of 2008, compared to $506 per ounce in the same period in 2007. The total quantity of mined metals sold decreased by 7.2% to approximately 270,200 ounces in the first half of 2008 compared to 291,100 ounces sold during the same time period in 2007.

Revenues from PGM recycling grew by 26.4% between the first six months of 2008 and the same period in 2007, increasing to $194.6 million in the first six months of 2008 from $153.9 million for the same period in 2007. This increase in revenues from PGM recycling resulted mostly from much higher prices realized for PGM sales through June in 2008 as compared to 2007. Quantity of recycled PGMs sold declined very slightly to approximately 120,200 ounces in the first six months of 2008 compared to approximately 121,000 ounces in the first six months of 2007. The combined average realized price for these metals (which include palladium, platinum and rhodium) increased significantly to $1,605 per ounce for the first six months of 2008 from $1,271 per ounce for the first half of 2007, an increase of 26.3%.

During the first half of 2008 the Company recognized revenue of about $12.2 million on approximately 27,400 ounces of palladium purchased in the open market and re-sold. In the first half of 2007, revenue from such sales totaled approximately $6.2 million on 18,000 ounces of palladium purchased in the open market and re-sold.

Costs of metals sold Total costs of metals sold (before depreciation, amortization, and corporate overhead) increased to about $310.3 million for the first six months of 2008, compared to $253.3 million for the same period of 2007, a 22.5% increase. The higher cost in 2008 was driven primarily by higher acquisition costs for recycling material, based on the higher value of the contained metals, and to a lesser extent by higher costs for fuel and contracted services.

The costs of metals sold from mine production were $114.6 million for the first six months of 2008, compared to $103.0 million for the same period of 2007, an 11.3% increase. This increase primarily reflects higher mining costs during the first half of 2008. The Company recognized a $1.4 million lower-of-cost-or-market adjustment to reflect a realizable value of metals lower than cost in inventory for the six- month period ended June 30, 2007; no corresponding adjustment was required for the first six months of 2008.

Total consolidated cash costs per ounce produced, a non-GAAP measure, in the first six months of 2008 increased to $390 per ounce compared to $314 per ounce in the same period of 2007. Analysis of this difference between the two periods indicates that higher operating costs and lower mine production in the first six months of 2008 both contributed to the increase.

The costs of metals sold from PGM recycling activities were $183.6 million in the first six months of 2008, compared to $144.0 million in the same period of 2007. Most of the increase is attributable to the higher cost per ton to acquire recycling material as the value of the contained metals has increased.

The costs of metals sold from the 27,400 ounces of palladium purchased for resale was $12.2 million in the first six months of 2008. In comparison, the cost to acquire 18,000 ounces of palladium in the first six months of 2007 was $6.2 million. The increased cost was primarily attributable to the increased higher palladium prices in 2008 and secondarily the quantity of palladium ounces purchased in the first six months of 2008.

Production During the first six months of 2008, the Company’s mining operations produced approximately 255,200 ounces of PGMs, including approximately 196,600 and 58,600 ounces of palladium and platinum, respectively. This compares with approximately 277,200 ounces of PGMs in the first six

months of 2007, including approximately 213,400 and 63,800 ounces of palladium and platinum, respectively, a 7.9% period-on-period decrease in total PGM production. The lower production in the first half of 2008 is attributable to a continuing shortage of miners with the appropriate skill sets, particularly at the East Boulder Mine, and to logistical issues that are currently being addressed.

The Stillwater Mine produced approximately 173,400 ounces of PGMs in the first six months of 2008, compared with approximately 182,500 ounces of PGMs in the same period of 2007, a 5.0% decrease. Of this shortfall, approximately 3.0% is grade related due to timing of some of the higher impact stopes. The East Boulder Mine produced approximately 81,800 ounces of PGMs in the first six months of 2008, compared with approximately 94,700 ounces of PGMs for the same period of 2007, a 13.6% decrease, predominantly due to staffing issues as mined grades improved over the same period last year.

Marketing, general and administrative Total marketing, general and administrative expenses in the first six months of 2008 were $18.1 million, compared to $16.2 million during the same period of 2007. The increase resulted from increased professional fees and compensation costs, including amortization of deferred stock awards granted during the first six months of 2008. The Company has continued its marketing program in 2008 spending approximately $3.7 million for marketing purposes in the first six months of 2008 compared to $3.2 million for the comparable period in 2007.

Interest income and expense Total interest income for the second half of 2008 and 2007 was $6.0 million. This interest income included approximately $3.6 million and $3.4 million of earned interest from the Company’s recycling operations in the six month periods ended June 30, 2008 and 2007, respectively. Interest expense in the first half of 2008 was approximately $6.3 million, compared to $5.6 million for the same period in 2007.

Other comprehensive income (loss) In the first six months of 2008, other comprehensive loss included a change in the fair value of derivatives of $6.3 million offset by a reclassification to earnings of $12.8 million, for commodity hedging instruments. For the same period of 2007, other comprehensive loss included a change in value of $15.3 million for commodity instruments and a reclassification to earnings of $15.4 million.

Liquidity and Capital Resources

The Company’s cash and cash equivalents (excluding restricted cash) totaled $100.8 million at June 30, 2008, down $25.7 million from March 31, 2008, but up $39.4 million from December 31, 2007. Cash increased from the end of 2007 mainly due to additional cash raised during the first quarter of 2008 from the net proceeds of the convertible debenture offering. Cash is down from the end of the first quarter of 2008 due to increased working capital required for recycling materials. Including the Company’s available-for-sale investments, the Company’s total available liquidity at June 30, 2008, was $102.8 million, down $38.1 million from $140.9 million at the end of the first quarter of 2008 but up $13.8 million from the end of 2007. Working capital constituting marketable inventories (see Note 10 to the Company’s financial statements) and advances thereon in the Company’s PGM recycling business totaled about $172.8 million at the end of the second quarter of 2008, up significantly from $83.7 million at the beginning of the year, reflecting the effect of higher PGM prices and higher PGM volumes in inventory at June 30, 2008.

The Company expects to spend a total of between $20 million and $25 million to construct a second smelting furnace at its processing facilities in Columbus, Montana, with anticipated completion of the furnace in late 2008 or early 2009. The addition of the second furnace is intended to accommodate forecasted increases in processing volumes due to future expansion of mine output and to growing volumes of recycled material. The second furnace will also mitigate an operational risk, as virtually all of the Company’s metal production is dependent on the availability of the smelter facility. Once the new smelter furnace is in place, the Company will need to take down the existing smelter furnace for about a month 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 is no longer feasible. The second furnace may also allow for extending the residence time of matte in the furnace, which is expected to improve PGM furnace recoveries.

Net cash used in operating activities was $17.4 million in the second quarter of 2008 compared to net cash provided from operating activities of $0.1 million in the same period of 2007; the second quarter cash drawdown reflects strong cash generation from earnings, more than offset by growth of about $79.0 million in recycling working capital during the quarter. Capital expenditures were $20.8 million in the second quarter 2008 compared to $18.8 million in the second quarter of 2007. The Company’s planned capital spending for 2008 is now projected to be about $100 million, including the cost of the new smelter furnace.

Outstanding Debt

Outstanding total debt at June 30, 2008 was $211.1 million. The Company’s total debt includes $181.5 million outstanding in the form of debentures due in 2028, $29.4 million of Exempt Facility Revenue Bonds due in 2020 and $0.2 million of Special Industrial Education Impact Revenue Bonds due in 2009. Besides its balance sheet debt, the Company also had obtained letters of credit in the amount of $25.6 million as partial surety for certain of its long-term reclamation obligations, self-insurance and contract performance guarantees, which are collateralized by $26.6 million of restricted cash.

Contractual Obligations

The Company is obligated to make future payments under various debt and lease agreements, ad valorem taxes, and workers compensation and final reclamation commitments. The following table represents significant contractual cash obligations and other commercial commitments and the related interest payments as of June 30, 2008:


(in thousands)	2008⁽¹⁾		2009		2010		2011		2012		Thereafter		Total
Convertible debentures	$	—	$	—	$	—	$	—	$	—	$	181,500	$	181,500
Special Industrial Education Impact Revenue Bonds		98		97		—		—		—		—		195
Exempt Facility Revenue Bonds		—		—		—		—		—		30,000		30,000
Operating leases		154		303		303		303		298		497		1,858
Asset retirement obligations		—		—		—		—		—		73,770		73,770
Payments of interest		2,937		5,811		5,803		5,803		5,803		19,702		45,859
Other noncurrent liabilities		—		13,829		—		—		—		—		13,829

Total	$	3,189	$	20,040	$	6,106	$	6,106	$	6,101	$	305,469	$	347,011


⁽¹⁾		Amounts represent cash obligations for July — December 2008.

Interest on the convertible debentures noted in the above table is calculated up to March 15, 2013, the date the holders of the debentures can exercise their call option. Interest payments noted in the table above assume no changes in interest rates. Amounts included in other noncurrent liabilities that are anticipated to be paid in 2009 include workers’ compensation costs, property taxes and severance taxes.

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 development, 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 ore bodies 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 affected 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 arrangements using 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. 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. 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. 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 settles. The Company has in the past primarily used derivatives to hedge metal prices and interest rates. All of the Company’s remaining financially settled forwards associated with platinum sales from mined production have now been settled and therefore no unrealized gains or losses on outstanding derivatives associated with commodity instruments are reported as a component of accumulated other comprehensive income (loss) at June 30, 2008 (see Note 3 to the Company’s financial statements).

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 June 30, 2008, 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).

Post-closure Reclamation Costs

The Company recognizes the fair value of a liability for an asset retirement obligation, in accordance with the provisions of SFAS No. 143, Accounting for Asset Retirement Obligations, 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 impact 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				Six months ended
	June 30,				June 30,
	2008		2007		2008		2007
OPERATING AND COST DATA FOR MINE PRODUCTION

*Consolidated:*
Ounces produced (000)
Palladium		97		102		197		213
Platinum		29		31		58		64

Total		126		133		255		277

Tons milled (000)		257		309		523		614
Mill head grade (ounce per ton)		0.51		0.48		0.51		0.49

Sub-grade tons milled (000) ⁽¹⁾		46		16		84		37
Sub-grade tons mill head grade (ounce per ton)		0.17		0.12		0.16		0.12

Total tons milled (000) ⁽¹⁾		303		325		607		651
Combined mill head grade (ounce per ton)		0.46		0.46		0.47		0.47
Total mill recovery (%)		91		90		91		91

Total operating costs per ounce (Non-GAAP)⁽²⁾	$	300	$	260	$	307	$	252
Total cash costs per ounce (Non-GAAP) ⁽²⁾	$	394	$	320	$	390	$	314
Total production costs per ounce (Non-GAAP) ⁽²⁾	$	557	$	476	$	549	$	466
Total operating costs per ton milled (Non-GAAP) ⁽²⁾	$	125	$	106	$	129	$	107
Total cash costs per ton milled (Non-GAAP) ⁽²⁾	$	164	$	131	$	164	$	134
Total production costs per ton milled (Non-GAAP)⁽²⁾	$	232	$	195	$	231	$	198

*Stillwater Mine:*
Ounces produced (000)
Palladium		68		64		134		140
Platinum		20		20		40		43

Total		88		84		174		183

Tons milled (000)		168		158		326		336
Mill head grade (ounce per ton)		0.55		0.58		0.56		0.58

Sub-grade tons milled (000)⁽¹⁾		25		16		45		37
Sub-grade tons mill head grade (ounce per ton)		0.16		0.12		0.15		0.12

Total tons milled (000) ⁽¹⁾		193		174		371		373
Combined mill head grade (ounce per ton)		0.50		0.54		0.51		0.54
Total mill recovery (%)		91		91		92		92

Total operating costs per ounce (Non-GAAP)⁽²⁾	$	267	$	229	$	281	$	228
Total cash costs per ounce (Non-GAAP) ⁽²⁾	$	357	$	291	$	361	$	291
Total production costs per ounce (Non-GAAP) ⁽²⁾	$	492	$	425	$	494	$	421
Total operating costs per ton milled (Non-GAAP) ⁽²⁾	$	122	$	111	$	132	$	111
Total cash costs per ton milled (Non-GAAP) ⁽²⁾	$	163	$	141	$	169	$	142
Total production costs per ton milled (Non-GAAP)⁽²⁾	$	224	$	205	$	231	$	206

Stillwater Mining Company
Key Factors (continued)
(Unaudited)


	Three months ended				Six months ended
	June 30,				June 30,
	2008		2007		2008		2007
OPERATING AND COST DATA FOR MINE PRODUCTION

(Continued)

*East Boulder Mine:*
Ounces produced (000)
Palladium		29		38		63		73
Platinum		9		11		18		21

Total		38		49		81		94

Tons milled (000)		89		151		197		278
Mill head grade (ounce per ton)		0.44		0.37		0.43		0.38

Sub-grade tons milled (000) ⁽¹⁾		21		—		40		—
Sub-grade tons mill head grade (ounce per ton)		0.19		—		0.18		—

Total tons milled (000) ⁽¹⁾		110		151		237		278
Combined mill head grade (ounce per ton)		0.39		0.37		0.39		0.38
Total mill recovery (%)		90		89		90		89

Total operating costs per ounce (Non-GAAP) ⁽²⁾	$	377	$	313	$	361	$	298
Total cash costs per ounce (Non-GAAP) ⁽²⁾	$	482	$	371	$	450	$	359
Total production costs per ounce (Non-GAAP) ⁽²⁾	$	709	$	566	$	666	$	552

Total operating costs per ton milled (Non-GAAP)⁽²⁾	$	131	$	101	$	125	$	101
Total cash costs per ton milled (Non-GAAP) ⁽²⁾	$	167	$	120	$	155	$	122
Total production costs per ton milled (Non-GAAP) ⁽²⁾	$	246	$	183	$	230	$	188

Stillwater Mining Company
Key Factors (continued)
(Unaudited)


	Three months ended				Six months ended
	June 30,				June 30,
(in thousands, where noted)	2008		2007		2008		2007
SALES AND PRICE DATA

Ounces sold (000)
Mine production:
Palladium (oz.)		107		116		209		225
Platinum (oz.)		33		32		61		66

Total		140		148		270		291

Other PGM activities: ⁽⁵⁾
Palladium (oz.)		41		32		79		69
Platinum (oz.)		28		31		58		59
Rhodium (oz.)		6		6		10		12

Total		75		69		147		140


By-products from mining: ⁽⁶⁾
Rhodium (oz.)		1		1		2		2
Gold (oz.)		3		3		5		6
Silver (oz.)		3		2		5		4
Copper (lb.)		213		85		514		468
Nickel (lb.)		241		261		522		567

Average realized price per ounce ⁽³⁾
Mine production:
Palladium ($/oz.)	$	448	$	386	$	431	$	382
Platinum ($/oz.)	$	1,687	$	949	$	1,547	$	931
Combined ($/oz.) ⁽⁴⁾	$	740	$	506	$	685	$	506

Other PGM activities: ⁽⁵⁾
Palladium ($/oz.)	$	444	$	355	$	426	$	345
Platinum ($/oz.)	$	1,771	$	1,225	$	1,602	$	1,189
Rhodium ($/oz.)	$	8,298	$	5,923	$	7,486	$	5,497

By-products from mining: ⁽⁶⁾
Rhodium ($/oz.)	$	9,599	$	6,160	$	8,919	$	6,039
Gold ($/oz.)	$	898	$	655	$	919	$	661
Silver ($/oz.)	$	17	$	13	$	17	$	13
Copper ($/lb.)	$	3.67	$	3.39	$	3.38	$	2.89
Nickel ($/lb.)	$	11.76	$	22.74	$	12.09	$	19.98

Average market price per ounce ⁽⁴⁾
Palladium ($/oz.)	$	444	$	368	$	443	$	355
Platinum ($/oz.)	$	2,026	$	1,289	$	1,947	$	1,238
Combined ($/oz.) ⁽⁴⁾	$	816	$	564	$	785	$	555


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

(2)		Total operating costs include costs of mining, processing and administrative expenses at the mine site (including mine site overhead and credits for metals produced other than palladium and platinum from mine production). Total cash costs include total operating costs plus royalties, insurance and taxes other than income taxes. Total production costs include total cash costs plus asset retirement costs and depreciation and amortization. Income taxes, corporate general and administrative expenses, asset impairment writedowns, gain or loss on disposal of property, plant and equipment, restructuring costs and interest income and expense are not included in total operating costs, total cash costs or total production costs. Operating costs per ton, operating costs per ounce, cash costs per ton, cash costs per ounce, production costs per ton and production costs per ounce are non-GAAP measurements that management uses to monitor and evaluate the efficiency of its mining operations. These measures of cost are not defined under U.S. Generally Accepted Accounting Principles (GAAP). Please see “Reconciliation of Non-GAAP Measures to Costs of Revenues” and the accompanying discussion for additional detail.

(3)		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.

(4)		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 base metal refinery.

(5)		Ounces sold and average realized price per ounce from other PGM activities relate to ounces produced from processing of catalyst materials, ounces purchased in the open market for resale.

(6)		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						Six months ended
	June 30,						June 30,
(in thousands)	2008			2007			2008			2007
*Consolidated:*
Reconciliation to consolidated costs of revenues:
Total operating costs (Non-GAAP)	$	37,909		$	34,597		$	78,382		$	69,807
Royalties, taxes and other		11,861			8,022			21,059			17,305

Total cash costs (Non-GAAP)	$	49,770		$	42,619		$	99,441		$	87,112
Asset retirement costs		219			182			433			360
Depreciation and amortization		21,747			21,628			42,394			42,020
Depreciation and amortization (in inventory)		(1,392	)		(1,031	)		(2,118	)		(371	)

Total production costs (Non-GAAP)	$	70,344		$	63,398		$	140,150		$	129,121
Change in product inventories		11,526			7,317			14,398			8,969
Costs of recycling activities		101,491			77,871			183,574			144,046
Recycling activities — depreciation		48			28			96			52
Add: Profit from recycling activities		8,674			7,815			14,585			13,164

Total consolidated costs of revenues	$	192,083		$	156,429		$	352,803		$	295,352


*Stillwater Mine:*
Reconciliation to costs of revenues:
Total operating costs (Non-GAAP)	$	23,571		$	19,383		$	48,821		$	41,620
Royalties, taxes and other		7,861			5,230			13,829			11,449

Total cash costs (Non-GAAP)	$	31,432		$	24,613		$	62,650		$	53,069
Asset retirement costs		160			127			316			250
Depreciation and amortization		12,404			12,400			23,799			24,563
Depreciation and amortization (in inventory)		(667	)		(1,255	)		(1,134	)		(1,076	)

Total production costs (Non-GAAP)	$	43,329		$	35,885		$	85,631		$	76,806
Change in product inventories		3,162			3,465			4,200			3,380
Add: Profit from recycling activities		5,960			4,944			9,853			8,573

Total costs of revenues	$	52,451		$	44,294		$	99,684		$	88,759


*East Boulder Mine:*
Reconciliation to costs of revenues:
Total operating costs (Non-GAAP)	$	14,338		$	15,214		$	29,561		$	28,187
Royalties, taxes and other		4,000			2,792			7,230			5,856

Total cash costs (Non-GAAP)	$	18,338		$	18,006		$	36,791		$	34,043
Asset retirement costs		59			55			117			109
Depreciation and amortization		9,343			9,228			18,595			17,457
Depreciation and amortization (in inventory)		(725	)		225			(984	)		706

Total production costs (Non-GAAP)	$	27,015		$	27,514		$	54,519		$	52,315
Change in product inventories		1,482			1,668			(1,987	)		(616	)
Add: Profit from recycling activities		2,714			2,870			4,732			4,591

Total costs of revenues	$	31,211		$	32,052		$	57,264		$	56,290


*Other PGM activities:* ⁽¹⁾
Reconciliation to costs of revenues:
Change in product inventories	$	6,882		$	2,184		$	12,185		$	6,205
Recycling activities — depreciation		48			28			96			52
Costs of recycling activities		101,491			77,871			183,574			144,046

Total costs of revenues	$	108,421		$	80,083		$	195,855		$	150,303


⁽¹⁾		Other PGM activities include recycling 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 2007 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. Some of these derivative transactions have been designated as cash flow hedges against future metal prices. 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. Derivative transactions that are not designated as hedges are marked to market in each reporting period.

The Company has entered into long-term sales contracts with Ford Motor Company and General Motors Corporation. The contracts together cover 100% of the Company’s mined palladium production and 70% of mined platinum production through December 2010. After 2010, approximately 35% of the Company’s mine production of palladium is committed for sale in 2011 and 2012. Pricing under these sales contracts is generally market based, less a small discount in each case, but is subject to minimum selling prices (“floors”) on all metal delivered and to a maximum selling price (“ceiling”) on part of the metal sold. Please see Note 2 to the Company’s June 30, 2008 financial statements for additional detail on these floor and ceiling prices.

Since the third quarter of 2005, the major U.S. bond rating agencies have significantly downgraded the corporate ratings of Ford Motor Company and General Motors Corporation, 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 Ford or General Motors 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. 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. The Company’s credit ratings from Moody’s Investor Services and Standard & Poor’s have been downgraded in the past, in part as a result of concerns with the creditworthiness of these major customers.

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 recycled 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 at each settlement date, the Company receives the difference between the forward price and the market price if the market price is below the forward price and the Company pays the difference between the forward price and the market price if the market price is above the forward price. The Company’s financially settled forwards are settled in cash at maturity.

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, 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 ranging from a few days to four months; all of these transactions open at June 30, 2008, will settle at various periods through December 2008. (See Note 3 to the Company’s financial statements.) Because fixed forward sales of metal require the Company to deliver physical metal on a specified date, in the event of an operational interruption the Company might be required to purchase PGMs in the open market to cover its delivery commitments; if so, it would be exposed to any loss (or gain) attributable to pricing differences.

Beginning in the third quarter of 2007, the Company 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 June 30, 2008. The corresponding net realized gain on these derivatives during the second quarter of 2008 was approximately $0.3 million and the net realized loss on these derivatives during the first half of 2008 was approximately $0.2 million and has been recorded as a component of recycling revenue.

The Company purchases catalyst materials from third parties for recycling activities to recover PGMs. At June 30, 2008, working capital comprised of marketable inventories and advances thereon in the Company’s PGM recycling business totaled about $172.8 million, up significantly from $83.7 million at the beginning of the year. 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 procured but not yet received by the Company, however, until such time as the material has been procured, a portion of the Advances on inventory purchases on the balance sheet remains unsecured and the unsecured portion is fully at risk should the supplier fail to deliver the promised material or experience other financial difficulties. Any determination that a supplier is unable to deliver the promised material or otherwise repay these advances would result in a significant charge against earnings. The Company’s recycling business is currently highly dependent on the performance of one supplier and a significant portion of the Advances on inventory purchases on the balance sheet have been made to this one supplier.

The Company also has various spot purchase and tolling agreements with other suppliers of spent catalytic materials, but the volumes from them are less significant.

Interest Rate Risk

As of June 30, 2008, all of the Company’s outstanding long-term debt obligations were at fixed rates of interest. However, the Company does assess financing charges on a portion of its recycling working capital at rates tied to short-term market rates of interest. Based on the working capital balances outstanding at June 30, 2008, a decrease in short-term market interest rates of one percentage point would reduce the Company’s annual income by about $1.7 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 not 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 June 30, 2008, management determined that during the second quarter of 2008 there were no 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.

During the second quarter 2008, the Company implemented a software programming change in one of its accounting programs that contained a programming error which affected the accuracy of certain commercial payments during the quarter. The Company discovered and corrected the programming error internally in early July, prior to issuing second quarter 2008 financial statements. In reviewing the associated internal controls over financial reporting, the Company has determined that a control procedure intended to ensure data integrity in the affected system was not operating effectively and was deemed to be a material weakness. Subsequent to discovering the error, the Company has updated its internal controls over changes in computer software to remedy the ineffective control and has introduced a new set of specific detective controls intended to monitor and verify data integrity regularly in the affected computer program.

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.

Item 1A. Risk Factors

The Company filed its Annual Report on Form 10-K for the year ended December 31, 2007 with the Securities and Exchange Commission on February 26, 2008, which sets forth its risk factors in Item 1A therein. The Company has not experienced any material changes from the risk factors previously described therein.


PART I – FINANCIAL INFORMATION			3

Item 1. Financial Statements			3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17

Item 3. Quantitative and Qualitative Disclosure About Market Risk			42

Item 4. Controls and Procedures			44

PART II – OTHER INFORMATION			44

Item 1. Legal Proceedings			44

Item 1A. Risk Factors			44

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			45

Item 3. Defaults Upon Senior Securities			45

Item 4. Submission of Matters to a Vote of Security Holders			45

Item 5. Other Information			45

Item 6. Exhibits			45

SIGNATURES			46

CERTIFICATION
Contract between Stillwater Mining Company and United Steel Workers
2004 Equity Incentive Plan as Amended and Restated
409A Nonqualified Deferred Compensation Plan as Amended and Restated
2005 Non-employee Directors' Deferral Plan as Amended and Restated
Rule 13a-14(a)/15d-14(a) Certification - CEO
Rule 13a-14(a)/15d-14(a) Certification - VP and CFO
Section 1350 Certification
Section 1350 Certification


	STILLWATER MINING COMPANY (Registrant)
Date: August 11, 2008	By:	/s/ Francis R. McAllister
		Francis R. McAllister
		Chairman and Chief Executive Officer (Principal Executive Officer)


Date: August 11, 2008	By:	/s/ Gregory A. Wing
		Gregory A. Wing
		Vice President and Chief Financial Officer (Principal Financial Officer)


*Number*		*Description*
10.1		Contract between Stillwater Mining Company and United Steel Workers (USW) Local 11-0001, East Boulder Unit, ratified July 8, 2008 (filed herewith).

10.2		2004 Equity Incentive Plan as Amended and Restated dated February 21, 2008 (filed herewith).

10.3		409A Nonqualified Deferred Compensation Plan As Amended and Restated dated February 15, 2008 (filed herewith).

10.4		2005 Non-employee Directors’ Deferral Plan As Amended and Restated dated February 15, 2008 (filed herewith)

31.1		Rule 13a-14(a)/15d-14(a) Certification — Chief Executive Officer, dated, August 11, 2008

31.2		Rule 13a-14(a)/15d-14(a) Certification — Vice President and Chief Financial Officer, dated, August 11, 2008

32.1		Section 1350 Certification, dated, August 11, 2008

32.2		Section 1350 Certification, dated, August 11, 2008