e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 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		(I.R.S. Employer Identification No.)
incorporation or organization)

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 November 5, 2008, the Company had outstanding 93,345,795 shares of common stock, par value $0.01 per share.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

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


	Three months ended						Nine months ended
	September 30,						September 30,
	2008			2007			2008			2007
Revenues

Mine production	$	72,567		$	63,613		$	257,598		$	210,877
PGM recycling		169,801			94,075			364,432			247,977
Other		6,342			5,399			18,557			11,646

Total revenues		248,710			163,087			640,587			470,500

Costs and expenses
Costs of metals sold
Mine production		60,071			54,088			174,625			157,117
PGM recycling		152,383			87,886			335,957			231,932
Other		6,284			5,299			18,469			11,504

Total costs of metals sold		218,738			147,273			529,051			400,553

Depreciation and amortization
Mine production		18,952			20,114			61,346			62,134
PGM recycling		48			32			144			84

Total depreciation and amortization		19,000			20,146			61,490			62,218

Total costs of revenues		237,738			167,419			590,541			462,771

Exploration		1,890			500			2,390			562
Marketing		1,209			783			4,944			3,996
General and administrative		6,735			5,565			20,561			18,528
Loss on long-term investments		3,029			—			3,029			—
(Gain)/loss on disposal of property, plant and equipment		(22	)		26			130			(184	)

Total costs and expenses		250,579			174,293			621,595			485,673

Operating income (loss)		(1,869	)		(11,206	)		18,992			(15,173	)

Other income (expense)
Other		—			127			145			109
Interest income		2,895			2,957			8,906			8,943
Interest expense		(1,735	)		(2,931	)		(7,993	)		(8,507	)


Income (loss) before income tax benefit (provision)		(709	)		(11,053	)		20,050			(14,628	)

Income tax benefit (provision)		374			—			—			—


Net income (loss)	$	(335	)	$	(11,053	)	$	20,050		$	(14,628	)


Other comprehensive (loss) income, net of tax		(72	)		3,550			5,920			3,821


Comprehensive income (loss)	$	(407	)	$	(7,503	)	$	25,970		$	(10,807	)


Weighted average common shares outstanding
Basic		93,134			92,203			92,872			91,908
Diluted		93,134			92,203			93,183			91,908

Basic income (loss) per share

Net income (loss)	$	0.00		$	(0.12	)	$	0.22		$	(0.16	)


Diluted income (loss) per share

Net income (loss)	$	0.00		$	(0.12	)	$	0.22		$	(0.16	)

See accompanying notes to the financial statements

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


	September 30,			December 31,
	2008			2007
ASSETS
Current assets
Cash and cash equivalents	$	106,224		$	61,436
Restricted cash		26,055			5,885
Investments, at fair market value		22,810			27,603
Inventories		163,795			118,663
Advances on inventory purchases		40,823			28,396
Trade receivables		6,543			12,144
Deferred income taxes		2,862			4,597
Other current assets		9,917			6,092

Total current assets	$	379,029		$	264,816

Property, plant and equipment (net of $359,225 and $301,212 accumulated depreciation and amortization)		467,109			465,054
Other noncurrent assets		12,908			12,537


Total assets	$	859,046		$	742,407

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	16,871		$	17,937
Accrued payroll and benefits		24,642			20,944
Property, production and franchise taxes payable		9,341			10,528
Current portion of long-term debt		195			1,209
Fair value of derivative instruments		—			6,424
Unearned income		471			788
Other current liabilities		13,192			11,144

Total current liabilities		64,712			68,974

Long-term debt		210,940			126,841
Deferred income taxes		2,862			4,597
Accrued workers compensation		8,357			9,982
Asset retirement obligation		11,163			10,506
Other noncurrent liabilities		6,536			4,103


Total liabilities	$	304,570		$	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; 93,205,034 and 92,405,111 shares issued and outstanding		932			924
Paid-in capital		637,719			626,625
Accumulated deficit		(84,070	)		(104,120	)
Accumulated other comprehensive loss		(105	)		(6,025	)

Total stockholders’ equity		554,476			517,404

Total liabilities and stockholders’ equity	$	859,046		$	742,407

See accompanying notes to the financial statements

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


	Three months ended						Nine months ended
	September 30,						September 30,
	2008			2007			2008			2007
Cash flows from operating activities
Net income (loss)	$	(335	)	$	(11,053	)	$	20,050		$	(14,628	)

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization		19,000			20,146			61,490			62,218
Lower of cost or market inventory adjustment		3,370			3,734			3,370			5,164
Loss on long-term investments		3,029			—			3,029			—
(Gain)/loss on disposal of property, plant and equipment		(22	)		26			130			(184	)
Asset retirement obligation		224			185			657			545
Stock issued under employee benefit plans		1,399			974			4,340			3,903
Amortization of debt issuance costs		264			208			2,950			618
Share based compensation		1,388			1,231			3,771			3,745

Changes in operating assets and liabilities:
Inventories		16,810			12,378			(49,408	)		(8,279	)
Advances on inventory purchases		12,975			2,245			(12,427	)		(4,056	)
Trade receivables		7,517			832			4,264			4,586
Employee compensation and benefits		610			1,138			3,699			1,465
Accounts payable		(7,088	)		1,733			(1,066	)		(7,900	)
Property, production and franchise taxes payable		(330	)		342			1,246			888
Workers compensation		(809	)		(241	)		(1,625	)		313
Unearned income		(376	)		(233	)		(317	)		(8	)
Estimated final payments for inventory purchases		(4,092	)		(1,706	)		4,356			452
Forward hedges		(1,968	)		211			(2,812	)		480
Restricted cash		—			—			—			(600	)
Other		(3,664	)		(1,169	)		(2,165	)		(2,465	)

Net cash provided by operating activities		47,902			30,981			43,532			46,257


Cash flows from investing activities
Capital expenditures		(21,681	)		(22,435	)		(63,284	)		(62,844	)
Purchases of long-term investments		(601	)		(1,019	)		(948	)		(1,687	)
Proceeds from disposal of property, plant and equipment		100			47			315			375
Purchases of investments		(22,743	)		(7,914	)		(34,135	)		(56,054	)
Proceeds from maturities of investments		1,987			10,756			38,508			54,934


Net cash used in investing activities		(42,938	)		(20,565	)		(59,544	)		(65,276	)


Cash flows from financing activities
Payments on long-term debt and capital lease obligations		—			(266	)		(98,422	)		(2,230	)
Payments for debt issuance costs		(26	)		—			(5,098	)		—
Proceeds from issuance of convertible debentures		—			—			181,500			—
Restricted cash		525			—			(20,170	)		—
Issuance of common stock		—			8			2,990			247


Net cash provided by (used in) financing activities		499			(258	)		60,800			(1,983	)


Cash and cash equivalents
Net increase (decrease)		5,463			10,158			44,788			(21,002	)
Balance at beginning of period		100,761			57,200			61,436			88,360


Balance at end of period	$	106,224		$	67,358		$	106,224		$	67,358

See accompanying notes to the financial statements

Stillwater Mining Company
Notes to Financial Statements
(Unaudited)

Note 1 — General

In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of Stillwater Mining Company (the “Company”) as of September 30, 2008, and the results of its operations and its cash flows for the three- and nine- month periods ended September 30, 2008 and 2007. The results of operations for the three- and nine- month periods are not necessarily indicative of the results to be expected for the full year. The accompanying financial statements in this quarterly report should be read in conjunction with the financial statements and notes thereto included in the Company’s March 31, 2008 and June 30, 2008 Quarterly Reports 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, the valuation allowance for deferred tax assets, useful lives utilized for depreciation, amortization and accretion calculations, future cash flows from long-lived assets, and the 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 September 30, 2008 and 2007, total by-product (copper, nickel, gold, silver and mined rhodium) sales were $5.4 million and $11.8 million, respectively. Total by-product sales for the nine- month periods ended September 30, 2008 and 2007 were $33.1 million and $40.2 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		0	%		—		—			—		—			—
2012		20	%	$	300		0	%		—		—			—		—			—

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 and title has transferred, 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 normally 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 $6.3 million and $5.4 million on 15,400 ounces of PGMs that were purchased in the open market and re-sold for the three- month periods ended September 30, 2008 and 2007, respectively. For the nine- month periods ended September 30, 2008 and 2007, 42,800 and 33,400 palladium ounces, respectively, were purchased in the open market and re-sold for $18.6 million and $11.6 million, respectively.

Total Sales

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


	Three months ended						Nine months ended
	September 30,						September 30,
	2008			2007			2008			2007
Customer A		23	%		31	%		32	%		35	%
Customer B		29	%		32	%		23	%		27	%
Customer C		19	%		*			13	%		*
Customer D		10	%		*			12	%		*
Customer E		*			10	%		*			*
Customer F		*			*			*			10	%

		81	%		73	%		80	%		72	%


*		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 enters into these types of contracts 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 first six months of 2008 totaled $12.8 million on 15,000 ounces hedged.

As of September 30, 2007, the Company was party to financially-settled forward sales agreements covering approximately 33% of its anticipated platinum sales out of mine production for the period from October 2007 through June 2008. Losses on these hedges for the three- and nine- month periods ended September 30, 2007 totaled $7.2 million and $22.5 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 fixed forward sales contracts open as of September 30, 2008, will settle at various periods through March 2009. 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 as of September 30, 2008 or 2007.

From time to time, the Company also enters into financially settled forward contracts on recycling material for which it hasn’t 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. No financially settled forward contracts were outstanding as of September 30, 2008. The Company generally has not designated these contracts as cash flow hedges, 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 loss on these derivatives during the first nine months of 2008 and 2007 was $0.2 million and $0.1 million, respectively, and has been recorded as a reduction of recycling revenue. The Company did not enter into any of these derivatives during the third quarter 2008.

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

PGM Recycling:

Fixed Forwards


	Platinum				Palladium				Rhodium
Settlement Period	Ounces		Avg. Price		Ounces		Avg. Price		Ounces		Avg. Price
Fourth Quarter 2008		32,397	$	1,588		28,103	$	336		7,065	$	6,922
First Quarter 2009		3,161	$	1,202		1,385	$	265		1,091	$	6,538

Interest Rate Derivatives

At September 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 additional interest expense of $12,500 and a credit to interest expense of $35,500 during the three- month and nine- month periods ended September 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 3,685,000 shares remain reserved and available for grant as of September 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. No stock options were exercised during the third quarter 2008. The Company received $8,300 in cash from the exercise of stock options in the three- month period ended September 30, 2007. Cash received by the Company from the exercise of stock options totaled $3.0 million and $0.2 million for the nine- month periods ended September 30, 2008 and 2007, respectively.

Nonvested Shares

Nonvested shares granted to non-management directors, certain members of management and other employees as of September 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				Nine months ended
		Shares		Value on		September 30,				September 30,
Grant Date	Vesting Date	Granted		Grant Date		2008		2007		2008		2007
May 7, 2004	May 7, 2007		348,170	$	4,460,058	$	—	$	—	$	—	$	495,562
May 3, 2005	May 3, 2008		225,346	$	1,654,040	$	—	$	137,837	$	147,446	$	413,510
April 27, 2006	April 27, 2009		288,331	$	4,731,512	$	316,143	$	394,293	$	948,428	$	1,182,878
February 22, 2007	February 22, 2010		426,514	$	5,433,788	$	359,553	$	447,139	$	1,067,981	$	1,083,504
May 3, 2007	November 3, 2007		17,654	$	280,000	$	—	$	139,996	$	—	$	233,327
February 4, 2008	February 4, 2011		16,741	$	225,000	$	18,828	$	—	$	49,270	$	—
March 6, 2008	March 6, 2011		287,592	$	5,283,065	$	438,297	$	—	$	1,002,540	$	—
May 8, 2008	November 8, 2008		19,719	$	280,010	$	140,005	$	—	$	233,341	$	—


Total compensation expense of nonvested shares						$	1,272,826	$	1,119,265	$	3,449,006	$	3,408,781

Total compensation cost related to nonvested shares, noted in the table above, yet to be recognized is $1.2 million, $3.7 million, $2.1 million and $0.3 million, for the remaining three 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 $9,300 and $12,000 during the three- month periods ended September 30, 2008 and 2007, respectively, and $29,900 and $36,000 for the nine- month periods ended September 30, 2008 and 2007, respectively. The company match was made in Company common stock and resulted in compensation expense of $1,900 and $2,400 during the three- month periods ended September 30, 2008 and 2007, respectively, and $6,000 and $7,200 for the nine- month periods ended September 30, 2008 and 2007, respectively.

Nonqualified Deferred Compensation Plan

Compensation expense deferred in cash under the Nonqualified Deferred Compensation Plan was $45,400 and $62,000 for the three- month periods ended September 30, 2008 and 2007, respectively, and $123,300 and $274,000 for the nine- month periods ended September 30, 2008 and 2007, respectively.

Stock Options

The Company recognizes compensation expense associated with its stock option grants based on fair market value on the date of grant using a Black-Scholes option pricing model. Stock option grants to employees generally vest in annual installments over a three year period. The Company recognizes stock option expense ratably over the vesting period of the options. If options are canceled or forfeited prior to vesting, the Company stops recognizing the related expense effective with the date of forfeiture, but does not recapture expense taken previously. The compensation expense, recorded in general and administrative expense, related to the fair value of stock options during the three- month periods ended September 30, 2008 and 2007 was $102,900 and $98,000, respectively, and $283,300 and $299,000 during the nine- month periods ended September 30, 2008 and 2007, respectively. Total compensation cost related to nonvested stock options not yet recognized is $97,400, $229,400, $78,800, and $14,600 for the remaining three 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 September 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. Changes in the Company’s net deferred tax assets and liabilities have been offset by a corresponding change in the valuation allowance.

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

As of September 30, 2008, the Company has no accrual for its estimated alternative minimum tax (“AMT”) obligations associated with earnings for the three- month and nine- month periods ended September 30, 2008. Alternative minimum tax provisions accrued during the first and second quarters of 2008 were reversed at September 30, 2008, as the Company now projects an AMT loss for the full year 2008.

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 September 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 nine months of 2008 and 2007:


							Accumulated Other
(in thousands)	Available for Sale			Commodity			Comprehensive Income
As of September 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	)

Reclassification to earnings		6			—			6
Change in value		(78	)		—			(78	)

Comprehensive income (loss)	$	(72	)	$	—		$	(72	)


Balance at September 30, 2008	$	(105	)	$	—		$	(105	)


						Accumulated Other
(in thousands)	Available for Sale		Commodity			Comprehensive Income
As of September 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	)

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

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


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

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 its 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 $5.1 million of issuance costs, which primarily consisted of investment banking fees, 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 $0.3 million and $0.6 million for the three- and nine- month periods ended September 30, 2008, respectively, and the interest expense on the debentures was $0.9 million and $1.9 million for the three- and nine- month periods ended September 30, 2008, respectively. The Company made cash payments of $1.7 million for interest on the debentures during the three- and nine- month periods ended September 30, 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 nine 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 September 30, 2008	Production			Recycling		Other			Total

Revenues	$	72,567		$	169,801	$	6,342		$	248,710
Depreciation and amortization	$	18,952		$	48	$	—		$	19,000
Interest income	$	—		$	2,149	$	746		$	2,895
Interest expense	$	—		$	1	$	1,734		$	1,735
Income (loss) before income taxes	$	(6,436	)	$	19,518	$	(13,791	)	$	(709	)
Capital expenditures	$	21,546		$	68	$	67		$	21,681
Total assets	$	521,621		$	140,067	$	197,358		$	859,046


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

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


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

Revenues	$	257,598	$	364,432	$	18,557		$	640,587
Depreciation and amortization	$	61,346	$	144	$	—		$	61,490
Interest income	$	—	$	5,781	$	3,125		$	8,906
Interest expense	$	—	$	1	$	7,992		$	7,993
Income (loss) before income taxes	$	21,501	$	34,104	$	(35,555	)	$	20,050
Capital expenditures	$	62,689	$	280	$	315		$	63,284
Total assets	$	521,621	$	140,067	$	197,358		$	859,046


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

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

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 September 30, 2008 are as follows:

Gross

unrealized

Fair

(in thousands)

Cost

gains

losses

market value

At September 30, 2008

Federal agency notes

13,853

—

13,845

Commercial paper

8,976

—

8,965

Mutual funds

529

—

443

Total

23,358

—

105

23,253

The mutual funds included in the investment table above are included in other 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 inventory costs in excess of market values, the Company, during the three- month periods ended September 30, 2008 and 2007, reduced the aggregate inventory carrying value of certain components of its in-process and finished good inventories by $3.4 million and $3.7 million, respectively. During the nine- month periods ended September 2008 and 2007, the aggregate inventory carrying value was reduced by $3.4 million and $5.2 million, respectively.

The costs of PGM inventories as of any date are determined based on combined production costs per ounce and include all inventoriable production costs, including direct labor, direct materials, depreciation and amortization and other overhead costs relating to mining and processing activities incurred as of such date.

Inventories reflected in the accompanying balance sheets consisted of the following:


	September 30,		December 31,
(in thousands)	2008		2007
Metals inventory
Raw ore	$	1,761	$	1,061
Concentrate and in-process		39,988		36,933
Finished goods		102,350		62,933

		144,099		100,927
Materials and supplies		19,696		17,736

Total inventory	$	163,795	$	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. 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 nine- month periods ended September 30, 2008 and 2007. The Company currently has only one class of equity shares outstanding.

Outstanding options to purchase 1,027,130 shares of common stock were excluded from the computation of diluted earnings (loss) per share for the three month period ended September 30, 2008 because the Company reported a net loss and so the effect would have been antidilutive and inclusion of these options would have reduced the net loss per share. A total of 44,625 weighted shares of common stock were included in the computation of diluted earnings (loss) per share for the nine month period ended September 30, 2008. Outstanding options to purchase 851,541 of weighted shares of common stock were excluded from the computation of diluted earnings (loss) per share for the nine- month period ended September 30, 2008 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 nine- month periods ended September 30, 2007 excluded from the computation of diluted earnings (loss) per share were 1,122,024 and 1,057,839, respectively, because the Company reported losses in both periods and so the effect would have been antidilutive and inclusion of these options would have reduced the net loss per share.

Outstanding nonvested shares of 894,732 were excluded from the computation of diluted earnings (loss) per share for the three-month period ended September 30, 2008 because the Company reported a net loss and inclusion of any of these nonvested shares would have reduced the net loss per share amounts. Outstanding nonvested shares of 265,968 were included in the computation of diluted earnings (loss) per share for the nine- month period ended September 30, 2008. Outstanding nonvested shares of 164,926 and 291,614 were excluded from the computation of diluted earnings (loss) per share for the three- month and nine- month periods ended September 30, 2007, respectively, because the Company reported a net loss in both periods 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 excluded from the computation of diluted weighted average shares for the three- and nine- month periods ended September 30, 2008 because the net effect of assuming all the debentures were converted would have been antidilutive.

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 underground 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 the Mine Safety and Health Administration (MSHA), the National Institute for Occupational Safety and Health (NIOSH) and various other companies in the mining industry to share best practices and compliance strategies. 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. On October 3, 2008, the Company applied for an additional one year special extension to the extension that was granted to the Stillwater Mine on November 28, 2007, following the requirements of MSHA regulations. The Company continues to comply with the conditions outlined in the special extension granted on November 28, 2007. The East Boulder Mine also has obtained a one-year 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. The Company continues to comply with the conditions outlined in the special extension granted on May 21, 2008.

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 a 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 external 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 at September 30, 2008, consisted of the following:


	Fair Value Measurements
(in thousands)	Total		Level I		Level 2		Level 3
Mutual funds	$	443	$	—	$	443	$	—
Investments	$	22,810	$	—	$	22,810	$	—
Long-term investments	$	1,475	$	—	$	1,475	$	—

The fair value of mutual funds and investments, consisting of federal agency notes and commercial paper, is based on market prices which are readily available. The Company’s long-term investments are carried on the balance sheet at cost. As of September 30, 2008, the Company determined that its long-term investments, representing equity holdings in two exploration companies, were other than temporarily impaired and recorded a write-down of $3.0 million. 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

This commentary provides management’s perspective and analysis regarding the financial and operating performance of Stillwater Mining Company for the three- and nine- month periods ended September 30, 2008, and management’s general assessment of developments subsequent to September 30, 2008, in its primary markets. It should be read in conjunction with the financial statements included in this quarterly report, in the Company’s March 31, 2008 and June 30, 2008 Quarterly Reports 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 Mine and East Boulder Mine, 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 in 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. All finished palladium and about 70% of the platinum produced from mining is sold under contracts with Ford Motor Company and

General Motors Corporation 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 agreements in place 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 third quarter of 2008 totaled 126,100 ounces, a 27.9% increase from the 98,600 ounces processed in the third quarter of 2007. For the first nine months of 2008, recycling volumes fed to the smelter totaled 319,100 ounces as compared to 278,600 ounces in 2007, a 14.5% increase. While higher processed volumes and increased average realized prices for PGMs during the first nine months of 2008 benefited recycling earnings, they also resulted in a substantial increase in the Company’s in-process inventories and other working capital. The working capital requirement for recycling, comprised of working inventories and associated advances, was approximately $138.2 million at September 30, 2008, up from approximately $83.7 million at the end of 2007.

The Company reported a net loss for third quarter 2008 of $0.3 million, or less than $0.01 per diluted share, on revenues of $248.7 million. This compares to a net loss of $11.1 million, or $0.12 per diluted share on revenues of $163.1 million in the third quarter of 2007. For nine months year to date in 2008, the Company’s reported net income was $20.1 million, compared to a reported net loss of $14.6 million in the first nine months of 2007. The improved financial performance in the third quarter and first nine months of 2008 was attributable to higher average market prices for PGMs and, to a lesser extent, higher recycling volumes processed for sale. Platinum realizations were 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 platinum forward sales entered into in earlier years at prices well below the market price at the time they were settled. The last of these forward sales matured at June 30, 2008, so they had no effect on the third quarter of 2008. However, the third quarter of 2008 also included $6.4 million of unusual expense for write-downs of product inventories and long-term investments, driven mostly by the recent decline in realizable prices for PGMs and in prices for equities.

Including these constraints and the benefit of higher market prices, the Company’s average realized price for mined platinum in the third quarter of 2008 was $1,569 per ounce, up from $950 per ounce in the third quarter of 2007. Palladium prices remained above the minimum floor prices in the automotive contracts through the second quarter of 2008, but during the 2008 third quarter the Company benefited increasingly from these floor prices as palladium prices declined. Overall, the average realization on palladium sales from mine production, including the benefit of the floor prices, increased slightly to $409 per ounce in this year’s third quarter from the $383 per ounce reported in the same period last year.

As noted above, the last of the Company’s forward sales commitments on mined platinum settled at June 30, 2008. The Company’s board of directors may consider authorizing forward sales commitments on mine production in the future as circumstances warrant but does not have any current intention of doing so at this time. During the third quarter of 2007, the losses recognized upon settlement of these financially settled forward contracts reduced the Company’s reported revenues by $7.2 million. Through the first nine months, these hedges reduced reported revenues by $12.8 million in 2008 and $22.5 million in 2007.

Despite the higher market prices for PGMs in the third quarter of 2008 and the associated earnings improvement, several factors continued to constrain financial performance. Mine production of about 36,000 ounces at the East Boulder Mine and about 84,000 ounces at the Stillwater Mine was below expectations at both mines. While various factors contributed to the production shortfalls during the quarter, shortages of experienced miners with appropriate skill sets and logistical issues underground were key issues that continued to constrain planned ramp ups in ore production. Stillwater Mine is now implementing some process changes that should improve mining efficiency and better coordinate activities within the mine. Similar efforts to increase production are getting under way at East Boulder Mine. In addition to the various operational challenges, during the first nine months of 2008 costs rose significantly at both mines for some critical supplies, including diesel fuel and electric power.

As reported last quarter, 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. The Company’s current labor agreements are slated to expire on July 1, 2011, for represented employees at the Stillwater Mine and Columbus processing facilities, and on July 1, 2012, at the East Boulder Mine.

The Company’s guidance regarding mine production for 2008 was adjusted downward in the Company’s second-quarter reporting to between 515,000 and 525,000 ounces, off from the 550,000 to 565,000 ounce guidance provided initially for 2008. At the same time, 2008 capital spending guidance was reduced to $100 million from $110 million, and guidance for projected average total cash costs per ounce, a non-GAAP measure (defined later), for 2008 was increased to a range of $380 to $395 per ounce, about $25 per ounce higher than the Company’s initial 2008 guidance. However, as a result of the recent sharp downturn in platinum and palladium prices management is reviewing its mining activities with a view to making recommendations to the Board of Directors for their consideration.

The focus of management’s analysis is to identify specific mining areas that may be uneconomic at current PGM prices, opportunities to defer or reduce capital and operating expenditures, and other cash conservation measures. Once this review is completed, the Company expects to implement recommended changes as soon as possible. The Company will provide more specific market guidance regarding the effect of any proposed changes once these recommendations are finalized.

One potential significant consequence of much lower commodity prices is reduced competition industry-wide for skilled miners. With the closure or suspension of operations at several mines in North America beginning late in this year’s third quarter, the Company has seen a slight increase in the availability of experienced miners. If this trend continues the shortage of skilled miners could be less of an issue for the Company in the immediate future.

The Company’s balance of cash and cash equivalents (excluding restricted cash) was $106.2 million at September 30, 2008, up from $100.8 million at June 30, 2008, and $61.4 million at the end of 2007. Including the Company’s available-for-sale investments, the Company’s total available liquidity at September 30, 2008, was $129.0 million, up $26.2 million from $102.8 million at the end of the second quarter of 2008. This increase in liquidity was driven mostly by the effect of lower PGM prices on working capital requirements, particularly for the recycling business. Recycling working capital, comprised of product inventories and advances, had grown significantly earlier in the year as a result of growth in recycling throughput volumes and higher PGM prices. As of June 30, 2008, recycling working capital had reached a total of $172.8 million. As prices have come down recently, the cost of acquiring recycling material also has dropped, freeing up some of the working capital in inventory. At September 30, 2008, the recycling working capital balance had declined to $138.2 million.

The Uncertain Economic Environment; Ongoing Strategic Initiatives and Risks

During the third quarter of 2008, financial and commodities markets worldwide experienced a sharp deterioration in available liquidity and steep declines in market prices that have contributed to a major international economic contraction. While the Company has always been subject to swings in metals prices and at times has sought to hedge its positions, the recent price declines have been both dramatic and accelerated. The situation has continued to worsen in the fourth quarter of 2008. As of the date of this report, platinum and palladium prices have declined by more than 60% from the peaks they reached earlier this year and currently are at levels last seen in mid-2005.

The Company is not immune to these global effects. The financial market turmoil, a slowing worldwide economy and the substantially reduced demand in the automotive industry have affected metals prices. In addition, possible mergers within the automotive industry or the potential downsizing or bankruptcy of automobile manufacturers who are customers of the Company may have further negative effects on the Company, including the possible loss of contracts containing floor pricing.

The price decline in PGMs coincides with the general sharp fall in all commodity prices. It has been driven in part by reduced automotive demand, particularly in the U.S. and Western Europe, as well as through the unwinding of commodity positions in order to generate liquidity and to cover short positions.

Moreover, in the case of palladium, Swiss inventory statistics for September 2008 indicate the Russian government exported about one million ounces of palladium during the month, apparently ending a 21-month hiatus from such major sales. A shortage of active buyers in the metal markets to help absorb the selling pressure has created something of a vacuum that has pulled PGM and most other commodity prices down to the current unrealistic levels, which in many cases are below their indicated marginal cost of production.

Prices below marginal production costs cannot be sustained over the long term. However, not knowing how long current market conditions will last, the Company has little choice at this time but to realign operations in response to the changed environment and structure operations in line with lower PGM prices. At recent prices, the Company is realizing an average of just under $500 per mined PGM ounce, which is below the cost of production — thus the need to realign operations and conserve cash.

The Company’s liquidity position is good at this time, with approximately $129 million of cash and short-term investments at the end of the third quarter. Additional cash is expected to come out of recycling working capital as lower metals prices reduce the cash requirement in recycling inventory over the next few months. Management is reviewing a number of steps to conserve cash and rationalize spending in the present environment. The Company does not currently have a revolving credit facility or other backup liquidity arrangement in place. While the Company has discussed such a facility with various potential lenders, it is unlikely that the Company will be able to secure any significant financing line with acceptable terms in the present economic climate.

In view of the economic situation, the Company has undertaken a wide-ranging review of its capital and operating requirements in an effort to develop a plan to bring cash costs in line with current market conditions. This effort is not yet complete. Upon completion of its review and consideration by the Board, the Company intends to issue a statement providing further details of its plans.

The current economic environment presents a number of risks for the Company. While the Company is developing a plan to align its operations with current metals prices, there can be no assurance that the Company will be successful in devising and fully implementing such a plan. Further, even if the plan is successfully implemented, metals prices may continue to erode, putting further pressure on earnings and cash flows. In the present climate, credit issues also create risks. Despite the Company’s good liquidity position at the current time, Moody’s Investors Service recently downgraded the Company’s corporate family rating by one level. Several of the Company’s key suppliers and customers, including Ford and General Motors, are struggling with credit issues. Should their financial condition deteriorate further, advances to suppliers, contractual floor prices under the automotive contracts and the collectability of accounts receivable could be placed in jeopardy. The Company is monitoring these risks closely. During the third quarter 2008, the Company continued its emphasis on three major strategic areas of focus, as outlined below. The resources allocated to these strategies are likely to be reduced in conjunction with the market shifts described above, but directionally management will continue to pursue these strategies. In general, the effect of the current market turmoil will be to reduce the level of corporate resources dedicated to these strategies until a clearer sense of the future direction of the markets emerges.

In accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company has evaluated its assets for impairment at September 30, 2008. Because of the volatility in the prices for its primary products, the Company evaluates impairment using historical pricing trends or third-party projections of future prices rather than prices at a point in time, as an indicator of longer-term future prices. This process involves management judgment. The Company has concluded, based on this methodology, that the carrying value of the Company’s assets at September 30, 2008, is likely to be fully recoverable and so is not impaired. However, should structural changes occur that would indicate longer-term weakness in platinum and palladium markets, the Company’s assets could be determined to be impaired in the future.

The recent market turmoil will reduce the profitability of the Company’s recycling business, as well. Not only will the lower prices reduce profit margins, but the volumes of recycling material available to the Company as PGM prices fall, appear to be declining as well. Amounts advanced to suppliers in the course of this business may be collected more slowly as volumes decline, and in the worst case could become uncollectible. Moreover, to minimize price risk, the Company hedges its recycling positions with well established counterparties at the time recycling materials are purchased from third parties. Credit available to the Company for the hedging requirements may be constrained if the current tight credit markets continue. Thus, in the current economic environment the Company anticipates that the year to date success enjoyed in the recycling business will be reduced, diminishing its ability to compensate for the impact of lower prices on mine operations.

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 per hour worked 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 third quarter of 2008. The anticipated benefits of applying more selective mining methods include higher realized 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.

At the East Boulder Mine, which prior to 2006 used highly mechanized sublevel extraction almost exclusively, approximately 63% of the material fed to the concentrator during the third 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 89% of the mined tons fed to the mill in the 2008 third 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.

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. Consequently, the mine transformation effort has been very dependent upon the Company’s new-miner training program. Efforts to maintain or increase production rates and to utilize more selective mining methods 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. While the Company’s rate of employee attrition has declined in recent weeks and opportunities to hire experienced miners are opening up, it is likely that the need to hire additional skilled manpower will continue in the near future. This is directly related to the changing PGM price environment and subsequent adjustments to production rates currently under review.

The Company’s highest operating priority is the safety of its employees. Safety reportable incident rates in the third quarter and first nine months 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 has concluded that in order to mine efficiently, at any point in time each mine needs at least 40 months of proven reserves developed ahead and 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. The Company has been investing 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 minimum 40 month objective. However, as mentioned above, in light of recent PGM prices capital development expenditures are likely to be deferred for a time as part of the Company’s realigned operating and capital plan, although the full extent of these deferrals is not yet known. Capital spending of $21.7 million in the 2008 third quarter included infrastructure and mine development investment of $10.6 million at the Stillwater Mine and $5.8 million at the East Boulder Mine. Year-to-date, such supporting investment totals $36.4 million at Stillwater Mine and $15.8 million at East Boulder Mine.

For the three- and nine- month periods ended September 30, 2008, total primary development at the Company’s two mines totaled approximately 10,069 and 27,869 feet, respectively, while definitional drilling for the three- and nine- month periods ended September 30, 2008, totaled approximately 117,000 and 403,000 feet, respectively. Both primary development footage and definitional drilling were modestly short of plan in the third quarter and first nine months of 2008, although they kept pace with reduced production levels.

Mill head grade varies significantly between the Stillwater and East Boulder mines, as well as within different areas of each mine. The average ore grade realized at the Stillwater Mine was 0.53 ounces and 0.55 ounces per ton during the three- and nine- month periods ended September 30, 2008, respectively. For the comparable periods of 2007, the average ore grades were 0.64 ounces and 0.60 ounces per ton, respectively. At the East Boulder Mine the average ore grade realized during the three- and nine- month periods ended September 30, 2008 was about 0.41 ounces and 0.42 ounces per ton, respectively. During the same three- and nine- month periods of 2007, the corresponding ore grade at East Boulder Mine was 0.37 ounces and 0.38 ounces per ton, respectively.

Ore production at the Stillwater Mine averaged 1,874 and 1,818 tons of ore per day during the third quarter and the first nine months of 2008, respectively; this compares to an average of 1,573 tons produced during the third quarter of 2007 and 1,761 tons of ore per day during the first nine months of 2007. 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 and to hire experienced miners externally.

The rate of ore and sub-grade reef production at the East Boulder Mine averaged 1,158 and 1,259 tons per day during the third quarter and the first nine months of 2008, respectively, compared to an average of 1,428 and 1,501 tons per day during the third quarter and first nine months of 2007, respectively. Because East Boulder Mine has excess mill capacity, the mine processes sub-grade material to the extent economics and mill availability justify doing so. Ore production in the third quarter and the first nine months of 2008 included 1,001 tons and 1,061 tons per day, respectively, at average grades of 0.41 ounces and 0.42 ounces per ton, respectively, along with about 157 tons and 198 tons per day, respectively, of sub-grade material not included in ore reserves at average respective grades of 0.20 ounces and 0.18 ounces per ton, respectively, resulting in combined effective grades of 0.38 ounces and 0.39 ounces per ton, respectively. For the third quarter and first nine months of 2007, the combined effective grade at East Boulder Mine was 0.37 ounces and 0.38 ounces per ton, respectively. The lower production tonnages at East Boulder Mine in the third quarter of 2008 as compared to the corresponding quarter of 2007 stemmed from significant manpower constraints and the transition in mining methods.

During the third quarter and first nine months of 2008, the Company’s mining operations produced a total of 92,500 and 289,100 ounces of palladium and 27,500 and 86,100 ounces of platinum, respectively. For the same periods in 2007, the mines produced 98,700 and 312,200 ounces of palladium and 29,900 and 93,600 ounces of platinum, respectively.

During the third quarter, the Company continued its general effort to improve mining efficiency by identifying opportunities to reduce costs or employ assets more efficiently. Third quarter efforts focused on the 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 benefited from various different perspectives within the workforce.

2. Market Development

Most of the Company’s efforts in recent years to develop and broaden markets for palladium have been directed through the Palladium Alliance International (the “PAI”), a trade organization established for that purpose in early 2006. The PAI’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 emphasize palladium’s rarity and value. The PAI 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.

During the third quarter 2008 the PAI, the International Platinum Group Metals Association and others in the industry have collaborated in efforts to establish a clear and specific brand position for palladium in jewelry. This effort, undertaken in partnership with jewelry designers, manufacturers and retailers, is intended to achieve a sustainable market with future growth potential for palladium.

3. Growth and Diversification

The Company continually reviews opportunities to diversify its mining and processing operations. This is a multi-faceted effort.

The Company’s recycling operations have expanded substantially over the past several years, reducing the degree of financial dependence solely on performance of the Company’s mines in each period. Construction of a second smelter furnace is well along 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 now expected in 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 areas of interest.

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.

PGM Recycling

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, normally on a tolling basis.

Recycling activity has expanded significantly in the last five years. During the 2008 third quarter, the Company processed recycled materials at a rate of 22.2 tons per day, up from 15.5 tons per day in the third quarter of 2007. During the first nine months of this year, the Company processed recycled materials at a rate of 18.8 tons per day, up from 16.4 tons per day in the first nine months of 2007.

Revenues from PGM recycling were $169.8 million and $364.4 million for the three- and nine- month periods ended September 30, 2008, respectively, compared to $94.1 million and $248.0 million in revenue for the same periods in 2007, respectively. This revenue increase reflects both the higher catalyst volumes processed and higher underlying PGM prices in 2008 compared to 2007.

The net income contribution from recycling, including financing benefits, was $19.5 million in the third quarter and $34.1 million in the first nine months of 2008. For the comparable periods of 2007, recycling earnings were $7.9 million and $21.0 million, respectively.

Other Debt Matters

As discussed in Note 7 to the Company’s September 30, 2008, financial statements, 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 2008, the Company has utilized some of the remaining proceeds to fund growth in its recycling business.

At September 30, 2008, the Company had posted surety bonds with the State of Montana totaling $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 a net loss of $0.3 million for the third quarter of 2008 compared to a net loss of $11.1 million for the third quarter of 2007. The third quarter of 2008 benefited from higher sales realizations, driven both by higher PGM market prices and by the absence of platinum hedged forward at prices unfavorable to the current market price. Strong recycling earnings also contributed to the 2008 third quarter performance. However, the third quarter of 2008 also included $6.4 million of unusual expense for write-downs of product inventories and long-term investments, driven mostly by the recent decline in realizable prices for PGMs and in prices for equities.

Segment earnings from recycling (including associated financing income) increased sharply quarter-on-quarter, growing to $19.5 million in the 2008 third quarter from $7.9 million in the same period in 2007, as costs in inventory were averaged down by the declining PGM prices during the 2008 quarter. Recycled ounces sold increased to 84,300 ounces in the third quarter of this year from about 70,300 ounces in the third quarter of 2007.

During periods of decreasing PGM prices, the Company’s recycling business experiences inventory timing effects that average down the costs of metals sold, increasing reported margins on these sales. (The opposite is true in periods of rising PGM prices). Margins from mining operations showed a net loss of $6.4 million in the third quarter 2008 compared to a loss of $10.6 million in the third quarter 2007, as the higher PGM prices in 2008 were able to somewhat offset the quarter’s lower sales volumes and higher operating costs.

Corporate marketing, general and administrative costs increased to $12.9 million in the 2008 third quarter from $6.8 million in the 2007 third quarter. Net financing expenses, excluding recycling, were $1.0 million in this year’s third quarter, down from $1.7 million in the same period last year, mostly reflecting the benefit of lower interest rates on the convertible debenture offering.

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

Revenues Total revenues increased by 52.5% to $248.7 million for the third quarter of 2008 compared to $163.1 million for the third quarter of 2007. The following table illustrates the key factors affecting revenues in each period:

SALES AND PRICE DATA


	Three months ended
	September 30,				Increase/			Percentage
(in thousands, except for average prices)	2008		2007		(Decrease)			Change
Revenues	$	248,710	$	163,087	$	85,623			53	%


Ounces Sold
Mine production:
Palladium (oz.)		88		102		(14	)		(14	%)
Platinum (oz.)		23		26		(3	)		(12	%)

Total		111		128		(17	)		(13	%)


Other PGM Activities:⁽³⁾
Palladium (oz.)		50		44		6			14	%
Platinum (oz.)		42		35		7			20	%
Rhodium (oz.)		8		6		2			33	%

Total		100		85		15			18	%


By-products from Mining: ⁽⁴⁾
Rhodium (oz.)		—		1		(1	)		(100	%)
Gold (oz.)		2		2		—			—
Silver (oz.)		2		2		—			—
Copper (lb.)		213		216		(3	)		(1	%)
Nickel (lb.)		187		303		(116	)		(38	%)

Average realized price per ounce ⁽¹⁾
Mine Production:
Palladium ($/oz.)	$	409	$	383	$	26			7	%
Platinum ($/oz.)	$	1,569	$	950	$	619			65	%
Combined ($/oz.) ⁽²⁾	$	652	$	499	$	153			31	%

Other PGM Activities: ⁽³⁾
Palladium ($/oz.)	$	423	$	361	$	62			17	%
Platinum ($/oz.)	$	2,018	$	1,292	$	726			56	%
Rhodium ($/oz.)	$	9,097	$	5,913	$	3,184			54	%

By-products from mining: ⁽⁴⁾
Rhodium ($/oz.)	$	4,596	$	6,142	$	(1,546	)		(25	%)
Gold ($/oz.)	$	852	$	699	$	153			22	%
Silver ($/oz.)	$	13	$	13	$	—			—
Copper ($/lb.)	$	3.25	$	4.21	$	(0.96	)		(23	%)
Nickel ($/lb.)	$	8.84	$	14.25	$	(5.41	)		(38	%)

Average market price per ounce⁽²⁾
Palladium ($/oz.)	$	332	$	348	$	(16	)		(5	%)
Platinum ($/oz.)	$	1,546	$	1,291	$	255			20	%
Combined ($/oz.) ⁽²⁾	$	586	$	541	$	45			8	%


(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 $72.6 million in the third quarter of 2008, compared to $63.6 million for the same period in 2007, a 14.2% increase. Reported mining revenues in the third quarter of 2007 were net of hedging losses on forward sales of platinum of $7.2 million on 23,500 ounces hedged. The 2008 increase in mine production revenues reflects higher average realized prices, which along with the 2007 hedging loss 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 $652 per ounce in the third quarter of 2008, compared to $499 per ounce in the same quarter of 2007. The total quantity of mined metals sold decreased by 12.6% to approximately 111,400 ounces in the third quarter of 2008 compared to 127,500 ounces sold during the same time period in 2007.

Revenues from PGM recycling grew by 80.5% between the third quarter of this year and the third quarter of 2007, increasing to $169.8 million in the third quarter of 2008 from $94.1 million for the same period in 2007. The increase in PGM recycling revenues is the result of volume growth and much higher prices realized for PGM sales in the 2008 third quarter as compared to 2007. The Company’s combined average realization on recycling sales (which include palladium, platinum and rhodium) was $2,008 per ounce in the third quarter of 2008, up 50.8% from $1,332 per ounce in the third quarter of last year. Recycled ounces sold increased to 84,300 ounces in the third quarter of this year from about 70,300 ounces in the third quarter of 2007.

The Company also purchases PGMs for resale from time to time. During the third quarter of 2008, the Company recognized revenue of about $6.3 million on 15,400 ounces of palladium purchased in the open market and re-sold. In the third quarter of 2007, revenue from such sales totaled $5.4 million, also on 15,400 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 $218.7 million in the third quarter of 2008 from $147.3 million in the third quarter of 2007, a 48.5% 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 totaled $60.1 million for the third quarter of 2008, compared to $54.1 million for the third quarter of 2007, an 11.1% increase. Most of the increase in 2008 was attributable to higher fuel costs and to outside contractor expense. In the third quarter of 2008, the Company recognized a $1.2 million lower-of-cost-or-market inventory adjustment to reflect a net realizable value of metals lower than cost of inventory. The Company recognized a corresponding inventory adjustment in the third quarter of 2007 of $3.7 million because the cost of metal in inventory exceeded net realizable metal values.

Total consolidated cash costs per ounce produced, a non-GAAP measure of extraction efficiency, in the third quarter of 2008 increased to $349 per ounce, compared to $346 per ounce in the third quarter of 2007. Higher materials and contractor costs in the 2008 period were offset by the benefit of strong recycling credits.

The costs of metals sold from PGM recycling activities were $152.4 million in the third quarter of 2008, compared to $87.9 million in the third quarter of 2007, a 73.4% increase. Most of the increase is attributable to the much higher cost per ton to acquire recycling material as the value of the contained metals has increased. In the third quarter of 2008, the Company recognized a $2.2 million lower-of-cost-or-market inventory adjustment to reflect a net realizable value of metals lower than cost of inventory. The Company did not recognize a corresponding inventory adjustment in the third quarter of 2007.

The costs of metals sold from the 15,400 ounces of palladium purchased for resale in the third quarter of 2008 was $6.3 million. In comparison, the cost to acquire 15,400 ounces of palladium in the third quarter of 2007 was $5.3 million. The increased cost was attributable to the higher palladium prices in 2008.

Production During the third quarter of 2008, the Company’s mining operations produced 120,000 ounces of PGMs, including 92,500 and 27,500 ounces of palladium and platinum, respectively. This is 6.7% lower than the 128,600 ounces of PGMs produced in the third quarter of 2007, including 98,700 and 29,900 ounces of palladium

and platinum, respectively. The lower production in the 2008 third 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 decreased 1.9% to 83,800 ounces in the third quarter of 2008 from 85,400 ounces in the third quarter of 2007, while production at East Boulder Mine decreased by 16.2% to 36,200 ounces from 43,200 ounces in the same period last year. The Stillwater Mine shortfall was mostly attributable to lower ore grades in the specific stopes mined during the 2008 third quarter. The East Boulder Mine shortfall was primarily driven by a shortage of manpower and appropriate skill sets related to higher employee attrition and the challenge of transitioning to more selective mining methods.

Marketing, general and administrative Total marketing, general and administrative expenses in the third quarter of 2008 were $12.9 million, compared to $6.8 million during the third quarter of 2007, a 79.4% increase. Third-quarter 2008 expenditures included exploration expense of $1.9 million, marketing expense of $1.2 million, largely in support of the Palladium Alliance International, and a write-down of $3.0 million on long-term investments representing equity holdings in two exploration companies. This compared to $0.5 million for exploration expense and $0.8 million for marketing in the same period of 2007.

Interest income and expense Total interest income for the third quarter of 2008 decreased slightly to $2.9 million from $3.0 million in the corresponding quarter of 2007. This interest income included $2.1 million and $1.7 million of earned interest from the Company’s recycling operations in the three month periods ended September 30, 2008 and 2007, respectively. Interest expense in the third quarter of 2008 was $1.7 million, compared to $2.9 million for the same period in 2007, reflecting the lower rate of interest on the convertible debentures issued in 2008.

Other comprehensive income (loss) In the third quarter of 2008, other comprehensive income (loss) included a total change in the fair value of available-for-sale investment securities and long-term mutual fund investments of $0.1 million. For the same period of 2007, other comprehensive income (loss) included a change in the fair value of available-for-sale investment securities and long-term mutual fund investments of $0.1 million and the change in fair value of derivatives of $3.8 million reduced by $7.2 million in hedging loss recognized in current earnings.

Nine- month period ended September 30, 2008 compared to the nine- month period ended September 30, 2007.

Revenues Total revenues were $640.6 million for the first nine months of 2008, compared to $470.5 million for the same period of 2007, an increase of 36.2%. The following table illustrates the key factors affecting revenues in each period:

SALES AND PRICE DATA


	Nine months ended
	September 30,				Increase/			Percentage
(in thousands, except for average prices)	2008		2007		(Decrease)			Change
Revenues	$	640,587	$	470,500	$	170,087			36	%


Ounces Sold
Mine production:
Palladium (oz.)		297		327		(30	)		(9	%)
Platinum (oz.)		85		92		(7	)		(8	%)

Total		382		419		(37	)		(9	%)


Other PGM Activities:⁽³⁾
Palladium (oz.)		129		113		16			14	%
Platinum (oz.)		100		94		6			6	%
Rhodium (oz.)		18		18		—			—

Total		247		225		22			10	%


By-products from Mining: ⁽⁴⁾
Rhodium (oz.)		2		3		(1	)		(33	%)
Gold (oz.)		7		8		(1	)		(13	%)
Silver (oz.)		7		6		1			17	%
Copper (lb.)		727		684		43			6	%
Nickel (lb.)		709		870		(161	)		(19	%)

Average realized price per ounce ⁽¹⁾
Mine Production:
Palladium ($/oz.)	$	424	$	382	$	42			11	%
Platinum ($/oz.)	$	1,553	$	937	$	616			66	%
Combined ($/oz.) ⁽²⁾	$	675	$	504	$	171			34	%

Other PGM Activities: ⁽³⁾
Palladium ($/oz.)	$	425	$	351	$	74			21	%
Platinum ($/oz.)	$	1,776	$	1,228	$	548			45	%
Rhodium ($/oz.)	$	8,168	$	5,641	$	2,527			45	%

By-products from mining: ⁽⁴⁾
Rhodium ($/oz.)	$	8,263	$	6,069	$	2,194			36	%
Gold ($/oz.)	$	899	$	671	$	228			34	%
Silver ($/oz.)	$	16	$	13	$	3			23	%
Copper ($/lb.)	$	3.34	$	3.31	$	0.03			1	%
Nickel ($/lb.)	$	11.23	$	17.98	$	(6.75	)		(38	%)

Average market price per ounce⁽²⁾
Palladium ($/oz.)	$	405	$	355	$	50			14	%
Platinum ($/oz.)	$	1,810	$	1,256	$	554			44	%
Combined ($/oz.) ⁽²⁾	$	717	$	551	$	166			30	%


(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 $257.6 million in the first nine months of 2008, compared to $210.9 million for the same period in 2007, a 22.1% 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 nine months of 2008, and $22.5 million on 78,000 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 $675 per ounce in the first nine months of 2008, compared to $504 per ounce in the same period in 2007. The total quantity of mined metals sold decreased by 8.9% to 381,600 ounces in the first nine months of 2008 compared to 418,700 ounces sold during the same time period in 2007.

Revenues from PGM recycling grew by 46.9% between the first nine months of 2008 and the same period in 2007, increasing to $364.4 million in the first nine months of 2008 from $248.0 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 September in 2008 as compared to 2007. Quantity of recycled PGMs sold increased by 6.6% to 204,700 ounces in the first nine months of 2008 compared to 192,000 ounces in the first nine months of 2007. The combined average realized price for these metals (which include palladium, platinum and rhodium) increased significantly to $1,773 per ounce for the first nine months of 2008 from $1,284 per ounce for the first nine months of 2007.

During the first three quarters of 2008, the Company recognized revenue of $18.6 million on 42,800 ounces of palladium purchased in the open market and re-sold. In the first nine months of 2007, revenue from such sales totaled $11.6 million on 33,400 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 $529.1 million for the first nine months of 2008, compared to $400.6 million for the same period of 2007, a 32.1% 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 $174.6 million for the first nine months of 2008, compared to $157.1 million for the same period of 2007, an 11.1% increase. This increase primarily reflects higher mining costs during the first half of 2008. The Company recognized a $1.2 million lower-of-cost-or-market adjustment to reflect a realizable value of metals lower than cost in inventory for the nine- month period ended September 30, 2008, and a corresponding adjustment of $5.2 million was required for the first nine months of 2007.

Total consolidated cash costs per ounce produced, a non-GAAP measure, in the first nine months of 2008 increased to $377 per ounce compared to $324 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 nine months of 2008 both contributed to the increase.

The costs of metals sold from PGM recycling activities were $336.0 million in the first nine months of 2008, compared to $231.9 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 Company also recognized a $2.2 million lower-of-cost-or-market adjustment to reflect a realizable value of metals lower than cost in inventory for the nine- month period ended September 30, 2008. No corresponding adjustment was required for the first nine months of 2007.

The costs of metals sold from the 42,800 ounces of palladium purchased for resale was $18.5 million in the first nine months of 2008. In comparison, the cost to acquire 33,400 ounces of palladium in the first nine months of 2007 was $11.5 million. The increased cost was primarily attributable to the increased higher palladium prices in 2008 and the larger quantity of palladium ounces purchased for resale in the first nine months of 2008.

Production During the first nine months of 2008, the Company’s mining operations produced 375,200 ounces of PGMs, including 289,100 and 86,100 ounces of palladium and platinum, respectively. This compares with 405,800 ounces of PGMs in the first nine months of 2007, including 312,200 and 93,600 ounces of palladium and platinum, respectively, a 7.5% period-on-period decrease in total PGM production. The lower production in the first three quarters 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 257,200 ounces of PGMs in the first nine months of 2008, compared with 267,900 ounces of PGMs in the same period of 2007, a 4.0% decrease. The slightly lower production at the Stillwater Mine mostly reflected lower realized ore grades associated with the specific areas being mined in 2008. The East Boulder Mine produced 118,000 ounces of PGMs in the first nine months of 2008, compared with 137,900 ounces of PGMs for the same period of 2007, a 14.4% decrease, predominantly due to increased employee attrition and skills-set issues.

Marketing, general and administrative Total marketing, general and administrative expenses in the first nine months of 2008 were $30.9 million, compared to $23.1 million during the same period of 2007. The increase was a result of higher 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 $4.9 million for marketing purposes in the first nine months of 2008 compared to $4.0 million for the comparable period in 2007. Exploration expenses increased to $2.4 million in the first nine months of 2008, compared to $0.6 million in the same period of 2007. The Company also recognized a write-down of $3.0 million on long-term investments, representing equity holdings in two exploration companies, during the first nine months of 2008.

Interest income and expense Total interest income for the first three quarters of 2008 and 2007 was $8.9 million. This interest income included $5.8 million and $5.1 million of earned interest from the Company’s recycling operations in the nine month periods ended September 30, 2008 and 2007, respectively. Interest expense in the first nine months of 2008 was $8.0 million, compared to $8.5 million for the same period in 2007. The first nine months of 2008 includes a write-off of unamortized financing costs of about $2.2 million.

Other comprehensive income (loss) In the first nine 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 $19.1 million for commodity instruments and a reclassification to earnings of $22.5 million. Other comprehensive loss also included a change in fair value of $0.6 million for available-for-sale securities and mutual fund investments for the first nine months of 2008. The corresponding change in fair value in the same period of 2007 was $0.4 million.

Liquidity and Capital Resources

The Company’s cash and cash equivalents (excluding $26.1 million of restricted cash) totaled $106.2 million at September 30, 2008, up $44.8 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, as well as from internal cash generation. Cash is up $5.4 million from the end of the second quarter of 2008 largely because of decreased working capital required for recycling materials as PGM prices have come down. Including the Company’s available-for-sale investments, the Company’s total available liquidity at September 30, 2008, was $129.0 million, up $26.2 million from $102.8 million at the end of the second quarter of 2008 and up $40.0 million from the end of 2007. Working capital constituting marketable inventories and advances thereon in the Company’s PGM recycling business totaled $138.2 million at the end of the third 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 September 30, 2008.

The Company is in the process of spending a total of between $20 million and $25 million to construct a second smelting furnace at its processing facilities in Columbus, Montana, with anticipated commissioning of the furnace in the first quarter of 2009. The addition of the second furnace is intended to accommodate forecasted

levels in processing volumes considering relatively flat mine output and 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 provided by operating activities was $47.9 million in the third quarter of 2008 compared to net cash provided from operating activities of $31.0 million in the same period of 2007; the third quarter cash increase reflects strong cash generation from earnings, but also lower working capital in recycling inventories as PGM prices have declined. Capital expenditures were $21.7 million in the third quarter 2008 compared to $22.4 million in the third quarter of 2007. The Company is currently reviewing its capital expenditure programs for the fourth quarter of 2008 and year 2009.

Outstanding Debt

Outstanding total debt at September 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 $26.1 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 September 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		75		303		303		303		298		497		1,779
Asset retirement obligations		—		—		—		—		—		73,770		73,770
Payments of interest		1,207		5,811		5,803		5,803		5,803		19,702		44,129
Other noncurrent liabilities		—		14,894		—		—		—		—		14,894

Total	$	1,380	$	21,105	$	6,106	$	6,106	$	6,101	$	305,469	$	346,267


⁽¹⁾		Amounts represent cash obligations for October — 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 September 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 September 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				Nine months ended
	September 30,				September 30,
	2008		2007		2008		2007
OPERATING AND COST DATA FOR MINE PRODUCTION

*Consolidated:*
Ounces produced (000)
Palladium		93		99		289		312
Platinum		27		29		86		94

Total		120		128		375		406


Tons milled (000)		265		277		788		891
Mill head grade (ounce per ton)		0.49		0.51		0.50		0.50

Sub-grade tons milled (000) ⁽¹⁾		36		16		121		53
Sub-grade tons mill head grade (ounce per ton)		0.17		0.12		0.17		0.12

Total tons milled (000) ⁽¹⁾		301		293		909		944
Combined mill head grade (ounce per ton)		0.45		0.49		0.46		0.48
Total mill recovery (%)		89		91		90		91

Total operating costs per ounce (Non-GAAP) ⁽²⁾	$	296	$	272	$	304	$	258
Total cash costs per ounce (Non-GAAP) ⁽²⁾	$	349	$	346	$	377	$	324
Total production costs per ounce (Non-GAAP) ⁽²⁾	$	519	$	506	$	539	$	478

Total operating costs per ton milled (Non-GAAP)⁽²⁾	$	118	$	120	$	125	$	111
Total cash costs per ton milled (Non-GAAP) ⁽²⁾	$	139	$	152	$	156	$	139
Total production costs per ton milled (Non-GAAP)⁽²⁾	$	207	$	222	$	223	$	206

*Stillwater Mine:*
Ounces produced (000)
Palladium		65		65		197		205
Platinum		19		20		60		63

Total		84		85		257		268


Tons milled (000)		172		145		498		481
Mill head grade (ounce per ton)		0.53		0.64		0.55		0.60

Sub-grade tons milled (000)⁽¹⁾		22		16		67		53
Sub-grade tons mill head grade (ounce per ton)		0.15		0.12		0.15		0.12

Total tons milled (000) ⁽¹⁾		194		161		565		534
Combined mill head grade (ounce per ton)		0.49		0.58		0.51		0.55
Total mill recovery (%)		89		92		90		92

Total operating costs per ounce (Non-GAAP)⁽²⁾	$	280	$	229	$	281	$	228
Total cash costs per ounce (Non-GAAP) ⁽²⁾	$	331	$	299	$	351	$	293
Total production costs per ounce (Non-GAAP) ⁽²⁾	$	475	$	431	$	488	$	424

Total operating costs per ton milled (Non-GAAP)⁽²⁾	$	121	$	121	$	128	$	114
Total cash costs per ton milled (Non-GAAP) ⁽²⁾	$	143	$	159	$	160	$	147
Total production costs per ton milled (Non-GAAP)⁽²⁾	$	205	$	229	$	222	$	213

Stillwater Mining Company
Key Factors (continued)
(Unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
	2008		2007		2008		2007
OPERATING AND COST DATA FOR MINE PRODUCTION (Continued)

*East Boulder Mine:*
Ounces produced (000)
Palladium		28		34		92		107
Platinum		8		9		26		31

Total		36		43		118		138


Tons milled (000)		93		132		290		410
Mill head grade (ounce per ton)		0.41		0.37		0.42		0.38

Sub-grade tons milled (000) ⁽¹⁾		14		—		54		—
Sub-grade tons mill head grade (ounce per ton)		0.20		—		0.18		—

Total tons milled (000) ⁽¹⁾		107		132		344		410
Combined mill head grade (ounce per ton)		0.38		0.37		0.39		0.38
Total mill recovery (%)		89		90		90		90

Total operating costs per ounce (Non-GAAP) ⁽²⁾	$	332	$	359	$	352	$	317
Total cash costs per ounce (Non-GAAP) ⁽²⁾	$	392	$	438	$	432	$	384
Total production costs per ounce (Non-GAAP) ⁽²⁾	$	622	$	653	$	653	$	584

Total operating costs per ton milled (Non-GAAP) ⁽²⁾	$	112	$	118	$	121	$	107
Total cash costs per ton milled (Non-GAAP) ⁽²⁾	$	132	$	144	$	148	$	129
Total production costs per ton milled (Non-GAAP)⁽²⁾	$	210	$	214	$	224	$	196

Stillwater Mining Company
Key Factors (continued)
(Unaudited)


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

Ounces sold (000)
Mine production:
Palladium (oz.)		88		102		297		327
Platinum (oz.)		23		26		85		92
Total		111		128		382		419

Other PGM activities: ⁽⁵⁾
Palladium (oz.)		50		44		129		113
Platinum (oz.)		42		35		100		94
Rhodium (oz.)		8		6		18		18

Total		100		85		247		225


By-products from mining: ⁽⁶⁾
Rhodium (oz.)		—		1		2		3
Gold (oz.)		2		2		7		8
Silver (oz.)		2		2		7		6
Copper (lb.)		213		216		727		684
Nickel (lb.)		187		303		709		870

Average realized price per ounce ⁽³⁾
Mine production:
Palladium ($/oz.)	$	409	$	383	$	424	$	382
Platinum ($/oz.)	$	1,569	$	950	$	1,553	$	937
Combined ($/oz.) ⁽⁴⁾	$	652	$	499	$	675	$	504

Other PGM activities: ⁽⁵⁾
Palladium ($/oz.)	$	423	$	361	$	425	$	351
Platinum ($/oz.)	$	2,018	$	1,292	$	1,776	$	1,228
Rhodium ($/oz.)	$	9,097	$	5,913	$	8,168	$	5,641

By-products from mining: ⁽⁶⁾
Rhodium ($/oz.)	$	4,596	$	6,142	$	8,263	$	6,069
Gold ($/oz.)	$	852	$	699	$	899	$	671
Silver ($/oz.)	$	13	$	13	$	16	$	13
Copper ($/lb.)	$	3.25	$	4.21	$	3.34	$	3.31
Nickel ($/lb.)	$	8.84	$	14.25	$	11.23	$	17.98

Average market price per ounce ⁽⁴⁾
Palladium ($/oz.)	$	332	$	348	$	405	$	355
Platinum ($/oz.)	$	1,546	$	1,291	$	1,810	$	1,256
Combined ($/oz.) ⁽⁴⁾	$	586	$	541	$	717	$	551


(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						Nine months ended
	September 30,						September 30,
(in thousands)	2008			2007			2008			2007
*Consolidated:*
Reconciliation to consolidated costs of revenues:
Total operating costs (Non-GAAP)	$	35,487		$	35,010		$	113,869		$	104,817
Royalties, taxes and other		6,385			9,419			27,444			26,725

Total cash costs (Non-GAAP)	$	41,872		$	44,429		$	141,313		$	131,542
Asset retirement costs		224			185			657			545
Depreciation and amortization		18,952			20,115			61,346			62,134
Depreciation and amortization (in inventory)		1,212			277			(906	)		(93	)

Total production costs (Non-GAAP)	$	62,260		$	65,006		$	202,410			194,128
Change in product inventories		3,528			6,638			17,926			15,607
Costs of recycling activities		152,383			87,886			335,957			231,932
Recycling activities — depreciation		48			32			144			84
Add: Profit from recycling activities		19,519			7,857			34,104			21,020

Total consolidated costs of revenues	$	237,738		$	167,419		$	590,541		$	462,771


*Stillwater Mine:*
Reconciliation to costs of revenues:
Total operating costs (Non-GAAP)	$	23,488		$	19,520		$	72,309		$	61,140
Royalties, taxes and other		4,211			6,007			18,040			17,457

Total cash costs (Non-GAAP)	$	27,699		$	25,527		$	90,349		$	78,597
Asset retirement costs		163			129			479			380
Depreciation and amortization		10,942			10,778			34,742			35,341
Depreciation and amortization (in inventory)		958			357			(177	)		(719	)

Total production costs (Non-GAAP)	$	39,762		$	36,791		$	125,393		$	113,599
Change in product inventories		(3,964	)		(667	)		237			2,714
Add: Profit from recycling activities		13,541			5,149			23,394			13,722

Total costs of revenues	$	49,339		$	41,273		$	149,024		$	130,035


*East Boulder Mine:*
Reconciliation to costs of revenues:
Total operating costs (Non-GAAP)	$	12,000		$	15,490		$	41,560		$	43,677
Royalties, taxes and other		2,174			3,412			9,404			9,268

Total cash costs (Non-GAAP)	$	14,174		$	18,902		$	50,964		$	52,945
Asset retirement costs		61			56			178			165
Depreciation and amortization		8,010			9,337			26,605			26,793
Depreciation and amortization (in inventory)		254			(80	)		(730	)		626

Total production costs (Non-GAAP)	$	22,499		$	28,215		$	77,017		$	80,529
Change in product inventories		1,207			2,006			(780	)		1,389
Add: Profit from recycling activities		5,978			2,708			10,710			7,298

Total costs of revenues	$	29,684		$	32,929		$	86,947		$	89,216


*Other PGM activities:* ⁽¹⁾
Reconciliation to costs of revenues:
Change in product inventories	$	6,284		$	5,299		$	18,469		$	11,504
Recycling activities — depreciation		48			32			144			84
Costs of recycling activities		152,383			87,886			335,957			231,932

Total costs of revenues	$	158,715		$	93,217		$	354,570		$	243,520


⁽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 and realignment of operations, costs, grade, production and recovery rates, permitting, labor matters, financing needs and the terms of future credit facilities, 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.

The Changing Economic Environment

At recent PGM prices, the Company is realizing an average of just under $500 per mined PGM ounce which is below its cash cost of production. In view of the economic situation, the Company has undertaken a wide-ranging review of its capital and operating requirements in an effort to develop a plan to bring cash costs in line with current market conditions. Once this review is completed, the Company intends to issue a statement providing further details of its plans.

The current economic environment also presents a number of broader risks for the Company. While the Company is developing a plan to align its operations with current metals prices, there can be no assurance that the Company will be successful in devising and fully implementing such a plan. Further, even if the plan is successfully implemented, metals prices may continue to erode, putting pressure on earnings and cash flows. In the present climate, credit issues may also create risks. Despite the Company’s good liquidity position at the current time, Moody’s Investors Service recently downgraded the Company’s corporate family rating by one level. Several of the Company’s key suppliers and customers, including Ford and General Motors, are struggling with credit issues. Should their financial condition deteriorate further, advances to suppliers, contractual floor prices under the automotive contracts and the collectability of accounts receivable could be placed in jeopardy.

In accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company has evaluated its assets for impairment at September 30, 2008. Because of the volatility in the prices for its primary products, the Company evaluates impairment using historical pricing trends or third-party projections of future prices, rather than prices at a point in time, as an indicator of longer-term

future prices. This process involves management judgment. The Company has concluded, based on this methodology, that the carrying value of the Company’s assets at September 30, 2008, is likely to be fully recoverable and so is not impaired. However, should structural changes occur that would indicate longer-term weakness in platinum and palladium markets, the Company’s assets could be determined to be impaired in the future.

The recent market turmoil will likely reduce the profitability of the Company’s recycling business, as well. The Company seeks to hedge its recycling exposures with well established counterparties at the time recycling material is acquired from third parties in an effort to minimize the direct price risk. Credit available to the Company for its hedging activities may be constrained if the current tight credit markets continue. Moreover, the volumes of recycling material available to the Company appear to be declining as PGM prices fall, reducing potential profits from this business. Margins realized on sales of recycling material are also anticipated to decline as a result of the lower prices. Amounts advanced to suppliers in the course of this business may be collected more slowly as volumes diminish, and in the worst case could become uncollectible. Thus, in the current economic environment, the Company anticipates that the success enjoyed in the recycling business to date will be reduced and will not serve to the same degree as a counterbalance to offset losses from mining activities.

Commodity Price Risk

The Company produces and sells palladium, platinum and associated by-product metals directly to its customers and also through third parties. As a result, financial performance can be materially affected when prices for these commodities fluctuate. In order to manage commodity price risk and to reduce the impact of fluctuation in prices, the Company enters into long-term contracts and from time to time uses various derivative financial instruments. Because the Company hedges only with instruments that have a high correlation with the value of the hedged transactions, changes in the fair value of the derivatives are expected to be offset by changes in the value of the hedged transactions. 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 sale 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 September 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. Reportedly, both Ford and General Motors are experiencing significant financial challenges associated with the recent economic downturn. The Company is developing contingency plans in response to this financial exposure.

As discussed in the previous section, current prices for the Company’s principal products are below its cash cost of producing them. At recent PGM prices the Company is realizing an average of just under $500 per mined PGM ounce. With no modifications to the Company’s plans, projected cash outlays for operating and capital expenditures, including general and administrative expenses, would result in the Company consuming cash. Consequently, the Company needs to realign its operations to conform to the changed environment and bring costs in line with the lower PGM prices. The Company plans to announce its realigned operating plan shortly.

However, there is no assurance that the Company will be successful at lowering costs sufficiently to offset the financial effect of the lower prices.

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 net 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 about four months; all of these transactions open at September 30, 2008, will settle at various periods through March 2009 (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 September 30, 2008. The corresponding net realized loss on these derivatives during the first nine months of 2008 was approximately $0.2 million and has been recorded as a component of recycling revenue. There were no financially forward sales entered into during the third quarter 2008.

The Company purchases catalyst materials from third parties for recycling activities to recover PGMs. At September 30 2008, working capital comprised of marketable inventories and advances thereon in the Company’s PGM recycling business totaled about $138.2 million, up 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 produced 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 September 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 September 30, 2008, a decrease in short-term market interest rates of one percentage point would reduce the Company’s annual income by about $1.4 million.

Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures. The registrant’s management, with the participation of the registrant’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the registrant’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 registrant’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the registrant’s internal control over financial reporting was not effective. More specifically, the ineffective design of certain controls over the valuation of the Company’s recycled metals inventory and the related costs of metals sold jointly resulted in a material weakness. The registrant identified this material weakness in its internal control over financial reporting and adjusted its disclosure of recycled metals inventory and the related costs of metals sold appropriately prior to issuing its September 30, 2008 financial statements.

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 registrant’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. 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 control 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.

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

None

Item 3. Defaults Upon Senior Securities

None

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

None

Item 5. Other Information

None

Item 6. Exhibits

Exhibits: See attached exhibit index


STILLWATER MINING COMPANY (Registrant)
Date: November 10, 2008	By:	/s/ Francis R. McAllister
		Francis R. McAllister
		Chairman and Chief Executive Officer (Principal Executive Officer)

Date: November 10, 2008	By:	/s/ Gregory A. Wing
		Gregory A. Wing
		Vice President and Chief Financial Officer (Principal Financial Officer)


*Number*		*Description*
31.1		Rule 13a-14(a)/15d-14(a) Certification — Chief Executive Officer, dated, November 10, 2008

31.2		Rule 13a-14(a)/15d-14(a) Certification — Vice President and Chief Financial Officer, dated, November 10, 2008

32.1		Section 1350 Certification, dated, November 10, 2008

32.2		Section 1350 Certification, dated, November 10, 2008