PART I
ITEMS 1 AND 2
BUSINESS AND PROPERTIES
SUMMARY OF THE COMPANY
Stillwater Mining Company (the Company) is a Delaware corporation, incorporated in 1992, headquartered in Littleton, Colorado, and is listed on the New York Stock Exchange (NYSE) under the symbol "SWC." The Company is engaged in the development, extraction, processing, smelting and refining of palladium, platinum and associated metals (platinum group metals or PGMs) produced by mining a geological formation in south-central Montana known as the J-M Reef and recycling spent catalytic converters and other industrial sources. The Company is also engaged in expanding its mining development along the J-M Reef, and holds exploration-stage properties at the Marathon PGM copper property adjacent to Lake Superior in northern Ontario, Canada (Marathon) and at the Altar copper-gold property in San Juan province, Argentina.
The J-M Reef is the only actively mined primary source of PGMs within the United States and one of the more significant resources outside South Africa and the Russian Federation. The J-M Reef is a narrow but extensive mineralized zone containing PGMs, which has been traced over a strike length of approximately 28 miles. In addition to palladium and platinum, the Company's operations produce associated by-product metals including nickel, copper and minor amounts of gold, silver and rhodium.
The Company conducts mining operations at its Stillwater Mine near Nye, Montana and at its East Boulder Mine south of Big Timber, Montana. Ore extraction at both Montana mines takes place within the J-M Reef. A mill at each of the mining operations upgrades the mined production into a concentrated form. The Company operates a smelter and base metal refinery in Columbus, Montana which further upgrades the mined concentrates into a PGM-rich filter cake. The filter cake is then shipped to a third-party refiner for final refining before the PGMs are sold to third-parties.
Along with processing mine concentrates, the Company also recycles spent catalyst material acquired from third-parties in its smelter and base metal refinery facilities to recover the contained PGMs, which consist mainly of palladium, platinum and rhodium. The Company currently has catalyst sourcing arrangements with various suppliers who deliver spent catalysts to the Company for processing. The spent catalysts are commingled with the mine concentrates in the smelter and base metal refinery. The Company purchases recycling materials for its own account and also toll processes recycling materials on behalf of others for a fee.
The Company is currently developing the Blitz project, which is situated adjacent to its current operations at the Stillwater Mine. The Blitz project includes three principal elements: (i) a tunnel boring machine, or TBM, targeting to drive approximately 23,000 feet of access tunnel to the east from the existing Stillwater Mine infrastructure; (ii) a second underground drift parallel to the TBM drive and approximately 600 feet above it, driven by conventional methods; and (iii) the construction of a new surface portal and a decline intended to intersect the two Blitz drifts approximately four miles to the east of the existing Stillwater Mine facilities.
The Company operates five reportable business segments: Mine Production, PGM Recycling, Canadian Properties, South American Properties and All Other. These segments are managed separately based on fundamental differences in their operations and geographic separation. See "
Note 10 - Segment Information"
to the Company's 2016 consolidated financial statements for more information.
TRANSACTION WITH SIBANYE
On December 9, 2016, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Sibanye Gold Limited (“Sibanye”), Thor US Holdco Inc. and Thor Mergco Inc., an indirect wholly-owned subsidiary of Parent (“Merger Sub”), which provides that, among other things and subject to the terms and conditions therein, (1) Merger Sub will be merged with and into the Company and (2) at the effective time of the merger, each outstanding share of common stock of the Company, par value $0.01 per share (other than shares owned by the Company, Sibanye or their respective subsidiaries or shares with respect to which appraisal rights are validly exercised and not lost in accordance with Delaware law) will be converted into the right to receive USD$18.00 per share in cash without interest.
The closing of the merger is subject to (1) the adoption of the Merger Agreement by the holders of a majority of the outstanding shares of the Company’s common stock, (2) the approval of the merger by the holders of a majority of Sibanye’s shares present and voting, (3) the approval of the related issuance of shares by Sibanye in a rights offering by the holders of at least 75% of Sibanye’s shares present and voting, (4) the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”), CFIUS clearance and the approval of the South African Reserve Bank, and (5) other customary conditions. Early termination of the waiting period applicable to the completion of the merger under the HSR Act was previously granted.
The Company currently expects to complete the merger in the second quarter of 2017. However, completion of the merger is subject to the satisfaction or waiver of the conditions to the completion of the merger, which are described above and include various regulatory clearances and approvals. It is possible that factors outside the control of the Company or Sibanye could delay the completion of the merger or prevent it from being completed at all. The Company expects to complete the merger promptly following the receipt of all required approvals.
2016
– YEAR IN REVIEW:
The Company’s liquidity remained strong during the year. The Company's cash and cash equivalents plus highly-liquid short-term investments, totaled
$450.1 million
(including
$18.5 million
of investments which have been reserved as collateral on undrawn letters of credit) at
December 31, 2016
. The Company reported a
consolidated net income attributable to common stockholders
of
$9.5 million
, equivalent to net income of
$0.08
per diluted share, for the year ended
December 31, 2016
, compared to consolidated net loss attributable to common stockholders of
$11.9 million
, equivalent to a loss of
$0.10
per diluted share, for the year ended
December 31, 2015
. The net income in
2016
compared to the net loss in
2015
was due to the
$46.8 million
(before-tax) impairment charge against the Marathon mineral properties recorded during the second quarter of 2015, and the pre-tax net loss of $4.0 million on the repurchase of a portion of the Company's 1.875% and 1.75% Convertible Debentures recorded in the third quarter of 2015, partially offset by lower PGM prices in 2016. Underlying earnings for 2016 were
$10.6 million
, after adjusting for transaction costs associated with the proposed acquisition of the Company by Sibanye of
$1.1 million
(net of tax). Underlying earnings in 2015 were
$26.1 million
(after-tax), after adjusting for an impairment charge, loss on repurchase of a portion of the Company's 1.875% and 1.75% Convertible Debentures and reorganization charges. Underlying earnings is a non-GAAP financial measure. For a reconciliation of non-GAAP financial measures to GAAP financial measures, see
"Item 6 - Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures"
in
Part II,
of this Annual Report on Form 10-K.
The Company’s total revenues for
2016
and
2015
were
$711.3 million
, and
$726.3 million
, respectively. Mine Production segment revenues for 2016 were
$405.1 million
,
a decrease
of
2.6%
from
$415.8 million
in
2015
, as a result of a 9.7% decrease in the combined average realized price for mine production and offset by an 8.3% increase in mine production sales volumes. Revenues in 2014 included approximately $17.3 million from the release of constrained slag inventories at the Stillwater Mine during the third quarter.
PGM Recycling segment revenues decreased by
1.4%
during
2016
to
$305.9 million
from
$310.2 million
in
2015
, as a result of decreased metal prices which outweighed the increase in volumes of purchased recycling materials for the Company's own account. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Year Ended
December 31, 2016
Compared to Year Ended
December 31, 2015
”
and the Company's
2016
consolidated financial statements, each contained in this Annual Report on Form 10-K, for more information.
The following table sets forth the Company's revenues and ounces sold for the years
2016
,
2015
and
2014
, respectively:
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Year ended December 31,
(In thousands)
|
|
Revenues
|
|
Ounces Sold
|
|
Palladium
|
|
Platinum
|
|
Rhodium
|
|
Other
(1)
|
|
Total
|
|
Palladium
|
|
Platinum
|
|
Rhodium
|
|
Other
(2)
|
|
Total
|
2016
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
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Mine Production
|
|
$
|
264,016
|
|
|
$
|
117,350
|
|
|
$
|
2,259
|
|
|
$
|
21,445
|
|
|
$
|
405,070
|
|
|
430
|
|
|
119
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|
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3
|
|
|
18
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|
|
570
|
|
PGM Recycling
|
|
146,563
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|
|
129,616
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|
18,965
|
|
|
10,721
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|
|
305,865
|
|
|
243
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|
|
130
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|
|
29
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|
|
7
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|
|
409
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Other
|
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—
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|
|
—
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|
|
—
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|
|
400
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|
|
400
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|
|
—
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|
|
—
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|
|
—
|
|
|
—
|
|
|
—
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Total
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$
|
410,579
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|
|
$
|
246,966
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|
|
$
|
21,224
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|
|
$
|
32,566
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|
|
$
|
711,335
|
|
|
673
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|
|
249
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32
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|
|
25
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|
|
979
|
|
2015
|
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|
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|
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Mine Production
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$
|
275,527
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|
|
$
|
117,133
|
|
|
$
|
3,059
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|
|
$
|
20,055
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|
|
$
|
415,774
|
|
|
397
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|
|
110
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|
|
3
|
|
|
16
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|
|
526
|
|
PGM Recycling
|
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144,292
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|
|
132,436
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|
|
24,611
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|
|
8,817
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|
310,156
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|
198
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|
|
118
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|
|
24
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|
|
—
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|
340
|
|
Other
|
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—
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|
|
—
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|
|
—
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|
400
|
|
|
400
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|
|
—
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|
—
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|
|
—
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|
|
—
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|
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—
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Total
|
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$
|
419,819
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|
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$
|
249,569
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|
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$
|
27,670
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|
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$
|
29,272
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|
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$
|
726,330
|
|
|
595
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|
|
228
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|
|
27
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|
|
16
|
|
|
866
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|
2014
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|
|
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|
|
|
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|
|
|
|
|
|
|
|
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Mine Production
|
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$
|
338,526
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|
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$
|
167,892
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|
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$
|
4,650
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|
|
$
|
24,942
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|
|
$
|
536,010
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|
421
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|
|
121
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|
4
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|
|
16
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|
|
562
|
|
PGM Recycling
|
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173,767
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191,448
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|
31,039
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|
5,430
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401,684
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|
221
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|
134
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|
29
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|
|
—
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|
384
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Other
|
|
5,517
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|
—
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5
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|
403
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|
5,925
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|
6
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—
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|
|
—
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—
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|
6
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Total
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$
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517,810
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$
|
359,340
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$
|
35,694
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$
|
30,775
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$
|
943,619
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|
648
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|
|
255
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|
33
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|
16
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|
952
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(1) “Revenues - Other” includes gold, silver, nickel and copper by-product revenues from mine production; revenue from processing recycling materials on a toll basis and ounces acquired periodically in the open market and simultaneously resold to third parties.
(2) “Ounces Sold - Other” column includes gold and silver by-product ounces and recycled ounces sold. Not reflected in the “other” ounce column in the table above are approximately
1.6 million
pounds of nickel sold in
2016
and
1.5 million
pounds of nickel sold in each of the years
2015
and
2014
and approximately
1.1 million
pounds of copper sold in 2016,
1.0 million
pounds sold in
2015
and
0.9 million
sold in
2014
.
The Company's mining operations produced a total of
545,300
ounces of palladium and platinum in
2016
,
an increase
of
4.7%
from the
520,800
ounces produced in
2015
. Total combined cash costs per ounce, net of by-product and recycling credits, (a non-GAAP financial measure of extraction efficiency further defined in
Part II, Item 6 -
Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
of this Annual Report on Form 10-K) averaged
$438
in
2016
, compared with
$495
per ounce in
2015
, a reduction of
11.5%
. Lower total combined cash costs in
2016
were a result of lower labor costs, general reduction in materials and supplies, offset by lower recycling credits.
Recycling volumes fed to the smelter totaled
668,300
ounces of PGMs in
2016
, up
21.3%
from the
551,100
ounces fed in
2015
. Approximately
401,100
ounces of PGMs were extracted and sold from recycling materials purchased (at prices reflecting the value of the contained PGMs) for the Company's own account in
2016
, from the
340,200
ounces sold in
2015
. This increase reflects the move in the contract mix between purchased ounces and tolled ounces. The Company’s combined average realization on recycling revenues (which include sales of palladium, platinum and rhodium) was
$736
per ounce in
2016
, compared to
$886
in
2015
. In addition to processing spent catalyst material purchased for its own account, the Company processed and returned
228,300
ounces of PGMs treated on a tolling basis in
2016
, up
11.4%
from the
205,000
toll ounces in
2015
. Working capital associated with recycling activities (in the form of inventories and cash advances) was
$85.0 million
,
$37.4 million
and
$61.5 million
at
December 31, 2016
,
2015
and
2014
, respectively. The increase in working capital is a result of additional purchased ounces in inventory at year end due to an increase in the volume of purchased catalyst relative to tolled catalyst in the second half of 2016.
In July 2014, the Company executed five-year supply and refining agreements with Johnson Matthey (JM) at competitive market prices. During 2016, 2015 and the last half of 2014, JM purchased all of the Company's mined production (excluding the platinum ounces delivered under a separate agreement with Tiffany & Co.). During the first half of 2014, the Company made all of its sales of mined PGMs either in the spot market or under mutually agreed short-term (one year or less) supply agreements. See "
Note 3
-
Sales
” to the Company’s
2016
consolidated financial statements for more information.
Capital Expenditures
|
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|
December 31,
|
(In thousands)
|
|
2016
|
|
2015
|
Sustaining capital
|
|
|
|
|
Stillwater Mine
|
|
$
|
38,332
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$
|
52,375
|
|
East Boulder Mine
|
|
16,709
|
|
|
15,116
|
|
Processing and Other
|
|
1,219
|
|
|
1,909
|
|
Total sustaining capital
|
|
$
|
56,260
|
|
|
$
|
69,400
|
|
Project capital
|
|
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|
Blitz
|
|
46,043
|
|
|
27,658
|
|
Hertzler Tailings Expansion
|
|
259
|
|
|
6,346
|
|
Other
|
|
—
|
|
|
8,400
|
|
Total project capital
|
|
$
|
46,302
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|
|
$
|
42,404
|
|
Total U.S. capital expenditures
|
|
102,562
|
|
|
111,804
|
|
Foreign capital expenditures
|
|
41
|
|
|
46
|
|
Total capital
|
|
$
|
102,603
|
|
|
$
|
111,850
|
|
Non-cash capitalized interest / depreciation
|
|
(10,329
|
)
|
|
(9,347
|
)
|
Change in accounts payable for capital expenditures
|
|
(3,578
|
)
|
|
4,931
|
|
Cash capital spend for the period
|
|
$
|
88,696
|
|
|
$
|
107,434
|
|
Capital expenditures related to maintaining the developed state at the Stillwater Mine decreased 26.9% and increased 10.5% at the East Boulder Mine in
2016
as compared to
2015
. The Stillwater Mine was restructured in 2015 which included a revised mine plan. Primary development and the associated infrastructure were maintained at a sustainable level as determined by the revised mine plan.
The Company spent
$5.5 million
on exploration activities during
2016
, of which $3.9 million was spent at the Altar property in Argentina, $0.4 million at the Marathon properties in Canada, primarily for updating the project feasibility study, and $1.2 million for drilling in the Lower East area of the East Boulder Mine. Exploration expenditures during
2015
totaled
$3.6 million
, of which $2.3 million was spent at the Altar property in Argentina and $0.6 million at the Marathon properties in Canada, primarily for updating the project feasibility study and $0.7 million for drilling in the Lower East area of the East Boulder Mine. Exploration spending in
2014
totaled approximately
$2.8 million
, of which $2.0 million was spent on drilling at the Altar property and $0.8 million on the Marathon properties.
At
December 31, 2016
, the Company reported balance sheet debt totaling
$274.8 million
. This debt is comprised of (i)
$274.3 million
(face amount of
$335.15 million
) of 1.75% Convertible Debentures, first redeemable at the option of the holders on October 15, 2019, and (ii)
$0.5 million
of 1.875% Convertible Debentures, next redeemable at the option of the holders on March 15, 2018. Cash interest payments on the Company’s debt obligations are expected to be approximately
$5.9 million
in 2017.
SAFETY
Mining operations are labor intensive, and involve the use of heavy machinery and drilling and blasting techniques specific to a narrow-vein underground working environment. These operations have inherent risk due to the nature of underground mining and therefore are at the center of the Company’s extensive workplace safety systems. In addition, the Company’s metallurgical complex in Columbus, Montana utilizes smelting and refining processes that require careful attention to safety awareness. To help mitigate worker exposures in these environments, the Company's “G.E.T. (Guide, Educate, and Train) Safe” safety and health management system focuses on accident prevention through managing risk, continually seeking safer methods of mining and processing, and emphasizing employee awareness and training. Specific areas of focus include detailed workplace examinations; regular hazard recognition training; safety audits that focus on continual improvement and industry best practices; consistent adherence to safety standards; accident and incident investigations; near miss reporting and analysis; and use of focus teams drawn from the mining workforce. These proactive focus teams have succeeded in identifying and resolving many safety related challenges. Additionally, as part of the G.E.T. Safe System, the Company has developed and integrated 20 safety modules, as part of CORESafety, a U.S. mining industry safety initiative. The Company views incorporating CORESafety principals within G.E.T. Safe as an opportunity to enhance an already successful system and continue the pursuit of safety excellence.
For the year ended
December 31, 2016
, neither of the Company’s mines received any written notices from MSHA of (i) a flagrant violation under section 110(b)(2) of the Mine Act; (ii) a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of other mine health or safety hazards under section 104(e) of the Mine Act; or (iii) the potential to have such a pattern. In addition, the Company's metallurgical complex had no outstanding OSHA violations at
December 31, 2016
. The metallurgical complex has been recognized repeatedly by the Montana Department of Labor and by OSHA as a leader in workplace safety.
At year-end
2016
, the Company's overall reportable incidence rate (measured as reportable incidents per 200,000 man hours worked) for Company employees and contractors was 2.59 for 2016, a reduction of 14.2% from 3.02 in
2015
.
2017
– LOOKING FORWARD
Pricing Background and Outlook
The price for platinum increased during 2016 and ended the year quoted in the London market at $898 per ounce, a 3.5% increase from the 2015 year-end.
According to JM (PGM Market Report November 2016), palladium was impacted by a record autocatalyst demand, outweighing investment offtake, and the improving recycling sector in 2016. Palladium ended 2016 quoted in the London market at $670 per ounce, up 20.7% for the year.
Looking at 2017, JM estimates that primary production is expected to be relatively flat for PGMs but secondary supply has the opportunity to increase after two consecutive weak years. Automotive demand for palladium is expected to have another strong year, however, platinum is predicted to be negatively impacted due to adopting new diesel loading strategies in Europe. JM expects palladium to remain in deficit for a sixth consecutive year as platinum may move into surplus in 2017 for the first time since 2011. Another potential risk or uncertainty is the direction of the world economy as 2017 progresses - if world economic conditions deteriorate, demand for PGMs could falter. See “
Item 1A
-
Risk Factors - Volatility in the market price of the metals sold by the Company, and changes in the supply and demand of these metals could reduce profitability
" for more information.
The Company's financial performance is closely linked to the price of palladium and, to a lesser extent, platinum. The Company's earnings and cash flows are sensitive to changes in PGM prices - based on
2016
revenues and costs, a 1% (or approximately $7 per ounce) change in the Company's average combined realized price for palladium and platinum would result in approximately a $7.1 million change to before-tax net income and a change to cash flows from operations of approximately $3.9 million.
One other key element of PGM markets in
2017
will be the relationship among various key currencies. Virtually all PGM sales transactions worldwide (with the possible exception of retail sales of platinum jewelry) are denominated in U.S. dollars. However, mining costs typically are incurred mostly in the local currencies of the country in which the mine is located. Weakening of the South African rand and Russian ruble relative to the U.S. dollar has served to increase the competitiveness of the South African and Russian PGM producers, as their costs in U.S. dollar terms have declined (or their revenues in local currency terms have increased, depending on the perspective).
Operational and Development Outlook
Capital spending in
2017
anticipates customary spending for equipment replacement and mine development, plus ongoing development spending (including capitalized interest and capitalized depreciation) for the Blitz development area adjacent to the Stillwater Mine. The Company expects to undertake a limited exploration program at Altar and will maintain baseline environmental monitoring activities at Marathon and Altar. This work will be expensed as incurred and is not included in capital spending.
The Company remains focused on the Blitz development (56 East development, 50 East TBM development and the Benbow decline) and progress on the critical path items to first production. The 53 East decline will provide access to the first production stope where initial production from the Blitz development will occur. This decline remains ahead of schedule. Blitz is adjacent to the existing Stillwater Mine operations and it is expected to ultimately extend new underground development approximately 23,000 feet to the east of the current mine operations on two levels. The permitting process for the Benbow access portal was completed in the third quarter of 2015. The Benbow access portal which is being developed at the far end of the two primary Blitz tunnels is designed to intersect the two tunnels from the surface, and will provide ventilation and emergency egress for the Blitz development area. The construction of the surface facilities is nearing completion and work started on the excavation of the Benbow decline in the
third
quarter of
2016
using a contractor and is progressing on schedule. In addition, considerable engineering work has been updated on the Blitz project. This new work has driven a substantial increase to the scope of the project with relatively minimal additional costs. As previously reported, Blitz is estimated to cost approximately $250 million, an increase of approximately $45 million from the $205 million estimate (of which approximately
$111.6 million
has been incurred through the end of
2016
). The Company considers this increase to be a small escalation given the much expanded scope of the project and the acceleration of the production profile. The Company anticipates first production to occur in late 2017 or early 2018. Estimated costs (and costs incurred to date) do not include capitalized interest and capitalized depreciation. Additional capital will be required for expansion of the Stillwater Mine concentrator to treat the increased ore tonnage and the related work is currently underway.
ORE RESERVES DETERMINATION METHODOLOGY
The Company utilizes statistical methodologies to calculate ore reserves based on interpolation between and projection beyond sample points. Interpolation and projection are limited by certain modifying factors including geologic boundaries, economic considerations and constraints imposed by safe mining practices. Sample points consist of variably spaced drill core intervals through the J-M Reef obtained from drill sites located on the surface and in underground development workings. Results from all sample points within the ore reserve area are evaluated and applied in determining the ore reserve.
For proven ore reserves, distances between samples range from 25 to 100 feet but are typically spaced at 50 foot intervals both horizontally and vertically. The sample data for proven ore reserves consists of survey data, lithologic data and assay results. Quality Assurance / Quality Control (QA / QC) protocols are in place at both of the Company's Montana mines to test the sampling and analysis procedures. To test assay accuracy and reproducibility, pulps from core samples are resubmitted and compared. To test for sample label errors or cross-contamination, blank core (waste core) samples are submitted with the mineralized sample lots and compared. The QA / QC protocols are practiced on both resource delineation and development and production samples. The resulting data is entered into a 3-dimensional modeling software package and is analyzed to produce a 3-dimensional solid block model of the resource. The assay values are further analyzed by a geostatistical modeling technique (kriging) to establish a grade distribution within the 3-dimensional block model. Dilution is then applied to the model and a diluted tonnage and grade are calculated for each block. Ore and waste tons, contained ounces and grade are then calculated and summed for all blocks.
Two types of cut-off grades are recognized for the J-M Reef, a geologic cut-off grade and an economic cut-off grade. The geologic cut-off grade for both the Stillwater Mine and the East Boulder Mine falls in the range of 0.2 to 0.3 troy ounces of palladium plus platinum (Pd + Pt) per ton. The economic cut-off grade is lower than the geologic cut-off and can vary between the mines based on cost and efficiency factors. The determination of the economic cut-off grade is completed on a round by round basis and is driven primarily by available mill capacity, geologic character encountered at the mining face and incremental costs of processing the broken rock. See
“Items 1 and 2 -Business and Properties – Proven and Probable Ore Reserves – Discussion
” for discussion of reserve sensitivity to changes in PGM pricing.
Probable ore reserves estimations are based on longer projections than proven reserves, and projections up to a maximum radius of 1,000 feet beyond the limit of existing drill hole sample intercepts of the J-M Reef are used. Statistical modeling and the established continuity of the J-M Reef, as determined from results of 30 years of mining activity to date, support the Company’s technical confidence in estimates of tonnage and grade over this projection distance. Where appropriate, projections for the probable ore reserves determination are constrained by any known or anticipated restrictive geologic features.
The Company reviews its methodology for calculating ore reserves on an annual basis. Conversion, an indicator of the success in upgrading probable ore reserves to proven ore reserves, is evaluated annually as part of the reserve estimation process. The annual review examines the effect of new geologic information, changes implemented or planned in mining practices and mine economics on the measures used for the estimation of probable ore reserves. The review includes an evaluation of the Company’s rate of conversion of probable ore reserves to proven ore reserves.
The proven and probable ore reserves are then modeled as a long-term mine plan and additional factors including mining methods, process recoveries, metal prices, mine operating productivities and costs and capital estimates are applied to determine the overall economics of the ore reserves.
SECURITIES AND EXCHANGE COMMISSION ORE RESERVE GUIDELINES
The U.S. Securities and Exchange Commission (SEC) has established guidelines contained in
Industry Guide 7
(Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations)
to assist registered companies as they estimate ore reserves. These guidelines set forth technical, legal, and economic criteria for determining whether the Company’s ore reserves can be classified as proven and probable.
The SEC’s economic guidelines historically have not constrained the Company’s ore reserves, and did not constrain the Company's ore reserves at
December 31, 2016
. Under these guidelines, ore may be classified as proven or probable if extraction and sale will result in positive cumulative undiscounted cash flows. The Company utilizes the historical trailing twelve-quarter average combined PGM market price in ascertaining these cumulative undiscounted cash flows.
The Company believes that it is appropriate to use a long-term weighted average price for measuring ore reserves; as such a price better matches the period over which the reserves will ultimately be mined. Should metal prices remain below the combined twelve-quarter trailing weighted average price for an extended period, this average (which was
$800
at December 31, 2016, based on a price of
$703
/oz. for palladium and
$1,141
/oz. for platinum) would decline and could result in a reduction of the Company’s reported ore reserves.
The Company’s Technical and Ore Reserve Committee, a committee of its Board of Directors (Board), met two times during
2016
with management and third-party independent outside experts to review ore reserve methodology, to identify best practices in the industry and to receive reports on the progress and results of the Company’s mine development efforts. The Committee has reviewed the Company’s ore reserves as reported at
December 31, 2016
, and has met with management and with the Company’s independent consultant on ore reserves to discuss the conclusions of this review.
RESULTS
The
December 31, 2016
, ore reserves for the Montana operations were reviewed by Behre Dolbear & Company, Inc. (Behre Dolbear), third-party independent consultants, who are experts in mining, geology and ore reserve determination. The Company has utilized Behre Dolbear to carry out independent reviews and inventories of the Company’s ore reserves since 1992. Behre Dolbear has consented to be a named expert herein. See “
Item 1A
-
Risk Factors – Ore reserve estimates are inherently imprecise and may require adjustment in the future; changes in ore grades, mining practices and economic factors could materially affect the Company’s production and reported results”
for further information.
PROVEN AND PROBABLE ORE RESERVES
The Company’s proven ore reserves are generally expected to be extracted utilizing existing mine infrastructure. However, additional infrastructure development will be required to extract the Company’s probable ore reserves. Based on the
2017
mining plans at each mine, the year-end
2016
proven ore reserves of
3.2 million
tons at the Stillwater Mine and
2.8 million
tons at the East Boulder Mine represent an adequate level of proven ore reserves to support planned mining activities.
The grade of the Company’s J-M Reef ore reserves, measured in combined palladium and platinum ounces per ton, is a composite average of samples in all reserve areas. As is common in underground mines, the grade mined and the recovery rate achieved varies depending on the area being mined. In particular, mill head grade varies significantly between the Stillwater and East Boulder mines, as well as within different areas of each mine. The combined average mill head grade for all tons processed from the Stillwater Mine for the year
2016
was
0.49
PGM ounces per ton of ore compared to a combined average mill head grade of
0.46
and
0.50
PGM ounces per ton of ore in 2015 and 2014, respectively. During
2016
the combined average mill head grade for all tons processed from the East Boulder Mine was approximately
0.37
PGM ounces per ton of ore compared to a combined average mill head grade of
0.38
PGM ounces per ton of ore in 2015 and 2014. Concentrator feeds at both Montana mines typically include, along with the ore, some PGM-bearing material that is below the cut-off grade for reserves (reef waste) but that is economic to process so long as there is available capacity in the concentrator. See “
Item 1A -Risk Factors – An extended period of low PGM prices could result in a reduction of ore reserves and potential asset impairment charge
" for further information.
At
December 31, 2016
,
2015
and
2014
the Company’s proven and probable ore reserves in the J-M Reef were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL MONTANA MINES
|
|
|
ORE
TONS
(000’s)
|
|
AVERAGE
GRADE
(OZ/TON)
|
|
CONTAINED
OUNCES
(000’S)
|
|
SALEABLE
OUNCES
(2)
(000’S)
|
At December 31, 2016
|
|
|
|
|
|
|
|
|
Proven Reserves
|
|
5,978
|
|
|
0.50
|
|
|
2,992
|
|
|
2,512
|
|
Probable Reserves
|
|
39,684
|
|
|
0.46
|
|
|
18,207
|
|
|
15,375
|
|
Total Proven and Probable Reserves
(1)
|
|
45,662
|
|
|
0.46
|
|
|
21,199
|
|
|
17,887
|
|
At December 31, 2015
|
|
|
|
|
|
|
|
|
Proven Reserves
|
|
5,880
|
|
|
0.51
|
|
|
2,987
|
|
|
2,492
|
|
Probable Reserves
|
|
37,581
|
|
|
0.45
|
|
|
16,924
|
|
|
14,220
|
|
Total Proven and Probable Reserves
(1)
|
|
43,461
|
|
|
0.46
|
|
|
19,911
|
|
|
16,712
|
|
At December 31, 2014
|
|
|
|
|
|
|
|
|
Proven Reserves
|
|
6,166
|
|
|
0.51
|
|
|
3,140
|
|
|
2,634
|
|
Probable Reserves
|
|
42,732
|
|
|
0.45
|
|
|
19,086
|
|
|
16,206
|
|
Total Proven and Probable Reserves
(1)
|
|
48,898
|
|
|
0.45
|
|
|
22,226
|
|
|
18,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STILLWATER MINE
|
|
|
ORE
TONS
(000’s)
|
|
AVERAGE
GRADE
(OZ/TON)
|
|
CONTAINED
OUNCES
(000’S)
|
|
SALEABLE
OUNCES
(2)
(000’S)
|
At December 31, 2016
|
|
|
|
|
|
|
|
|
Proven Reserves
|
|
3,202
|
|
|
0.59
|
|
|
1,898
|
|
|
1,572
|
|
Palladium
|
|
|
|
0.46
|
|
|
1,481
|
|
|
1,219
|
|
Platinum
|
|
|
|
0.13
|
|
|
417
|
|
|
353
|
|
Probable Reserves
|
|
15,123
|
|
|
0.57
|
|
|
8,569
|
|
|
7,091
|
|
Palladium
|
|
|
|
0.44
|
|
|
6,685
|
|
|
5,499
|
|
Platinum
|
|
|
|
0.12
|
|
|
1,884
|
|
|
1,592
|
|
Total Proven and Probable Reserves
(1)
|
|
18,325
|
|
|
0.57
|
|
|
10,467
|
|
|
8,663
|
|
Palladium
|
|
|
|
0.45
|
|
|
8,166
|
|
|
6,718
|
|
Platinum
|
|
|
|
0.13
|
|
|
2,301
|
|
|
1,945
|
|
At December 31, 2015
|
|
|
|
|
|
|
|
|
Proven Reserves
|
|
3,248
|
|
|
0.60
|
|
|
1,932
|
|
|
1,593
|
|
Palladium
|
|
|
|
0.47
|
|
|
1,509
|
|
|
1,237
|
|
Platinum
|
|
|
|
0.13
|
|
|
423
|
|
|
356
|
|
Probable Reserves
|
|
12,101
|
|
|
0.57
|
|
|
6,900
|
|
|
5,688
|
|
Palladium
|
|
|
|
0.45
|
|
|
5,389
|
|
|
4,416
|
|
Platinum
|
|
|
|
0.12
|
|
|
1,511
|
|
|
1,272
|
|
Total Proven and Probable Reserves
(1)
|
|
15,349
|
|
|
0.58
|
|
|
8,832
|
|
|
7,281
|
|
Palladium
|
|
|
|
0.45
|
|
|
6,898
|
|
|
5,653
|
|
Platinum
|
|
|
|
0.13
|
|
|
1,934
|
|
|
1,628
|
|
At December 31, 2014
|
|
|
|
|
|
|
|
|
Proven Reserves
|
|
3,351
|
|
|
0.57
|
|
|
1,984
|
|
|
1,635
|
|
Palladium
|
|
|
|
0.46
|
|
|
1,551
|
|
|
1,270
|
|
Platinum
|
|
|
|
0.13
|
|
|
433
|
|
|
365
|
|
Probable Reserves
|
|
12,619
|
|
|
0.56
|
|
|
7,120
|
|
|
5,868
|
|
Palladium
|
|
|
|
0.44
|
|
|
5,564
|
|
|
4,559
|
|
Platinum
|
|
|
|
0.12
|
|
|
1,556
|
|
|
1,309
|
|
Total Proven and Probable Reserves
(1)
|
|
15,970
|
|
|
0.57
|
|
|
9,104
|
|
|
7,503
|
|
Palladium
|
|
|
|
0.45
|
|
|
7,115
|
|
|
5,829
|
|
Platinum
|
|
|
|
0.12
|
|
|
1,989
|
|
|
1,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EAST BOULDER MINE
|
|
|
ORE
TONS
(000’s)
|
|
AVERAGE
GRADE
(OZ/TON)
|
|
CONTAINED
OUNCES
(000’S)
|
|
SALEABLE
OUNCES (2)
(000’S)
|
At December 31, 2016
|
|
|
|
|
|
|
|
|
Proven Reserves
|
|
2,776
|
|
|
0.39
|
|
|
1,094
|
|
|
940
|
|
Palladium
|
|
|
|
0.31
|
|
|
856
|
|
|
731
|
|
Platinum
|
|
|
|
0.08
|
|
|
238
|
|
|
209
|
|
Probable Reserves
|
|
24,561
|
|
|
0.39
|
|
|
9,638
|
|
|
8,284
|
|
Palladium
|
|
|
|
0.31
|
|
|
7,543
|
|
|
6,440
|
|
Platinum
|
|
|
|
0.08
|
|
|
2,095
|
|
|
1,844
|
|
Total Proven and Probable Reserves
(1)
|
|
27,337
|
|
|
0.39
|
|
|
10,732
|
|
|
9,224
|
|
Palladium
|
|
|
|
0.31
|
|
|
8,399
|
|
|
7,171
|
|
Platinum
|
|
|
|
0.08
|
|
|
2,333
|
|
|
2,053
|
|
At December 31, 2015
|
|
|
|
|
|
|
|
|
Proven Reserves
|
|
2,632
|
|
|
0.40
|
|
|
1,055
|
|
|
899
|
|
Palladium
|
|
|
|
0.31
|
|
|
826
|
|
|
699
|
|
Platinum
|
|
|
|
0.09
|
|
|
229
|
|
|
200
|
|
Probable Reserves
|
|
25,480
|
|
|
0.39
|
|
|
10,024
|
|
|
8,532
|
|
Palladium
|
|
|
|
0.31
|
|
|
7,845
|
|
|
6,633
|
|
Platinum
|
|
|
|
0.08
|
|
|
2,179
|
|
|
1,899
|
|
Total Proven and Probable Reserves
(1)
|
|
28,112
|
|
|
0.40
|
|
|
11,079
|
|
|
9,431
|
|
Palladium
|
|
|
|
0.31
|
|
|
8,671
|
|
|
7,332
|
|
Platinum
|
|
|
|
0.09
|
|
|
2,408
|
|
|
2,099
|
|
At December 31, 2014
|
|
|
|
|
|
|
|
|
Proven Reserves
|
|
2,815
|
|
|
0.41
|
|
|
1,156
|
|
|
999
|
|
Palladium
|
|
|
|
0.32
|
|
|
905
|
|
|
776
|
|
Platinum
|
|
|
|
0.09
|
|
|
251
|
|
|
223
|
|
Probable Reserves
|
|
30,113
|
|
|
0.40
|
|
|
11,966
|
|
|
10,338
|
|
Palladium
|
|
|
|
0.31
|
|
|
9,365
|
|
|
8,035
|
|
Platinum
|
|
|
|
0.09
|
|
|
2,601
|
|
|
2,303
|
|
Total Proven and Probable Reserves
(1)
|
|
32,928
|
|
|
0.40
|
|
|
13,122
|
|
|
11,337
|
|
Palladium
|
|
|
|
0.31
|
|
|
10,270
|
|
|
8,811
|
|
Platinum
|
|
|
|
0.09
|
|
|
2,852
|
|
|
2,526
|
|
(1) Reserves are defined as that part of a mineral deposit that could be economically and legally extracted or produced at the time of the reserve determination.
Proven
ore reserves are defined as ore reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and / or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of ore reserves are well-established.
Probable
ore reserves are defined as ore reserves for which quantity and grade and / or quality are computed from information similar to that used for proven ore reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven ore reserves, is high enough to assume continuity between points of observation. The proven and probable ore reserves reflect variations in the PGM content and structural impacts on the J-M Reef. These variations are the result of localized depositional and structural influences on the distributions of economic PGM mineralization. Geologic domains within the reserve boundaries of the two mines include areas where as little as 0% and up to 100% of the J-M Reef is economically mineable. The ore reserves estimate gives effect to these assumptions. Using the Company’s combined twelve-quarter trailing weighted average price for palladium and platinum at
December 31, 2016
, of approximately
$800
per ounce (
$703
/oz. for palladium and
$1,141
/oz. for platinum), the Company’s ore reserves at each mine are projected to generate positive undiscounted cash flows over the life of the reserve. See
“Item 1A - Risk Factors”
and
“Cautionary Information Regarding Forward-Looking Statements
” for further information.
(2) Contained ounces net of estimated mining and processing losses.
DISCUSSION
The Company’s mine development efforts over the past several years have focused on converting probable ore reserves to proven ore reserves. At
December 31, 2016
, the Company’s total proven palladium and platinum ore reserves in the J-M Reef were
6.0 million
tons at an average grade of
0.50
ounces per ton, containing an estimated
3.0 million
ounces of palladium and platinum. This represented a net
increase
of
0.2%
in proven contained ounces compared to the proven ore reserves reported at
December 31, 2015
. The Company’s total probable
palladium and platinum ore reserves at
December 31, 2016
, were
39.7 million
tons at an average grade of
0.46
ounces per ton, containing approximately
18.2 million
ounces of palladium and platinum. This represented a net
increase
of
7.6%
in probable contained ounces compared to the probable ore reserves reported at
December 31, 2015
. Combined, the Company’s total proven and probable palladium and platinum ore reserves at
December 31, 2016
, were
45.7 million
tons at an average grade of
0.46
ounces per ton, containing an estimated
21.2 million
ounces of palladium plus platinum – a net
an increase
of approximately
6.5%
in total proven and probable contained ounces from the
19.9 million
ounces reported at
December 31, 2015
.
In
2016
, proven and probable ore tons
increased
5.1%
and contained ounces reflected
an increase
of
6.5%
from the respective amounts reported at
December 31, 2015
. In
2015
, proven and probable ore tons
decreased
11.1%
while contained ounces
decreased
by
10.4%
from those reported at
December 31, 2014
. Total contained ounces in proven and probable ore reserves have
decreased
by approximately
4.6%
from those reported at
December 31, 2014
.
The Stillwater Mine's proven and probable ore reserves at year-end
2016
increased
by
19.4%
in terms of ore tons from the respective proven and probable ore reserves reported at year-end
2015
. The East Boulder Mine's proven and probable ore reserves at year-end
2016
decreased
by
2.8%
in ore tons from those reported at year-end
2015
. Overall, the Company’s estimated proven and probable ore reserves based on ore tons
increased
by
5.1%
in
2016
. The increase in probable ore reserves was driven by increases in the Blitz project area and increased area in the far west portion of the Stillwater Mine. The Company’s ore reserve determination for
2016
, calculated at
December 31, 2016
, was limited by geologic certainty and not by economic constraints.
The following table compares
2016
and
2015
year-over-year proven and probable ore reserves for the Montana mining operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
|
At December 31, 2015
|
|
Tonnage
|
|
Ounce
|
|
|
Tons
|
Grade
|
Ounce
|
|
Tons
|
Grade
|
Ounce
|
|
Change
|
|
Change
|
Stillwater Mine
|
|
|
|
|
|
|
|
|
|
|
|
|
Proven
|
|
3,202
|
|
0.59
|
|
1,898
|
|
|
3,248
|
|
0.60
|
|
1,932
|
|
|
(1.4
|
%)
|
|
(1.8
|
%)
|
Probable
|
|
15,123
|
|
0.57
|
|
8,569
|
|
|
12,101
|
|
0.57
|
|
6,900
|
|
|
25.0
|
%
|
|
24.2
|
%
|
Sub-Total
|
|
18,325
|
|
0.57
|
|
10,467
|
|
|
15,349
|
|
0.58
|
|
8,832
|
|
|
19.4
|
%
|
|
18.5
|
%
|
East Boulder Mine
|
|
|
|
|
|
|
|
|
|
|
|
|
Proven
|
|
2,776
|
|
0.39
|
|
1,094
|
|
|
2,632
|
|
0.40
|
|
1,055
|
|
|
5.5
|
%
|
|
3.7
|
%
|
Probable
|
|
24,561
|
|
0.39
|
|
9,638
|
|
|
25,480
|
|
0.39
|
|
10,024
|
|
|
(3.6
|
%)
|
|
(3.9
|
%)
|
Sub-Total
|
|
27,337
|
|
0.39
|
|
10,732
|
|
|
28,112
|
|
0.40
|
|
11,079
|
|
|
(2.8
|
%)
|
|
(3.1
|
%)
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Proven
|
|
5,978
|
|
0.50
|
|
2,992
|
|
|
5,880
|
|
0.51
|
|
2,987
|
|
|
1.7
|
%
|
|
0.2
|
%
|
Probable
|
|
39,684
|
|
0.46
|
|
18,207
|
|
|
37,581
|
|
0.45
|
|
16,924
|
|
|
5.6
|
%
|
|
7.6
|
%
|
Total
|
|
45,662
|
|
0.46
|
|
21,199
|
|
|
43,461
|
|
0.46
|
|
19,911
|
|
|
5.1
|
%
|
|
6.5
|
%
|
Changes in proven and probable ore reserves are due to the net effect of the following:
|
|
•
|
Additions to proven ore reserves from new definition drilling,
|
|
|
•
|
Deletions as proven ore reserves are mined, (See
Item 6 - Selected Financial Data
for prior year production data and concentrator recoveries),
|
|
|
•
|
Deletions from probable ore reserves as areas are converted by new drilling from probable to proven ore reserves,
|
|
|
•
|
Additions from development activity to convert mineralized inventory to probable ore reserves, and
|
|
|
•
|
Additions and deletions from adjustments to ore reserves estimation factors and mine planning criteria.
|
The cut-off grade used in mine planning ranges from 0.2 to 0.3 troy ounces of palladium and platinum per ton for the Stillwater Mine and is 0.2 troy ounces of palladium and platinum per ton for the East Boulder Mine. The economic value of this cut-off grade varies with palladium and platinum prices and with the cost and efficiency of the different mining methods employed.
CURRENT OPERATIONS
Montana Properties and Facilities - February
2017
MINING OPERATIONS
Mine production of palladium and platinum totaled
545,300
ounces for the year ended
December 31, 2016
, an increase of
4.7%
from the
520,800
ounces produced in
2015
.
Costs of metals sold per PGM mined ounce is the Company's most directly comparable GAAP financial measure to total cash costs, net of credits, per PGM mined ounce, and AISC per PGM mined ounce produced, both non-GAAP financial measures. The Company's consolidated costs of metals sold per mined ounce of palladium and platinum was
$509
per ounce for the year ended
December 31, 2016
compared to
$579
per ounce in 2015, a
12.1%
decrease. The measurement of total cash costs per PGM mined ounce includes the benefit of credits for by-product sales and PGM Recycling segment income (before income taxes). The table below illustrates the effect of applying these credits to the combined cash costs per PGM mined ounce, (net of credits) for the combined Montana mining operations. Total combined cash costs per PGM mined ounce, net of by-product and recycling credits (a non-GAAP financial measure) averaged
$438
per ounce for the year ended
December 31, 2016
, a
decrease
of
11.5%
mainly due to
an increase
of
4.7%
in production for the full year of
2016
when compared to
2015
. See "
Item 6 - Selected Financial Data -
Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
." Note that, for historical reasons, the Company’s measurement of total cash costs per mined ounce customarily has been reported net of credits for sales of by-products from mining and also net of PGM Recycling segment margins. The table below illustrates the effect of by-product and recycling credits on the total combined cash costs per mined ounce net of credits for the combined Montana mining operations.
|
|
|
|
|
|
|
|
|
|
Cash Costs Per Mined Ounce - Combined Montana Mining Operations
|
|
Full Year 2016
|
|
Full Year 2015
|
Costs of metals sold per PGM mined ounce
|
|
$
|
509
|
|
|
$
|
579
|
|
|
|
|
|
|
Total combined cash costs per PGM mined ounce, net of by-product and recycling credits *
|
|
$
|
438
|
|
|
$
|
495
|
|
By-product revenue credit per mined ounce
|
|
43
|
|
|
44
|
|
PGM Recycling income credit per mined ounce
|
|
23
|
|
|
19
|
|
Total combined cash costs per PGM mined ounce, before by-product and recycling credits *
|
|
$
|
504
|
|
|
$
|
558
|
|
* These are non-GAAP financial measures. For a reconciliation of non-GAAP financial measures to GAAP financial measures, see
"Item 6 - Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures"
in
Part II,
of this Annual Report on Form 10-K.
STILLWATER MINE
The underground Stillwater Mine near Nye, Montana accesses, extracts and processes PGM ores from the eastern portion of the J-M Reef using mine openings located in the Stillwater River Valley. The mine began operations in 1986. All surface structures and tailings management facilities are located within the
2,414
acre Stillwater Mine operating permit area which is administered collectively by the Montana Department of Environmental Quality (DEQ) and the United States Forest Service (USFS). Ore reserves developed at the Stillwater Mine are controlled by patented and unpatented mining claims either leased or owned outright by the Company. The mine is located approximately 85 miles southwest of Billings, Montana and is accessed by a paved road. The mine has adequate water and power from established sources to conduct its current operations. See “
Item 1A
-
Risk Factors – Certain of the Company's properties are subject to title risk, particularly related to the validity of unpatented mining claims
” for further information.
The Stillwater Mine accesses and has developed a 6.8 mile-long underground segment of the J-M Reef, on various levels between 1,700 and 7,500 feet above sea level. Access to the ore at the Stillwater Mine is accomplished by means of a 1,950 foot vertical shaft from the valley floor and by a system of horizontal adits and drifts driven parallel to the strike of the J-M Reef at vertical intervals of between 150 feet and 300 feet. Eight main adits have been driven from surface portals on the west and east slopes of the Stillwater Valley at various elevations between 5,000 and 5,900 feet above sea level. Additional principal levels have been developed below the 5000 level, accessed from the vertical shaft and associated ramp systems. Extensive underground rail haulage has been installed on the 5000 level to the west of the adit and 3500 levels to the west of the shaft, with rail being installed on the 2000 level. Ore from the region of the mine below the 5000 level is hauled by truck and / or rail to the shaft, where it is crushed and hoisted out of the mine. The Company is continuing to develop a decline system and additional principal mining levels to access and develop to the west and deeper areas in the central part of the mine. At the end of
2016
this decline system extended through the 1900 level and nearly to the 1700 level.
The headframe for the shaft at the Stillwater Mine is situated in the Stillwater Valley adjacent to the concentrator, at 5,000 feet above sea level. Ore and any waste rock to be transported to the surface from the off-shaft and deeper areas of the mine are crushed prior to being hoisted up the shaft. The production shaft and underground crushing station reduce haulage times and costs, facilitate the handling of ore and waste, and improve the grinding capabilities of the concentrator. Ore produced from above the 5,000 foot elevation on the west side of the mine is hauled to the surface by rail and crushed on surface prior to being fed into the concentrator. Waste material not used for backfilling in underground excavations is transported to the surface and placed in permitted waste rock disposal sites.
Since 1994, the Company has used two mechanized mining methods: ramp-and-fill and sub-level stoping. Ramp-and-fill is a mining method in which a series of horizontal cuts are extracted from the ore body using mobile equipment. Access to the ore body is from ramps driven within or adjacent to the ore body, allowing the use of hydraulic drills and load-haul-dump equipment. Sub-level stoping is a mining method in which blocks of the reef, approximately 30 feet high and whose length varies due to ore body requirements and associated ground conditions are extracted utilizing mobile long-hole drills and remote-control rubber tired load-haul-dump equipment. The reef is mined in a retreat sequence and mined out areas are filled with development waste or sand backfill as appropriate. Traditionally, captive cut-and-fill has been viewed as being more selective in nature than either ramp-and-fill or sub-level stoping, but it also requires miners with specialized skills and is generally less productive. Other factors considered in determining the most appropriate mining method for each area include the amount of ancillary development required, as well as the ore grade and ground conditions expected. The Company determines the appropriate mining method to be used on a stope-by-stope basis utilizing engineering and economic analysis.
The Company processes ore from the Stillwater Mine through a surface concentrator facility (mill) adjacent to the Stillwater Mine shaft. The mill has a design capacity of 3,000 tons per day. Crushed mine ore is fed into the concentrator, mixed with water and ground to slurry in the concentrator’s mill circuits to liberate the PGM-bearing sulfide minerals from the rock matrix. Various reagents are added to the slurry, which then is agitated in a froth flotation circuit to separate the valuable sulfides from the waste rock. In this circuit, the sulfide minerals are successively floated, recycled, reground and refloated to produce a concentrate suitable for further processing. The final flotation concentrate, which represents approximately 2.0% of the original ore weight, is filtered, placed in large bins and then transported by truck to the Company’s metallurgical complex in Columbus, Montana.
In
2016
, approximately 60% of the tailings material from the mill was returned to the mine and used as underground fill material to provide support for additional mining activities. The balance was placed in permitted tailings containment areas on the surface. Tailings are disposed of into the impoundment areas pursuant to the Company’s operating permits. In 1998 the Company received an amendment to its existing operating permit providing for the construction of a lined surface tailings impoundment that would serve the Stillwater Mine for approximately the next 30 years. This facility, located approximately eight miles from the mine and generally referred to as the Hertzler impoundment, was placed into operation in late 2000. During 2015, the Company completed construction of the third and final permitted expansion of the Hertzler Tailings Facility allowing for tailings placement through approximately 2030 based on current operating parameters. See “
Items 1 and 2 - Business and Properties - Regulatory and Environmental Matters – Permitting and Reclamation
” for further information.
During
2016
, ore and reef waste production at the Stillwater Mine averaged
1,954
tons per day, compared to the
2,049
tons per day produced in
2015
. Historically, mill recovery of the PGMs contained in the ore has been approximately
92.9%
. The Stillwater Mine produced
327,000
ounces of palladium and platinum,
an increase
of
2.3%
from the
319,800
ounces produced in
2015
. The Stillwater Mine’s total costs of revenues in
2016
were
$164.0 million
and costs of metals sold per PGM mined ounce was
$486
.
Costs of metals sold per PGM mined ounce is Stillwater Mine's most directly comparable GAAP financial measure to total cash costs, net of credits, per PGM mined ounce, a non-GAAP financial measure.
Total cash costs, net of by-product and recycling credits, (a non-GAAP financial measure) averaged
$437
per ounce in
2016
compared to
$487
per ounce in
2015
. The lower costs for the year ended
December 31, 2016
are principally the result of a reduced labor force at the Stillwater Mine, higher production volumes, which resulted from improved mining practices, higher grades and higher mill recoveries as well as the implementation of various cost reduction initiatives. Before taking the benefit of recycling and by-product sales credits into account, the Stillwater Mine’s total cash costs averaged
$498
per ounce in
2016
and
$545
per ounce in
2015
.
|
|
|
|
|
|
|
|
|
|
Cash Costs Per Mined Ounce - Stillwater Mine
|
|
Full Year 2016
|
|
Full Year 2015
|
Costs of metals sold per PGM mined ounce
|
|
$
|
486
|
|
|
$
|
558
|
|
|
|
|
|
|
Total cash costs per PGM mined ounce, net of by-product and recycling credits *
|
|
$
|
437
|
|
|
$
|
487
|
|
By-product revenue credit per mined ounce
|
|
38
|
|
|
39
|
|
PGM Recycling income credit per mined ounce
|
|
23
|
|
|
19
|
|
Total cash costs per PGM mined ounce, before by-product and recycling credits *
|
|
$
|
498
|
|
|
$
|
545
|
|
* These are non-GAAP financial measures. For a reconciliation of non-GAAP financial measures to GAAP financial measures, see
"Item 6 - Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures"
in
Part II,
of this Annual Report on Form 10-K.
EAST BOULDER MINE
The East Boulder Mine is located in Sweet Grass County, Montana, approximately 32 miles south of the town of Big Timber and is accessed by a public road. The East Boulder Mine is fully permitted independently of the Stillwater Mine and comprises a second distinct mining operation accessing the western portion of the J-M Reef. Development of the East Boulder Mine began in 1998, and the mine commenced commercial production effective January 1, 2002 and is actively mining approximately 3.2 horizontal miles underground along the J-M Reef. The mine consists of underground mine development and surface support facilities, including a concentrator, shop and warehouse, changing facilities, storage facilities, office and tailings management facility. All mine facilities are wholly-owned and operated by the Company. Surface facilities for the East Boulder Mine are situated on unpatented mill site claims maintained on federal lands located within the Custer Gallatin National Forest and administered by the DEQ and USFS. All surface facilities, including the tailings management complex, are located within a 1,630 acre operating permit area. Proven and probable ore reserves for the mine are controlled by patented mining claims owned by the Company.
From the surface facilities at the East Boulder Mine, the J-M Reef is accessed by two 18,500 foot long, 15 foot diameter horizontal rail adits driven into the mountain. These two parallel tunnels intersect the ore body deep within the mountain at an elevation 6,450 feet above sea level. Within the mine, the ore body currently is accessed from eight levels of horizontal footwall lateral drifts driven parallel to the J-M Reef totaling approximately 85,000 feet in length, and from three primary ramps totaling approximately 37,700 feet of development. The ore body is accessed vertically by ramp systems tying together the footwall laterals and driven approximately every 2,500 feet along the length of the deposit. The mined ore is transported horizontally out of the East Boulder Mine by rail haulage to the mine portal.
The Company processes ore from the East Boulder Mine through a surface concentrator facility (mill) adjacent to the two portals. The mill has a permitted throughput capacity of 2,000 tons per day. Crushed mine ore is fed into the concentrator, mixed with water and ground to slurry in the concentrator’s mill circuits to liberate the PGM-bearing sulfide minerals from the rock matrix. Various reagents are added to the slurry, which then is agitated in a froth flotation circuit to separate the valuable sulfides from the waste rock. In this circuit, the sulfide minerals are successively floated, recycled, re-ground and re-floated to produce a concentrate suitable for further processing. The final flotation concentrate, which represents approximately 2.5% of the original ore weight, is filtered, placed in large bins and then transported by truck to the Company’s metallurgical complex in Columbus, Montana.
In
2016
, approximately 50% of the East Boulder Mine tailings material from the mill was returned to the mine and used as underground fill material to provide support for additional mining activities. The balance was placed in permitted tailings containment areas on the surface. The remaining permitted impoundment area has an estimated staged life of approximately 15 years at the original planned production and processing rate of 2,000 tons per day.
During
2016
, ore and reef waste production at the East Boulder Mine averaged
1,755
tons per day representing a 10.4% increase from the
1,589
tons per day produced in
2015
. Mill recovery of the PGMs contained in the ore was
90%
in 2016, consistent with the
2015
performance. The East Boulder Mine produced
218,300
returnable ounces of palladium and platinum in
2016
,
an increase
of
8.6%
from the
201,000
ounces of PGMs produced in
2015
. The East Boulder Mine’s total costs of revenues for 2016 were
$115.3 million
and costs of metals sold per PGM mined ounce for 2016 was
$545
. Costs of metals sold per PGM mined ounce is East Boulder Mine's most directly comparable GAAP financial measure to total cash costs, net of credits, per PGM mined ounce, a non-GAAP financial measure.
Total cash costs per PGM mined ounce, net of by-product and recycling credits, (a non-GAAP financial measure) were
$441
per ounce in
2016
compared to
$508
per ounce in
2015
a decrease of approximately
13.2%
. The improvement in cash costs per ounce reflects the increased mine output and continuing cost reduction and productivity improvement initiatives. Excluding the benefit of recycling and by-product credits, total cash costs were
$516
per ounce in
2016
and
$581
per ounce in
2015
.
|
|
|
|
|
|
|
|
|
|
Cash Costs Per Mined Ounce - East Boulder Mine
|
|
Full Year 2016
|
|
Full Year 2015
|
Costs of metals sold per PGM mined ounce
|
|
$
|
545
|
|
|
$
|
616
|
|
|
|
|
|
|
Total cash costs per PGM mined ounce, net of by-product and recycling credits *
|
|
$
|
441
|
|
|
$
|
508
|
|
By-product revenue credit per mined ounce
|
|
52
|
|
|
53
|
|
PGM Recycling income credit per mined ounce
|
|
23
|
|
|
20
|
|
Total cash costs per PGM mined ounce, before by-product and recycling credits *
|
|
$
|
516
|
|
|
$
|
581
|
|
* These are non-GAAP financial measures. For a reconciliation of non-GAAP financial measures to GAAP financial measures, see
"Item 6 - Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures"
in
Part II,
of this Annual Report on Form 10-K.
METALLURGICAL COMPLEX
SMELTER
The Company owns and operates a smelting facility situated along Interstate 90 in Columbus, Montana. The smelting facility consists of a concentrate drying plant, two electric furnaces, two top blown rotary converters (TBRCs), a matte granulator, and gas handling and solution regeneration systems. During 2009 the Company completed construction of a new primary 150 ton-per-day smelter furnace. This second, larger furnace allows room for growth in future processing volumes, partially mitigates potential operational risk by providing some redundancy (virtually all of the Company’s metal production is dependent on the availability of the smelting facility), and provides capacity for the Company to continue processing during periodic scheduled maintenance shutdowns. After stripping out the old refractory material from the original furnace during 2010, the furnace structure was re-bricked during 2011 and reconfigured during 2012 as a “slag cleaning” furnace. In this configuration, slag tapped from the primary furnace is transferred into the original furnace, providing additional residence time for PGM matte to separate from the slag material, with the intent of increasing metal recoveries. Reconfigured as such, the slag cleaning furnace also serves as a backup for the primary furnace if needed.
Concentrates from the mine sites are transported by truck to the smelter, dried, and fed into the electric furnace. In the furnace, the concentrates are commingled with spent catalyst materials collected by the Company’s recycling business segment. The combined feed is melted in the furnace, where the lighter silica-rich slag separates out into a distinct layer that floats on top of the heavier nickel-copper PGM-rich matte. The matte is tapped from the furnace periodically and granulated. This granulated furnace matte is then re-melted and processed in a TBRC, which extracts iron from the converter matte. The converter matte is poured from the TBRC, granulated and transferred to the base metal refinery for further processing. The granulated converter matte, approximately 6% of the original smelter feed by weight, consists principally of copper and nickel sulfides containing approximately 1.5% to 2.5% PGMs. The TBRC slag is also granulated and returned to the electric furnace for recovery of any contained PGMs. Any residual slag from the slag cleaning furnace is periodically tapped from the furnace, cooled and returned to the Stillwater Mine concentrator for reprocessing.
The gases released from the smelting operations are routed through a gas / liquid scrubbing system, which removes approximately 99.8% of the contained sulfur dioxide. Spent scrubbing solution is treated in a process that converts the sulfur dioxide into gypsum, or calcium sulfate, and regenerates clean scrubbing solution. The gypsum is used by farmers as a soil amendment.
BASE METAL REFINERY
The Company’s base metal refinery is located on property the Company owns adjacent to the smelter in Columbus, Montana.
The base metal refinery utilizes the patented Sherritt Process, whereby a sulfuric acid solution dissolves out the nickel, copper, cobalt and any residual iron from the PGM-bearing converter matte. The copper and nickel ultimately are marketed as by-products. A nickel crystallizer circuit produces a crystalline nickel sulfate by-product containing minor amounts of cobalt, which is marketed under sales contracts with various companies. A copper electrowinning circuit removes copper from solution as cathode copper that is marketed to copper refiners for upgrading to commercial grade material. The removal of these metals upgrades the PGM fraction of the converter matte product from approximately 2% PGMs to approximately 50% PGMs.
The base metal refinery produces a palladium, platinum and rhodium-rich filter cake, which also contains minor amounts of gold and silver. This filter cake is shipped to JM under a toll-processing agreement that provides the Company with returns of finished metal. The palladium and platinum metals are returned to the Company’s account as 99.95% purity palladium and platinum sponge; and refined rhodium, gold and silver are also separately returned to the Company’s account. Refined metals from the Company's mine production are sold to JM and Tiffany & Co.; refined metals from the Company's recycling segment are normally delivered to the Company’s counterparties. The Company pays its refiner a per-ounce refining charge for toll processing of the refined filter cake, and the refiner also retains a small percentage of the contained metals.
PGM RECYCLING
The Company regularly sources spent catalytic converter materials containing PGMs from third-party suppliers and processes them through its metallurgical complex. The recycling materials are either purchased outright by the Company for its own account or are toll processed on a fee basis with the contained metals being returned to the supplier of the material. The third-party suppliers collect recycling materials primarily from automobile repair shops and automobile yards that process scrapped vehicles. The Company also extracts PGMs from petroleum refinery catalyst and other PGM bearing materials normally on a tolling basis.
Upon receipt of the recycling materials at the Columbus smelter, they are weighed, crushed and sampled prior to being commingled with mine concentrates for smelting in the electric furnace. Nickel and copper sulfides which occur naturally in the mine concentrates act as a metallurgical collector in the smelting furnace to facilitate extraction of the PGMs from the recycled material.
In connection with acquiring spent automotive catalysts for recycling, the Company may advance funds to its established suppliers prior to receiving the physical material in order to facilitate procurement efforts. Total outstanding procurement advances to recycling suppliers totaled
$6.8 million
,
$4.4 million
and
$7.3 million
at
December 31, 2016
,
2015
and
2014
, respectively. The Company normally advances against a portion of the value of specific shipments that either are on the dock or are physically in transit to the Company’s processing facilities.
Recycled PGM ounces sold in
2016
increased to
401,100
ounces from
340,200
ounces in
2015
a
17.9%
increase. In addition to material purchased for its own account, the Company processed
228,300
ounces of PGMs on a tolling basis in
2016
, an
11.4%
increase over the
205,000
tolled ounces in
2015
. In total, recycled volumes fed to the smelter in
2016
were
668,300
PGM ounces, an
increase
of
21.3%
from
551,100
ounces in
2015
. The increased volumes in 2016 reflect a gain in market share from purchased catalysts.
The Company records revenue and costs of metals sold for the processing of these recycled materials separately from mine production revenue and costs. Revenues from PGM recycling decreased to
$305.9 million
in
2016
, from
$310.2 million
in
2015
and
$401.7 million
in
2014
. Recycling costs of metals sold were
$294.9 million
,
$300.7 million
and
$391.5 million
for
2016
,
2015
and
2014
, respectively. The largest share of recycling costs is associated with purchasing material for processing. Earnings before tax from the PGM Recycling segment in
2016
,
2015
and
2014
, including financing charges to customers, were
$12.4 million
,
$10.2 million
and
$11.7 million
, respectively.
Because of the quantities of purchased recycling material typically processed through its smelter and base metal refinery and the time required for processing, the Company normally carries large inventories of recycling material in process. As part of the Company's risk mitigation program the related ounces are typically hedged so the Company is not exposed to commodity price fluctuation on this material. Working capital associated with these recycling activities, which includes inventories and advances, was
$85.0 million
,
$37.4 million
and
$61.5 million
at
December 31, 2016
,
2015
and
2014
, respectively.
EXPLORATION AND DEVELOPMENT
Montana, USA
The J-M Reef has been explored from the surface along its entire 28-mile strike length by surface sampling and drilling which consists of an array of over 900 drill holes. Historical exploration activities also included driving two exploratory underground adits that are not currently in active use, the West Fork adit and the Frog Pond adit, and then drilling core samples from within these adits. Evaluation of the J-M Reef segments not currently mined in the Stillwater Complex support the existence of mineralized material over the remaining strike length. Exploration to date has defined sufficient proven and probable ore reserves, based upon historical conversion rates, to sustain mining for a number of years into the future at current mining rates. It is the Company’s practice to systematically convert its established probable ore reserves to the proven ore reserves category as mine development progresses by performing definition drilling and evaluation coincident with planned advances of underground development.
A key element of the Company’s development activities at its Montana mines consists of ongoing efforts to convert its established probable ore reserves into proven ore reserves by extending the lateral and vertical development of the Stillwater and East Boulder mines, which provides access for definition drilling and evaluation. These ongoing activities also include constructing and extending mine development workings to access established ore reserves and continuously advancing definition drilling, engineering and mine planning to replace depleted ore reserves. Costs incurred in connection with capitalized mine development at the Company's existing mining operations (excluding the Blitz development in 2016 and 2015 and excluding both the Blitz and Graham Creek developments in 2014) were $43.3 million, $57.0 million and $68.6 million in
2016
,
2015
and
2014
, respectively. These capitalized mine development costs are included in total capital outlays. Development spending at the Montana mining operations in
2017
is planned to be broadly similar to
2016
.
The following table outlines measures used by the Company to gauge progress on resource development activities:
|
|
|
|
|
|
|
|
|
|
|
Location and Development Activity
|
|
2016
|
|
2015
|
|
2014
|
Stillwater Mine
|
|
|
|
|
|
|
Primary development (equivalent feet)
(1)
|
|
34,500
|
|
|
35,100
|
|
|
30,930
|
|
Footwall lateral (equivalent feet)
(1)
|
|
13,300
|
|
|
13,670
|
|
|
10,760
|
|
Definition drilling (feet)
|
|
339,730
|
|
|
412,560
|
|
|
354,500
|
|
East Boulder Mine
|
|
|
|
|
|
|
Primary development (equivalent feet)
(1)
|
|
7,800
|
|
|
6,300
|
|
|
11,460
|
|
Footwall lateral (equivalent feet)
(1)
|
|
2,400
|
|
|
3,100
|
|
|
7,850
|
|
Definition drilling (feet)
|
|
170,100
|
|
|
310,346
|
|
|
172,800
|
|
(1) Based on one linear foot of excavation, 11 feet wide by 12 feet high (cross-section of 132 ft.
2
).
The Company is continuing to develop new mining infrastructure adjacent to its current operations along the J-M Reef. The Blitz development includes three principal elements: (i) a TBM, targeting to drive approximately 23,000 feet of access tunnel to the east from the existing Stillwater Mine infrastructure; (ii) a second underground drift parallel to the TBM drive and approximately 600 feet above it, driven by conventional methods; and (iii) the construction of a new surface portal and a decline intended to intersect the two Blitz drifts approximately four miles to the east of the existing Stillwater Mine facilities. During 2015, the Company received the permit and initiated construction of surface facilities to support the Benbow portal and a decline. Construction of the decline commenced in the third quarter of 2016. The new surface portal is being conventionally driven and is intended to provide ventilation and emergency egress for the Blitz area. The TBM acquired for Blitz was fully commissioned during the fourth quarter of 2012 and is currently in operation. Construction of the second conventional drift is also in progress. As these drives advance, definitional and probe drilling will be performed to further enhance the Company’s understanding of the geology in this area. As previously reported, total costs for the Blitz development are expected to increase $45 million to approximately $250 million, from the $205 million estimate of which approximately
$111.6 million
has been incurred through the end of
2016
. Estimated costs (and costs incurred to date) do not include capitalized interest and capitalized depreciation.
Ontario, Canada
The Marathon properties are located 10 kilometers north of the town of Marathon, Ontario, on the eastern margin of the Coldwell Complex, a Proterozoic layered intrusion. The palladium, platinum and copper mineralization occurs principally in the Two Duck Lake gabbro. The known zones of significant mineralization have a total north-south strike length of approximately 3 kilometers and dip 30° to 40° toward the west. The mineralization has a true thickness ranging from 4 meters to 100 meters.
During 2016, the Company conducted a limited exploration program at Marathon. The Company intends to test a number of exploration targets with a modest drill program at Marathon in 2017.
San Juan Province, Argentina
In October 2011, the Company acquired Peregrine Metals Ltd., a Canadian exploration company whose principal asset is the Altar project, a large Andean Porphyry copper-gold deposit located in the San Juan Province of Argentina. The property consists of eight wholly-owned mining concessions and five optioned mining concessions. Seven of these mining concessions are subject to production royalties, including a 1% net smelter royalty, and four other concessions are subject to a 2% net smelter royalty.
The Altar project is located in the Andes Mountains of Argentina, approximately 10 kilometers from the Argentina-Chile border, and approximately 180 kilometers west of the city of San Juan.
Altar is an exploration-stage project. The project is primarily a copper-gold porphyry deposit with potential for discrete peripheral gold system targets. The Altar deposit currently exhibits open mineralization in most directions.
The field season in the Andes Mountains typically extends from December through April. The Company's 2014 through 2015 exploration program did not include drilling and was limited to surface mapping and collection of baseline environmental data. During 2016, the Company drilled 4,931 meters in eight holes plus one hole extension. 2016 drilling resulted in discovery of a new copper-gold porphyry stock southeast of the QDM gold resource. The objectives for the 2017 exploration season include a limited (5,500 to 6,500 meter) program of diamond drilling to further test the porphyry discovered in 2016, test additional targets generated in prior years, plus continue with surface mapping and collection of baseline environmental data. The Company has posted a technical report that summarizes the cumulative drill results through 2013 on its website,
www.stillwatermining.com
.
The Company continues to review alternatives for optimizing its investment in the Altar mineral property. The Company intends to make the necessary annual expenditures required in order to maintain the Company's good standing and preserve its asset position at Altar while it evaluates alternatives for the Altar project. Future levels of exploration spending at Altar will be evaluated year by year.
OTHER PROPERTIES
The Company owns a warehouse facility in Columbus, Montana and leases office space in Columbus, Montana and Littleton, Colorado. The Company owns parcels of rural land in Stillwater and Sweet Grass Counties in Montana near its Montana mines and metallurgical complex and additional commercial properties in the communities of Columbus and Big Timber, Montana. Subsidiaries of the Company own residential and commercial properties in Marathon, Ontario which are used as support facilities for operations and exploration projects at the Marathon properties. The Company’s subsidiaries lease office space in Argentina and Chile. The Company’s corporate office is located in the office space leased in Littleton, Colorado. The annual expense for the office leases in Montana and Colorado totals approximately
$0.1 million
.
EMPLOYEES
At
December 31, 2016
, the Company employed
1,432
people. The following table shows the distribution of Company employees (excluding contractors) involved in each of the Company's activities:
|
|
|
|
|
|
|
|
|
|
|
SITE
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Stillwater Mine
|
|
791
|
|
|
784
|
|
|
942
|
|
East Boulder Mine
|
|
402
|
|
|
410
|
|
|
419
|
|
Smelter and Refinery Complex
|
|
170
|
|
|
178
|
|
|
187
|
|
Administrative Support
|
|
59
|
|
|
58
|
|
|
61
|
|
Canadian Operations
|
|
2
|
|
|
2
|
|
|
3
|
|
South American Operations
|
|
8
|
|
|
7
|
|
|
7
|
|
Total
|
|
1,432
|
|
|
1,439
|
|
|
1,619
|
|
The Company's represented workforce at the Stillwater Mine, the East Boulder Mine, the smelter and the base metal refinery are represented by the United Steel Workers of America (USW) and are covered under two separate collective bargaining agreements. The Stillwater Mine and the Columbus processing facilities are covered by a collective bargaining agreement with the USW Local 11-0001, which expires June 1, 2019, with re-negotiation (for wages only) in 2017. The East Boulder Mine collective bargaining agreement with the USW Local 11-0001, expires December 31, 2019, with re-negotiation (for wages only) in 2017.
MAJOR CUSTOMERS
As previously disclosed, the Company and JM entered into a five-year PGM supply agreement and a refining agreement
during 2014. The supply agreement gives JM the right to purchase all of the Company's mine production of palladium and platinum at competitive market prices (with the exception of platinum sales under the Company’s sales agreement with Tiffany & Co.) and the right to bid for any recycling volumes the Company has available.
The Company aims to sell forward all recycling material at the time the purchase is made, essentially fixing the sales margin on the material. Forward sales of recycled ounces are customarily offered to any of several counterparties whom the Company believes are able to take future physical delivery of the underlying metal. Such forward sales are regarded as "normal sales" transactions for accounting purposes and therefore are not accounted for as derivatives.
During 2016, JM purchased all of the Company's mined PGM production (excluding the platinum ounces delivered under a separate agreement with Tiffany & Co.). Approximately
56.9%
of the Company's total revenues for the year ended
December 31, 2016
were derived from mine production.
This significant concentration of business with JM could leave the Company without precious metals refining services should JM experience significant financial or operating difficulties during the contract period. See
"Item 1A
-
Risk Factors
-
The Company's sales arrangements concentrate all of the Company's final refining activity and a large portion of its PGM sales from mine production with one entity"
for further information.
PGM SALES AND HEDGING
MINE PRODUCTION
The Company sells its palladium, platinum, rhodium, gold and silver through established trading relationships. Refined PGMs of 99.95% purity (rhodium of 99.9%) in sponge-form are transferred upon sale from the Company’s account at the third-party refiner to the account of the purchaser. After final refining, by-product gold, silver and rhodium are normally sold at market prices to customers, brokers or outside refiners. Copper and nickel by-products from the Company’s base metal refinery are produced at less than commercial grade, so prices for these metals typically reflect a modest quality discount. By-product sales are included in revenues from mine production. During
2016, 2015 and 2014
, total revenues from by-product (copper, nickel, gold, silver and mined rhodium) sales were
$23.7 million
,
$23.1 million
and
$29.6 million
, respectively.
The Company has a market-based platinum supply agreement in place with Tiffany & Co., through the end of 2017. At present the Company sells the remainder of its PGM mine production to JM under a five-year arrangement that commenced in July, 2014. Pricing is based on spot prices.
Currently, none of the Company’s mine production is committed under forward sales or other hedging arrangements that would result in a firm price well in advance of delivery. See "
Note 6
-
Derivative Instruments
” to the Company’s
2016
consolidated financial statements for further information.
PGM RECYCLING
The Company has available capacity in its smelter and base metal refinery and purchases catalyst materials from third-parties for recycling in those facilities to recover PGMs. In addition to purchased material the Company toll processes third-party material for a fee and returns the PGM's to the supplier after final processing is complete.
The Company enters into sourcing arrangements with suppliers for spent catalyst material. Under these sourcing arrangements, the Company may advance cash to the suppliers, based on a percentage of the estimated PGM content, as spent catalyst materials are ready for shipment or in-transit to the Company’s facilities. These advances are reflected as advances on inventory purchases and included in
Other current assets
on the Company’s
Consolidated Balance Sheets
until such time as the material has been physically received and title has transferred to the Company. The Company also enters into tolling agreements with suppliers for spent catalyst. See “
Item 1A - Risk Factors
–
The Company's recycling business segment is dependent on relationships with third-party suppliers and has other credit and operational type risks”
for further information.
The Company regularly enters into fixed forward sales related to recycling of catalysts. These fixed forward sales transactions in the recycling business are not accounted for as derivatives as they qualify as “normal purchases / normal sales” under generally accepted accounting principles. Metals contained in recycled materials are generally sold forward at the time the material is purchased and then are delivered against the forward sales contracts when processing is completed and the finished ounces are recovered. Volumes sold forward are trued up as final assays are completed.
All of the Company’s recycling forward sales transactions open at
December 31, 2016
, will settle at various periods through
June 2017
. See "
Note 6
-
Derivative Instruments
” to the Company’s
2016
consolidated financial statements for more information. The Company has credit agreements with certain of its major trading partners that would require the Company to make 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 at
December 31, 2016
,
2015
or
2014
.
OTHER
Periodically, the Company acquires PGMs in the open market for resale to third parties or to settle small volume differences. There were no open market purchases or sales during the years ended
December 31, 2016
and 2015. The Company recognized revenue of
$5.3 million
on PGMs acquired in the open market and simultaneously resold to third parties during the year ended December 31, 2014. This revenue is shown as
Other
revenues and the associated acquisition costs are shown as
Other
costs and expenses in the
Consolidated Statements of Comprehensive Income (Loss)
contained in the Company's
2016
consolidated financial statements.
TITLE AND ROYALTIES
Montana, USA
The Company holds 1,674 patented and unpatented lode, placer, tunnel site or mill site claims in Montana comprising approximately 26,000 acres along the trend of the J-M Reef ore zone and on adjacent private or federal lands utilized for the Company’s operations facilities. The Company believes that approximately 140 of these claims cover the known apex of the J-M Reef. The Company’s remaining unpatented claims either adjoin the apex of the J-M Reef or secure sites for ongoing exploration and surface operations. The Company presently maintains 1,468 active unpatented lode, placer, tunnel site or mill site claims. See “
Item 1A -Risk Factors – Certain of the Company's properties are subject to title risk, particularly related to the validity of unpatented mining claims”
for further information.
Of the Company’s 1,537 controlled claims on the J-M Reef, 1,091 claims are subject to production royalties, including 911 claims subject to a 5% net smelter royalty payable to Franco Nevada U.S. Corporation, 147 claims subject to a 0.35% net smelter royalty payable to the Mouat family, and 97 claims subject to both royalties. During
2016, 2015 and 2014
, the Company incurred total royalty expense of
$15.1 million
,
$16.1 million
and
$22.8 million
, respectively. The different royalty amounts in each year reflect changes in metal prices, how many ounces are produced, and under which mining claims the production occurred.
Ontario, Canada
The Company currently holds mining claims and crown leases covering the more prospective portions of the Port Coldwell Intrusive Complex. The Coldwell Complex is located near the northern shore of Lake Superior adjacent to the town of Marathon, Ontario and hosts the Marathon PGM-copper deposit. The Company’s aggregate property holdings in the Coldwell Complex include 43 crown leases and 82 mining claims. Each of the crown leases conveys to the Company certain mining rights, surface use rights, or combined surface and mining rights. Of the total area controlled under crown leases approximately 84% include both surface and mining rights. Applications have been submitted for mining and surface leases on an additional 21 mining claims in order to expand the Company's crown leasehold position across the entire footprint of the Marathon property.
The Company’s Ontario properties in the Coldwell Complex remain subject to certain underlying provisions and production royalty interests. Production royalty interests include: a 2% net smelter return royalty in respect to the ‘Bamoos leases’; a 1% net smelter return royalty in respect to the ‘Bermuda claim’: a 2% net smelter return royalty in respect to the Par Lake, et.al. leases; a 1% net smelter return royalty in respect to certain of the 'Bermuda Properties'; a conditional 2% net smelter return royalty payable in respect to the ‘Coubran Lake’ claims; and a conditional 2.5% net smelter return royalty in respect to the ‘Geordie Lake claims’.
At the Company’s Geordie Lake exploration property, located approximately 8 kilometers west of the Marathon PGM-copper deposit, Gryphon Metals, Inc. retains a back-in option to a 12.5% working interest on the ‘Geordie Lake claims’. The option can be exercised upon completion and delivery of a feasibility study by the Company and Gryphon making a cash payment to the Company equal to 31.25% of all costs incurred on the property through completion of the feasibility study.
San Juan Province, Argentina
Altar contains a large porphyry-style copper-gold deposit and is comprised of six mining concessions acquired from Rio Tinto by Peregrine Metals Ltd. in 2009 (the original "Altar property"), five mining concessions known as the "Rio Cenicero concessions” held under option since 2008, one exploration concession staked in 2008, two mining concessions acquired in 2010, one exploration concession acquired in 2014, as well as five mining access rights of way and three occupancy easements. The original Altar property, the Rio Cenicero concessions, the mineral concession staked by Peregrine in 2008 and the mineral concessions acquired since are known collectively as the “Altar project.”
Vaaldiam Mining Inc. retains a 1% net smelter return royalty on all mineral products produced from the first six mining concessions at Altar. The original underlying concession owners also jointly hold a net smelter return royalty of 1% (the Robledo royalty) on four of the first six concessions. Until the mine achieves commercial production or the Company exercises its right to purchase the Robledo royalty, aggregate payments of US$80,000 are payable annually. On the date of commencement of commercial production, the annual payments cease and the Robledo royalty becomes effective. The annual payments are in addition to, and not an advance against, the Robledo royalty.
The conditions of the Rio Cenicero Option Agreement include an initial five-year term for conducting exploration after which the Company has the option to convert its rights on the Rio Cenicero concessions from exploration to exploitation status. The Company has satisfied all payment and expenditure requirements for the exploration phase of the Option. As the result of defining substantial additional resource potential on the Rio Cenicero concessions during the Company’s recent exploration activities, the Company negotiated a two-year extension of the exploration phase of the Option Agreement. At commencement of commercial production monthly option payments cease and a net smelter return royalty of 1% becomes payable for all mineral products produced from the Rio Cenicero concessions.
REGULATORY AND ENVIRONMENTAL MATTERS
United States
The Company’s business is subject to extensive federal, state and local government controls and regulations, including regulation of mining and exploration activities which could involve the discharge of materials and contaminants into the environment, the investigation and cleanup of such discharges, disturbance of land, reclamation of disturbed lands, associated potential impacts to threatened or endangered species, management of waste materials, and other environmental concerns. In particular, statutes including, but not limited to, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act (RCRA), the Emergency Planning and Community Right-to-Know Act, the Endangered Species Act, the National Environmental Policy Act and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) impose permit requirements, effluent standards, air emission standards, waste handling and disposal restrictions and other design and operational requirements, as well as record keeping and reporting requirements, upon various aspects of mineral exploration, extraction and processing. In addition, the Company’s existing mining operations may become subject to additional environmental control and mitigation requirements if applicable federal, state and local laws and regulations governing environmental protection, land use and species protection are amended or become more stringent in the future. The Company is aware that federal regulation under the Resource Conservation and Recovery Act governing the manner in which secondary materials and by-products of mineral extraction and beneficiation are handled, stored and reclaimed or reused is subject to frequency review by the regulatory agencies which could affect the Company’s facility design, operations, and permitting requirements. In addition, expansions, modifications or upgrades to the Company’s mines and other systems may be delayed by permit review processes, and any operations deemed to be non-compliant with permits could be ordered to cease operations pursuant to applicable environmental laws and regulations. The Company could be required to conduct investigatory and remedial actions to mitigate pollution conditions caused by or attributed to its operations or former operations. See “
Item 1A
-
Risk Factors – The Company is required to obtain and renew governmental permits in order to conduct operations, a process which is often costly and time-consuming”
for further information.
Generally, compliance with the above statutes requires the Company to obtain permits issued by federal, state and local regulatory agencies and to file various and numerous reports that track operational monitoring, compliance, performance and records maintenance activities, measuring its operational effect on the environment. Certain permits require periodic renewal or review of their conditions. The Company cannot predict whether it will be able to renew such permits or whether material changes in permit conditions will be imposed. Non-renewal of permits or the imposition of additional conditions could have a material adverse effect on the Company’s financial condition and results of operations.
Failure to comply with environmental laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, orders requiring curtailment or cessation of operations and corrective measures requiring capital expenditures. Certain environmental statutes impose strict joint and several liability for costs required to clean up and restore sites where hazardous substances, hydrocarbons or wastes have been disposed or otherwise released. Moreover, it is not uncommon for neighboring landowners and other third parties to assert claims for personal injury and property damage allegedly caused by the Company's activities.
The trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment, and thus, there can be no assurance as to the amount or timing of future expenditures for environmental compliance or remediation and actual future expenditures may be different from the amounts the Company currently anticipates. The Company attempts to anticipate future regulatory requirements that might be imposed and plans accordingly to remain in compliance with changing environmental laws and regulations and to minimize the costs of such compliance.
Hazardous Substances and Waste
The Company’s operations are subject to environmental laws and regulations relating to the management and release of hazardous substances, solid wastes and hazardous wastes. These laws generally regulate the generation, storage, treatment, transportation and disposal of solid and hazardous wastes and may impose strict joint and several liability for the investigation and remediation of affected areas where hazardous substances may have been released or disposed. For instance, the CERCLA, and comparable state laws impose liability, without regard to fault or the legality of the original conduct, on certain classes of persons that contributed to the release of a hazardous substance into the environment.
While some of the industrial wastes generated by the Company’s operations are excluded from hazardous wastes regulations, the Company also generates industrial wastes that are subject to the requirements of the RCRA, and comparable state statutes. The Company generates relatively little hazardous waste; however, it is possible that other wastes, which could include wastes currently generated during the Company’s operations, will in the future be designated as “hazardous wastes” and will as a result become subject to more rigorous and costly disposal requirements. Any such changes in the laws and regulations could have a material adverse effect on the Company’s capital expenditures and operating expenses.
The Company currently owns or leases properties where hazardous substances and wastes are being or have been handled for many years. These properties and the wastes disposed thereon may be subject to CERCLA, RCRA and analogous state laws. Under these laws, the Company could be required to remove or remediate previously disposed wastes (including wastes disposed of or released by prior owners or operators, or wastes disposed of by the Company in compliance with laws in effect in the past that have been subsequently amended), to clean up contaminated property (including contaminated soil and groundwater) or to perform remedial operations to prevent future contamination. The Company is not currently aware of any facts, events or conditions relating to such requirements that could materially impact its operations or financial condition. The Company annually reports to the U.S. Environmental Protection Agency (EPA), the United States Forest Service (USFS), and / or the Montana Department of Environmental Quality (MDEA) releases of hazardous or toxic substances to the extent they exceed certain federal and state thresholds.
Air Emissions
The Company’s operations are subject to the federal Clean Air Act and comparable state and local laws and regulations. These laws and regulations regulate emissions of air pollutants from various industrial sources, including ventilation exhaust, rock crushing activities, and mill processing used at the Company’s mines as well as smelting and refining stack emissions from its processing operations, and also imposes various monitoring and reporting requirements. For example, the smelting and refining operations are subject to particulate matter, carbon monoxide and nitrogen oxide limits under the federal New Source Performance Standards, in addition to stringent sulfur dioxide (SO
2)
limits at the Company's smelting operations. Additionally, as the mines continue to grow and expand, ventilation demands and associated emissions continue to escalate resulting in increases in ventilation exhaust emissions. Air quality laws and regulations may require that the Company obtain pre-approval for the construction or modification of certain projects or facilities expected to produce or significantly increase air emissions, obtain and strictly comply with air permits containing various emission and operational limitations and utilize specific emission control technologies to limit emissions. The Company’s failure to comply with these requirements could result in monetary penalties, injunctions, conditions or restrictions on operations and, potentially, criminal enforcement actions. The Company may be required to incur certain capital expenditures in the future for air pollution control equipment in connection with changes to air quality laws, regulations, or permits as well as obtaining and maintaining operating permits and approvals for current and possible increases in air emissions.
Water Discharges
The Federal Water Pollution Control Act (Clean Water Act) and analogous state laws impose restrictions and strict controls on the discharge of pollutants into state waters as well as waters of the U.S. and on construction activities in waters and wetlands. Certain state regulations and the general permits issued under the Federal National Pollutant Discharge Elimination System program prohibit the discharge of pollutants and chemicals. Spill prevention, control and countermeasure requirements of federal laws require appropriate containment berms and similar structures to help prevent the contamination of regulated waters in the event of a tank spill, rupture or leak. In addition, the Clean Water Act and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. These permits may require the Company to monitor and sample the storm water runoff from certain of its facilities. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with discharge permits or other requirements of the Clean Water Act and analogous state laws and regulations. As permits are periodically renewed, discharge restrictions may be added or modified, which could result in significant additional compliance costs to the Company. During 2015, the Company completed renewal of water discharge permits at both its Stillwater and East Boulder mines. These renewed permits include more stringent water quality discharge limits including a 58-month compliance schedule for the Company to meet compliance with the new permits. While these new limits may require some operational and / or water management changes, the Company believes that compliance with existing permits and with foreseeable new permit requirements will not have a material adverse effect on its financial condition, results of operations or cash flows. During 2016, the Company completed various studies and evaluations comparing existing and future discharge concentrations against the new discharge limits and identified for further evaluation possible water treatment and water management alternatives to ensure compliance at the conclusion of the 58-month compliance schedule.
Climate Change and Greenhouse Gas Emissions
Recent scientific studies have suggested that emissions of certain gases, commonly referred to as “greenhouse gases” (GHG) and including carbon dioxide and methane, may be contributing to warming of the Earth’s atmosphere. In response to the scientific studies, international negotiations to address climate change have occurred. The United Nations Framework Convention on Climate Change, also known as the “Kyoto Protocol,” became effective on February 16, 2005, as a result of these negotiations, but the United States did not ratify the Kyoto Protocol. At the end of 2009, an international conference to develop a successor to the Kyoto Protocol issued a document known as the Copenhagen Accord. Pursuant to the Copenhagen Accord, the United States submitted a GHG emission reduction target of 17% compared to 2005 levels. In November 2014, President Obama expanded this goal, proposing to cut U.S. GHG emissions by 26% to 28% of 2005 levels by the end of 2025. President Obama committed the U.S. to achieve these reductions as part of the 2015 Paris Climate Accord. President Trump has indicated that he will re-evaluate U.S. climate change policy and determine whether the U.S. should remain a signatory to the 2015 Paris Climate Accord. The effect of these international efforts to address climate change on the Company’s operations cannot be determined with any certainty at this time.
In the U.S., legislative and regulatory initiatives are underway to limit GHG emissions. The U.S. Congress has considered legislation that would control GHG emissions through a “cap and trade” program and several states have already implemented programs to reduce GHG emissions. In addition, The U.S. Supreme Court determined in a 2007 ruling that GHG emissions are "air pollutants" within the meaning of the federal Clean Air Act (CAA), and in response the EPA promulgated an endangerment finding paving the way for regulation of GHG emissions under the CAA. In 2010, the EPA issued a final rule, known as the “Tailoring Rule,” that makes certain large stationary sources and modification projects subject to permitting requirements for greenhouse gas emissions under the Clean Air Act. In June 2014, however, the Supreme Court invalidated portions of the federal Tailoring Rule, but the ruling upheld the EPA's authority to require new or modified facilities that already are subject to permitting requirements for conventional pollutants to comply with Best Available Control Technologies (BACT) for GHGs, as well. In 2015, EPA rescinded the portions of the Tailoring Rule overturned by the Supreme Court. However, the EPA indicated that new or modified sources subject to permitting for conventional pollutants will be required to access BACT for GHG if the new source or the modification will result in an annual increase of 75,000 tons per year of carbon dioxide equivalent (CO2e). During 2016, U.S. legislative and regulatory initiatives to limit GHG emissions were primarily focused through the Clean Power Planning Rule which is intended to limit emissions from power generating facilities.
In 2009, the EPA issued a final rule requiring the reporting of GHGs from specified large GHG emission sources in the U.S. beginning in 2011. Given the higher level of air quality emissions, the Stillwater Mine holds a Title V Major Air Quality Permit. As a result, the Company is required to annually calculate the GHG emissions from the Stillwater Mine and compare these amounts against reporting thresholds. However the Company is not required to report GHG emissions at this time, given current levels are below reporting thresholds. Additionally, the assessment of GHG emissions is becoming an increasingly important part of National Environmental Policy Act (NEPA) assessments, and as a result the Company may be required to mitigate its GHG emissions in connection with any future NEPA review.
Nevertheless, regulation of GHG emissions is relatively new, and a great deal of debate continues to ensue. The Clean Power Plan remains subject to a stay imposed by the U.S. Supreme Court pending a review and decision from the D.C. Circuit Court of Appeals. The Trump administration’s proposed changes for the leadership of the EPA indicate that the regulation of GHGs may be less of a priority and it remains unclear as to whether the new administration will continue to defend the Clean Power Plan. However, numerous states have indicated that they may move forward with increased GHG regulation and their own defense of the Clean Power Plan. As a result, further regulatory, legislative and judicial developments are difficult to predict. Due to the uncertainties surrounding the regulation of and other risks associated with GHG emissions, the Company cannot predict the financial impact of future GHG regulations and related developments.
Other Environmental Matters
In an effort to protect the health of the Company's workforce, the Company employs various measures to ensure it is complying fully with strict Mine Safety and Health Administration (MSHA) limits on diesel particulate matter (DPM) exposure for underground miners. These measures include using catalytic converters, filters, and enhanced ventilation regimens, modifying certain mining practices underground that tend to create concentrations of DPM, and utilizing various blends of biodiesel fuel. The Company believes its underground operations at the Stillwater and East Boulder mines are in compliance with MSHA’s existing stringent DPM standards. However, no assurance can be given that any lack of compliance in the future will not impact the Company.
Nitrate concentrations in groundwater samples taken near the Company's mining operations in some cases have shown readings elevated above background and permit levels. These elevated concentrations result from operational activities and discharges that currently are authorized under permit. Noncompliance with groundwater nitrate standards has occurred in some instances. The Company is addressing this issue through action plans approved by the appropriate federal and state regulatory agencies. As a result of implementation of these action plans, an ongoing reduction in groundwater nitrate concentrations has been observed at both Montana mines. However, in some instances, concentrations continue to exceed regulatory levels. In view of its good-faith efforts to comply and progress to date in implementing remedial and advanced treatment technologies, the Company does not believe that its current failure to be in strict compliance will have a material adverse effect on the Company. It is likely the Company will continue to incur ongoing financial expenditures to address and remediate nitrate impacts for some period of time in the future. The Company fully expects that the remedial measures it is taking will be effective in reducing groundwater nitrate concentrations to a level that meets permit and statutory water quality standards.
The Company believes that its operations and facilities comply in all material respects with current federal, state and local permits and regulations, and that it holds all necessary permits for its operations at the Stillwater and East Boulder mines, at the Columbus processing facilities, and to complete essentially all of its planned expansion projects along the J-M Reef. However, compliance with existing and future laws and regulations may require additional control measures and expenditures, which cannot be estimated at this time. Compliance requirements for new or expanded mines and mills may require substantial additional control measures that could materially affect permitting and proposed construction schedules for such facilities. Under certain circumstances, facility construction may be delayed pending regulatory approvals. The cost of complying with future laws and regulations may render currently operating or future properties less profitable and could adversely affect the level of the Company’s ore reserves and, in the extreme, render its mining operations uneconomic.
PERMITTING AND RECLAMATION
Operating Permits 00118 and 00149 issued by the Montana DEQ encompass approximately
2,414
acres at the Stillwater Mine located in Stillwater County, Montana and 986 acres at the East Boulder Mine located in Sweet Grass County, Montana. The permits delineate lands that may be subject to surface disturbance. At present, approximately 875 acres have been disturbed at the Stillwater Mine, and 213 acres have been disturbed at the East Boulder Mine. The Company employs concurrent reclamation wherever feasible.
Reclamation regulations affecting the Company’s operations are promulgated and enforced jointly by the Montana DEQ and the USFS. For regulatory purposes, reclamation means returning the post-mining land to a state which has stability and utility comparable to adjacent, undisturbed areas. Major reclamation requirements include stabilization and re-vegetation of disturbed lands, controlling storm water and drainage from portals and waste rock dumps, removal of roads and structures, the treatment and elimination of process solutions, the reclamation of major tailings storage facilities and the treatment and management of mine water prior to discharge in compliance with standards and visual mitigation.
Permits governing air and water quality are issued to the Company by the Montana DEQ, which has been delegated such authority by the federal government. Operating permits issued to the Company by the Montana DEQ and the USFS do not have an expiration date but are subject to periodic reviews. The reviews evaluate bonding levels, monitor reclamation progress, and assess compliance with all applicable permit requirements, mitigation measures and state and federal environmental standards. Closure and reclamation obligations are reviewed and reassessed by the agencies and the Company on a five year rotating schedule. The closure and reclamation obligations at the East Boulder Mine was reviewed and updated in 2014 in accordance with the five year requirement. The bond for the Stillwater Mine was updated in 2016. Bonding and financial guarantees are posted with the agencies to cover final reclamation costs at the end of the reconciliation and reassessment process.
The Company’s environmental expenses for Montana operations were
$4.9 million
,
$4.6 million
, and
$4.7 million
in
2016, 2015 and 2014
, respectively. The Company had capital outlays for environmental facilities during
2016, 2015 and 2014
of
$3.7 million
,
$10.0 million
and
$16.3 million
, respectively. The primary driver of the higher level of capital spend in 2015 and 2014 was expansion of the tailings facilities at the Stillwater and East Boulder mines. The Company’s ongoing operating expenditures for environmental compliance are expected to be broadly in the range of previous years and will be expensed as incurred.
Ontario, Canada
During 2017, the Company expects to advance with a modest exploration program for the Marathon project in Canada.
San Juan Province, Argentina
The Altar project, described in more detail in
“Business and Properties
-
Title and Royalties”
is currently an exploration stage project. In Argentina, the Environmental Law for Mining Business, Law No 24.585, is incorporated into the Mining Code. It aims to protect the environment and preserve natural and cultural heritage, which may be susceptible to impact by mining activities. Activities specified in the above-mentioned regulations cover the following activities or project stages:
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•
|
Final Closure of the Mine
|
COMPETITION: PALLADIUM AND PLATINUM MARKET
GENERAL
Palladium and platinum are rare precious metals with unique physical qualities that are used in diverse industrial applications and in the jewelry industry. The development of a less expensive alternative alloy or synthetic material with the same characteristics as PGMs for industrial purposes could reduce demand for the Company’s products and drive down PGM prices, as would alternate technology which would significantly reduce or eliminate the use of PGMs in the handling of vehicle emissions. Although the Company is unaware of any such alloy, material or technology there can be no assurance that none will be developed. Jewelry demand is influenced by a variety of external factors, including fashion trends, metal prices and the general state of the economy. Adverse changes in any of these factors could negatively affect the Company’s financial performance.
Significant quantities of palladium and platinum are held in inventory by investors, trading houses and government entities. The number of ounces in each of these inventories is not always disclosed publicly, nor is it clear under what circumstances these holdings might be brought to market. For example, in the past the Russian Federation has held large inventories of palladium as a strategic stockpile, exporting and selling substantial volumes from time to time without warning into the market. There is no official disclosure of the current size of the Russian palladium inventories or clarity as to plans for future sales. Also, exchange-traded funds (ETFs) for palladium and platinum have been introduced in recent years that enable more investors to participate in the PGM markets, potentially resulting in more metal being held in inventory. The overhang from these significant investment holdings of palladium and platinum makes it more difficult to predict accurately future supply and demand for these metals and may contribute to added PGM price volatility.
The Company competes with other suppliers of PGMs, some of which are significantly larger than the Company. Some significant suppliers produce platinum in greater quantities than palladium and thus currently enjoy higher average revenue per PGM ounce than the Company. Some significant suppliers of PGMs produce palladium and platinum as by-products of other production and consequently, on a relative basis, are not as directly affected by changes in the prices of palladium and platinum. See “
Global Supply
” below. New mines may be developed over the next several years, potentially increasing supply. Furthermore, the volume of PGMs recovered through recycling of scrap sources, mostly spent automotive and industrial catalysts, is increasing. There can be no assurance that the Company will be successful in competing with these existing and emerging PGM producers. See “
Item 1A - Risk Factors
”
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations
” for further information.
GLOBAL DEMAND
JM estimates that in 2016 gross demand for palladium increased by approximately 4.6% to 9.69 million ounces from 9.26 million ounces in 2015. In its "
PGM Market Report November 2016
"; JM reported that during 2016, palladium demand increased in the automotive catalyst sector; however, demand for palladium in industrial applications, jewelry and investment declined.
•
The principal application for palladium is in automotive catalytic converters that reduce harmful emissions from internal combustion engines. According to JM, in 2016, this industry consumed approximately 7.84 million ounces or approximately 80.9% of 2016 gross worldwide palladium demand. (If investment demand is excluded, automotive consumption represented approximately 78.1% of total palladium demand in 2016, a slight increase from the 77.2% in 2015.)
•
Palladium is used industrially in the production of electronic components for personal computers, cellular telephones, facsimile machines and other devices; in dentistry as a component of some fillings; and in chemical processes as a catalyst. JM indicates gross year-on-year industrial sector demand for palladium decreased during 2016 by 2.6% to approximately 1.99 million ounces. JM estimates that this sector comprised approximately 20.5% of total 2016 palladium demand (19.8% excluding net investment demand).
•
Total palladium jewelry demand worldwide for 2016 is estimated by JM to have decreased by approximately 4.4% from the previous year to approximately 215,000 ounces. Palladium is used directly in jewelry fabrication, and in some regions it is alloyed with gold to make white gold.
•
JM reported net investment liquidation for palladium of 357,000 ounces in 2016 compared to net investment liquidation of approximately 659,000 ounces during 2015.
The effect of introducing ETFs for palladium and platinum has been to broaden access for retail investors seeking exposure to PGMs but also seems to have increased market pricing volatility. JM estimates that in 2016 there was a worldwide deficit of approximately 651,000 ounces in global palladium supply (including PGMs from recycling), as continuing growth in automotive demand has outstripped new production. The draw-down of above-ground inventories of finished metal and investment holdings appears to have made up the deficit. Based on the London market (PM), the market price of palladium during
2016
ranged from a low on
January 12, 2016
, of
$470
per ounce, to a high of
$770
per ounce on
November 30, 2016
, and closed
2016
at a price of
$670
per ounce.
Charts reproduced from the JM "PGM Market Report November 2016".
JM has estimated that in 2016 total demand for platinum increased by approximately 0.4% to 8.33 million ounces from 8.30 million ounces in 2015.
•
Platinum purchases by the auto catalyst sector grew during 2016 to 3.32 million ounces from 3.27 million ounces in 2015, reflecting a record output of diesel vehicles and tightening emission legislation.
•
Jewelry demand for platinum declined by 9.1% to approximately 2.57 million ounces in 2016. The decrease is the lowest total since 2011 and reflects a decrease in Chinese jewelry.
•
Industrial uses of platinum include the production of data storage disks, fiberglass, paints, nitric acid, anti-cancer drugs, fiber optic cables, fertilizers, unleaded and high-octane gasoline and fuel cells. JM projects that gross industrial consumption of platinum during 2016 increased by approximately 11.7% to 1.95 million ounces.
JM estimates that worldwide platinum production in 2016 (including recycling) trailed total demand by approximately 0.42 million ounces. Again, this shortfall presumably was met from above-ground inventories and from stocks in the production pipeline. The price of platinum during
2016
, based on the London market (PM), ranged from a high of
$1,182
per ounce reached on
August 10, 2016
, compared to a low of
$814
per ounce on
January 21, 2016
. Platinum closed the year trading at
$898
per ounce. See “
Item 1A - Risk Factors – Users of PGMs may reduce their consumption and substitute other materials for palladium and platinum"
for further information.
GLOBAL SUPPLY
JM estimates that total palladium supplied to market in 2016 (including recycled material) totaled approximately 9.03 million ounces, up 1.5% from 8.90 million ounces in 2015. The gain is attributable to modest rises in both primary and secondary supplies.
The leading global sources of palladium and platinum are mines located in the Republic of South Africa and the Russian Federation. JM estimates that (excluding recycling) South Africa provided approximately 40% of the palladium and 72% of the platinum supply worldwide during 2016. The same report also estimates that the Russian Federation, mainly as a by-product of nickel production from Norilsk Nickel, provided approximately 38% of the palladium and nearly 11% of the platinum supply worldwide in 2016 (see charts below). (These charts include recycling as part of new supply.)
Chart data extracted from JM 'PGM Market Report November 2016".
Supply numbers provided by JM are for metals entering the market and do not necessarily represent metals actually produced during the years shown. For palladium, historically this may constitute a significant year-to-year difference because of unpredictable releases out of the strategic state inventories held by the Russian Federation, as well as those held by the auto companies and investors. According to JM, worldwide mine production of palladium in 2016 is estimated at 6.49 million ounces, up approximately 1.0% from the 6.40 million ounces produced in 2015. Annual worldwide mine production of platinum for 2016 is estimated to be 6.01 million ounces, down 1.6% from approximately 6.11 million ounces in 2015.
In addition to mine sources, PGMs are recovered from recycling of automotive catalytic converters acquired from scrap dealers, and to a lesser extent from industrial catalyst materials, jewelry and electronic scrap. A growing industry has developed in the collection and recovery of PGMs from scrap sources, including automotive catalytic converters, electronic and communications equipment and petroleum catalysts. JM estimates 2016 worldwide recoveries from recycling provided 2.55 million ounces of palladium and 1.90 million ounces of platinum, up from 2.46 million ounces of palladium and 1.73 million ounces of platinum in 2015.
JM’s outlook for palladium in 2017 is a further continuation of the trends as mine supply is expected to be flat and palladium demand is forecasted to grow leaving the market in deficit for a sixth consecutive year.
The platinum market in 2017 may move into surplus for the first time since 2011 per JM. Worldwide mine production is expected to remain flat and the only real potential for supply growth coming from the autocatalyst recycling sector. Platinum demand is expected to decline overall behind decreases in demand in the auto and jewelry sectors.
PRICES
The Company’s revenue and earnings depend significantly on world palladium and platinum market prices. The Company has no direct control over these prices, and PGM prices can fluctuate widely. The Company does have the ability to hedge prices in order to mitigate some of the Company’s price exposure, although management believes that in general the Company's shareholders prefer to accept its unhedged PGM price exposure for mined production. Except for materials purchased in its recycling activities, the Company does not currently hedge any of its mined PGM production and is fully exposed to fluctuations in PGM prices. See “
Item 7 -
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Principal Factors Affecting the Company”
and
“Cautionary Information Regarding Forward-Looking Statements
” for further information.
The volatility of palladium and platinum prices is illustrated in the following table of the London market of annual high, low and average prices per ounce since 2007. The accompanying charts also demonstrate this volatility. See
“Item 1A - Risk Factors – Volatility in the market price of the metals sold by the Company, and changes in the supply and demand of these metals could reduce profitability”
for further information.
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|
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|
|
PALLADIUM
|
|
PLATINUM
|
YEAR
|
|
HIGH
|
|
LOW
|
|
AVERAGE
|
|
HIGH
|
|
LOW
|
|
AVERAGE
|
2007
|
|
$
|
382
|
|
|
$
|
320
|
|
|
$
|
355
|
|
|
$
|
1,544
|
|
|
$
|
1,118
|
|
|
$
|
1,303
|
|
2008
|
|
$
|
582
|
|
|
$
|
164
|
|
|
$
|
352
|
|
|
$
|
2,273
|
|
|
$
|
763
|
|
|
$
|
1,576
|
|
2009
|
|
$
|
393
|
|
|
$
|
179
|
|
|
$
|
264
|
|
|
$
|
1,494
|
|
|
$
|
918
|
|
|
$
|
1,204
|
|
2010
|
|
$
|
797
|
|
|
$
|
395
|
|
|
$
|
526
|
|
|
$
|
1,786
|
|
|
$
|
1,475
|
|
|
$
|
1,610
|
|
2011
|
|
$
|
858
|
|
|
$
|
549
|
|
|
$
|
734
|
|
|
$
|
1,887
|
|
|
$
|
1,354
|
|
|
$
|
1,720
|
|
2012
|
|
$
|
722
|
|
|
$
|
565
|
|
|
$
|
644
|
|
|
$
|
1,729
|
|
|
$
|
1,390
|
|
|
$
|
1,552
|
|
2013
|
|
$
|
774
|
|
|
$
|
643
|
|
|
$
|
725
|
|
|
$
|
1,736
|
|
|
$
|
1,317
|
|
|
$
|
1,487
|
|
2014
|
|
$
|
911
|
|
|
$
|
702
|
|
|
$
|
803
|
|
|
$
|
1,512
|
|
|
$
|
1,178
|
|
|
$
|
1,385
|
|
2015
|
|
$
|
831
|
|
|
$
|
524
|
|
|
$
|
692
|
|
|
$
|
1,285
|
|
|
$
|
827
|
|
|
$
|
1,053
|
|
2016
|
|
$
|
770
|
|
|
$
|
470
|
|
|
$
|
614
|
|
|
$
|
1,182
|
|
|
$
|
814
|
|
|
$
|
989
|
|
2017 *
|
|
$
|
787
|
|
|
$
|
706
|
|
|
$
|
754
|
|
|
$
|
1,019
|
|
|
$
|
929
|
|
|
$
|
981
|
|
* (Through
February 13, 2017
)
History has shown that the market price of palladium can be extremely volatile. During the last 10 years the price of palladium has fluctuated from a low of $164 per ounce in December 2008 to a high of $911 per ounce in September 2014. During
2016
palladium averaged
$614
per ounce for the year overall, ending the year quoted in the London market (PM) at
$670
per ounce. On
February 13, 2017
, the market price of palladium in the London market was
$778
per ounce.
The year
2016
saw volatility in the platinum price which averaged
$989
per ounce for the year and ended
2016
quoted in the London market (PM) at
$898
per ounce. On
February 13, 2017
, the London market (PM) price for platinum was
$999
per ounce.
AVAILABLE INFORMATION
The Company’s Internet website is
www.stillwatermining.com
. The Company makes available free of charge through its Internet website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, corporate proxy statements and any amendments to those reports, as soon as reasonably practicable after the Company electronically files such materials with, or furnishes them to, the SEC.
The Company also makes available on its website its Corporate Governance Principles, Business Ethics and Code of Conduct Policy, Code of Ethics for Chief Executive and Senior Financial Officers and the Charters of the Audit, Compensation, Corporate Governance and Nominating, Health, Safety and Environment and Technical and Ore Reserve Committees of its Board. Information on the Company’s website is not incorporated by reference into, and should not be considered part of, this Annual Report on Form 10-K.
The Company's business, operations and financial condition are subject to various risks and uncertainties. Set forth below are certain risks faced by the Company. Investors should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K and in other documents that the Company files with the U.S. Securities and Exchange Commission.
T
he acquisition of the Company by Sibanye contemplated by the Merger Agreement may not be completed or may be delayed.
The Company currently expects the merger to be completed in the second quarter of 2017. However, the completion of the merger is subject to various conditions, some of which are outside of the Company's control. The Company and Sibanye may be unable to satisfy the conditions required to complete the transaction, including the required approvals of the Company’s and Sibanye’s shareholders, a governmental entity could prohibit, delay or refuse to grant a necessary clearance or approval necessary to complete the merger and other events could occur that could affect the timing of the merger or result in significant costs.
In addition, the pending transaction may result in disruption to the Company and its management, and the Merger Agreement limits the Company’s ability to operate the business. The announcement of the merger may also affect the Company’s ability to retain and hire key personnel and maintain relationships with customers, suppliers and other third parties.
The Merger Agreement also contains termination rights, including that either Stillwater or Sibanye may terminate the Merger Agreement if the merger is not completed on or prior to June 30, 2017, subject to extension in certain circumstances. The Company is required to pay Sibanye a break-up fee of $16.5 million plus reimbursement of expenses up to $10 million in the event the merger agreement is terminated in certain circumstances, including if the Company’s Board of Directors changes its recommendation in favor of the merger and in certain other events. Sibanye is required to pay the Company a break-up fee of $33 million plus reimbursement of expenses up to $10 million in the event that the merger agreement is terminated in certain circumstances, including the failure to obtain Sibanye shareholder or certain other approvals.
If the merger is not completed, the Company would nonetheless incur significant transaction costs and may, depending upon market conditions and other factors, take actions outside the ordinary course of business, including repurchasing its then-outstanding securities. In addition, the failure of the merger to occur could result in a decline in the Company’s stock price and negatively affect the Company’s relationship with customers, suppliers and other third parties.
Volatility in the market price of the metals sold by the Company, and changes in the supply and demand of these metals could reduce profitability.
Because the Company’s primary source of revenue is the sale of PGMs, changes in the market price of PGMs will affect the Company's profitability. Many factors beyond the Company’s control influence the market prices of these metals. These factors include global supply and demand, speculative activities, international political and economic developments, currency exchange rates, and production levels and costs in other PGM-producing countries, principally South Africa and Russia.
A prolonged or significant economic contraction in North America, Europe or in any of several other key regions worldwide can put downward pressure on market prices of PGMs, particularly if demand for PGMs declines in connection with reduced automobile demand and more restricted availability of investment credit. If investors release substantial volumes of PGMs into the market from stockpiles, ETF holdings or otherwise, the increased supply can reduce the prices of palladium and platinum. Changes in currency exchange rates, and particularly the significant weakening of the South African rand or Russian ruble, can reduce relative costs of production and improve the competitive cost position of South African and Russian PGM producers. This in turn could reduce the worldwide competitiveness of the Company’s North American operations and make new PGM investment more attractive in South Africa and Russia.
ETFs for palladium and platinum have been introduced in recent years that enable more investors to participate in the PGM markets, potentially resulting in more metal being held in inventory. The overhang from these significant investment holdings of palladium and platinum makes it more difficult to predict accurately future supply and demand for these metals and may contribute to added PGM price volatility.
Reductions in PGM prices would adversely affect the Company’s revenues, profits and cash flows. Protracted periods of low metal prices could significantly reduce revenues and the availability of required development funds to levels that could cause portions of the Company’s ore reserves and production plan to become uneconomical. This could lead to substantial reductions in PGM production or to suspension of mining operations, as well as to impairment of asset values and reductions in the Company’s proven and probable ore reserves. See “
Business and Properties – Competition: Palladium and Platinum Market
” for further explanation of these factors.
Extended periods of high commodity prices may create economic dislocations that may be destabilizing to PGM supply and demand and ultimately to the broader markets. Periods of high PGM market prices generally are beneficial to the Company’s financial performance. However, strong PGM prices also create economic pressure to identify or create alternate technologies that ultimately could depress future long-term demand for PGMs, and at the same time may incentivize development of otherwise marginal mining properties. See “
Item 1A - Risk Factors – Users of PGMs may reduce their consumption and substitute other materials for palladium and platinum
” for additional discussion of these risks.
The Company may be competitively disadvantaged as primarily a palladium producer with a U.S. dollar-based cost structure.
The Company’s products compete in a global marketplace with the products of other primary producers of PGMs and with companies that produce PGMs as a by-product. In many cases, the other primary PGM producers mine ore reserves with a higher ratio of platinum to palladium than the Company, and as a result they normally enjoy higher average realizations per ounce. The Company also competes with mining companies that produce PGMs as a by-product of their primary commodity, principally nickel.
Because the Company’s U.S.-based cost structure is denominated in dollars, in periods when the U.S. dollar is relatively strong the Company’s competitors, which have cost structures denominated in other currencies, may still operate profitably, while the Company may not. Furthermore, non-primary producers of PGMs who regard PGMs as a by-product may continue to produce and sell PGMs when prices are low, as PGMs are not their principal commodity. In the past, labor arrangements and local legal or political considerations reportedly have driven competitors to continue operating unprofitable facilities even in the face of negative cash margins.
The Company has significant financial obligations.
At
December 31, 2016
, the Company had outstanding aggregate balance sheet indebtedness of approximately
$274.8 million
(face amount of $336.3 million) and a debt-to-equity ratio of
0.30
. The Company’s level of indebtedness may, among other things:
|
|
•
|
Result in higher interest charges and reduce the Company's net income in future periods;
|
|
|
•
|
Limit the Company’s ability to obtain additional debt financing in the future for working capital, capital expenditures, acquisitions, or other general corporate purposes;
|
|
|
•
|
Require the Company to dedicate a substantial portion of its cash flows from operations to service its debt, reducing the availability of cash flow for other purposes;
|
|
|
•
|
Increase the Company’s vulnerability to economic downturns, limit its ability to capitalize on significant business opportunities, and restrict its flexibility to react to changes in market or industry conditions; or
|
|
|
•
|
Make it more difficult to pay its debts.
|
The Company’s credit rating currently is below investment grade and is not expected to achieve investment grade in the immediate future. There is no assurance that the Company will be able to access the financial markets when it so desires nor, if it is able to access the financial markets, that terms and rates offered will be acceptable. As a result of its credit rating and market conditions generally, in the past the Company has on occasion been unable to secure financing on terms acceptable to the Company.
Interest rates at present are near historic lows, and borrowing costs appear likely to rise in the future in step with any significant improvement in economic conditions. Higher interest rates would increase the Company's cost of borrowing for any new borrowings.
The Company does not provide any formal sinking fund for retiring its outstanding long-term debt. Prior to debt coming due, the Company would expect to arrange replacement financing or use internal funds sufficient to retire its maturing debt. However, there can be no assurance that the Company will be able to obtain alternate financing or accumulate sufficient funds internally to meet its repayment obligations as debt comes due in the future. If the Company does not have adequate liquidity available and is unable to fund the timely repayment of its outstanding debt, it would be in default and could be forced to sell assets or seek protection from creditors.
Achievement of the Company’s production goals is subject to uncertainties.
Based on the complexity and uncertainty involved in operating underground mines, it is challenging to provide precise production and cost forecasts. The Company cannot be certain that either the Stillwater Mine or the East Boulder Mine will achieve the production forecast, that the projected operating cost levels will be achieved, or that adequate funding will be available from internal and external sources to sustain necessary ongoing development work. Failure to achieve the Company’s production forecast may negatively affect the Company’s revenues, profits and cash flows. As the travel distances underground continue to expand both at depth and laterally, it is likely that operating costs will tend to increase from year to year and profitability will therefore decline unless productivity is increased commensurately. Also, as additional underground infrastructure is constructed, amortization expense may increase unless additional ore reserves are identified. Such increased costs could adversely affect the Company’s profitability.
The Company has put in place various operating plans and programs that are intended to reduce or limit increases in production costs at both the Stillwater Mine and the East Boulder Mine; however, there can be no assurance that these plans and programs will be implemented effectively or that they can be sustained. Actual production, cash operating costs and economic returns achieved in the future may differ significantly from those currently estimated or those predicted in future studies and estimates.
Ore reserves estimates are inherently imprecise and may require adjustment in the future; changes in ore grades, mining practices and economic factors could materially affect the Company’s production and reported results.
Ore reserve estimates are necessarily imprecise and depend to some extent on statistical inferences drawn from limited drilling samples, which may prove unreliable or unrepresentative. Reported ore reserves are comprised of a proven component and a probable component. Probable ore reserves estimates are less reliable than estimates of proven ore reserves. See “
Glossary
” for definitions and “
Business and Properties – Ore Reserve Determination Methodology
” for a discussion of the Company's estimation process for proven and probable ore reserves.
Conversion of probable ore reserves to proven ore reserves is calculated by dividing the actual proven tons converted for a given area by the expected tonnage based on a probable yield expectation for that given area. Actual period-to-period conversion of probable ore reserves to proven ore reserves may result in increases or decreases to the total reported amount of ore reserves. Conversion, an indicator of the success in upgrading probable ore reserves to proven ore reserves, is evaluated annually as described under “
Business and Properties – Proven and Probable Ore Reserves
”. Conversion rates are affected by a number of factors, including geological variability, quantity of tonnage represented by the period drilling, applicable mining methods and changes in safe mining practices, economic considerations and new regulatory requirements.
The following table illustrates, for each year’s development program, the actual percent conversion rates of probable ore reserves into proven ore reserves experienced by year from
2006
through
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
(In percent)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stillwater Mine
|
|
76
|
|
67
|
|
99
|
|
92
|
|
100
|
|
80
|
|
70
|
|
83
|
|
74
|
|
68
|
|
94
|
East Boulder Mine
|
|
87
|
|
43
|
|
103
|
|
129
|
|
126
|
|
116
|
|
97
|
|
24
|
|
71
|
|
107
|
|
91
|
Ore reserves estimates are expressions of professional judgment based on knowledge, experience and industry practice. The Company cannot be certain that its estimated ore reserves are accurate, and future conversion and production experience could differ materially from such estimates. Should the Company encounter mineralization or formations at any of its mines or projects different from those predicted by drilling, sampling and similar examinations, ore reserve estimates may have to be adjusted and mining plans may have to be altered in a way that might adversely affect the Company’s operations. Declines in the market prices of PGMs may render the mining of some or all of the Company’s ore reserves uneconomic and so reduce ore reserves estimates. The grade of ore may vary significantly from time to time and between the Stillwater Mine and the East Boulder Mine, as with any mining operation. The Company cannot provide assurance that any particular quantity of metal will be recovered from the ore reserves. Moreover, short-term factors relating to the ore reserves, such as the availability of production workplaces, the need for additional development of the ore body or the processing of new or different ore types or grades, may impair the Company’s profitability in any particular accounting period.
An extended period of low PGM prices could result in a reduction of ore reserves and potential asset impairment charge
.
Lower PGM prices can also affect the economic justification of ore reserves. If the price of PGMs declines to the point that the cost of mining certain reserves outweighs the probable gain upon sale, then such resources may no longer be classified as reserves. In each of the past three years, the Company has engaged Behre Dolbear as third-party independent geological experts to review and provide an opinion on the Company’s year-end ore reserves calculations. The Company performs its ore reserves economic assessment using a twelve-quarter trailing price in order to level out short-term volatility in metals prices, viewing the twelve-quarter trailing average as a reasonable surrogate for long-term future PGM prices over the period when the ore reserves will be mined. Using the Company’s combined twelve-quarter trailing weighted average price for palladium and platinum at
December 31, 2016
, of approximately
$800
per ounce, (
$703
/oz. for palladium and
$1,141
/oz. for platinum), the Company’s ore reserves at each mine are projected to generate positive undiscounted cash flows over the life of the ore reserves. Consequently, the Company’s ore reserves were not constrained economically at
December 31, 2016
.
However, it is important to note that if PGM prices were to fall for an extended period, the trailing twelve-quarter price would gradually decline. Also, underlying inflation and increasing travel distances within the mine exert upward pressure on mining and processing costs, which in a stable or declining pricing environment would reduce operating margins. If the trailing twelve-quarter price falls significantly and / or costs increase for an extended period of time, there can be no assurance that the Company’s reported proven and probable ore reserves will not be constrained economically in the future.
The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts of its assets may not be recoverable. Should the Company experience a prolonged period of low PGM prices, the Company could face one or more impairment adjustments to its mining assets. See "
Note 4
-
Asset Impairment
” to the Company’s
2016
consolidated financial statements for further information.
The Company's recycling business segment is dependent on relationships with third-party suppliers and has other credit and operational type risks.
The Company sources automotive and industrial catalyst materials from third-parties through both purchase and tolling arrangements. The Company has entered into sourcing arrangements for recycled materials with various suppliers, and it depends on those suppliers to provide catalyst and other industrial sources for recycling. The Company is subject to the suppliers’ compliance with the terms of these arrangements and to their contractual right to terminate or suspend the agreement. Should one or more of these sourcing arrangements be terminated, the Company might be unable to source replacement recyclable materials on terms that are acceptable to the Company. If the Company is unable to source sufficient quantities of recycled materials, the recycling business would become less profitable, and this loss could negatively affect the Company’s business and results of operations. Similarly, these suppliers in turn typically source material from various other third-parties in a competitive market, and there can be no assurance of the suppliers’ continuing ability or willingness to source material on behalf of the Company at current volumes and prices. Any constraint on the suppliers’ ability to source material could reduce the profitability of the Company’s recycling business.
From time to time the Company advances cash to third party brokers and suppliers to support the purchase and collection of spent catalyst materials and other industrial sources. These advances normally are made at the time material is ready for shipment or already in transit to the Company’s facilities. In some cases, the Company has a security interest in the materials that the suppliers have procured for which the Company has not yet received. The unsecured portion of these advances is fully at risk.
The Company regularly advances money to its established recycling suppliers for catalyst material that the Company has physically received and carries in its processing inventories. These advances typically represent some portion of the estimated total value of each shipment until final assays are completed determining the actual PGM content of the shipment. Upon completion of the shipment assays, a final settlement takes place based on the actual value of the shipment. However, pending completion of the assays, the payments are based on the estimated PGM content of each shipment, which could vary significantly from the actual PGM content upon assay. Should the estimated PGM content upon assay significantly exceed the actual PGM content, the Company may be at risk for a portion of the amount advanced. This risk normally is mitigated by the established nature of the business relationship with the supplier and by advancing less than a shipment's estimated total value, but should the supplier be unable to settle such an overpayment or seek protection from creditors, the Company could incur a loss to the extent of any overpayment.
In its recycling business, the Company regularly enters into fixed forward sales contracts for metal produced from catalyst recycling, normally making these commitments at the time the catalyst material is purchased. For the Company’s fixed forward sales related to recycling of catalysts, the Company is subject to the customers’ compliance with the terms of the agreements, their ability to terminate or suspend the agreements and their willingness and ability to pay. The loss of any of these agreements or failure of a counterparty to perform could require the Company to sell or purchase the contracted metal in the open market, potentially at a significant loss. The Company’s revenues for the year ended
December 31, 2016
, included
43.0%
from recycling sales and tolling fees.
Many of the Company's recycling suppliers are comparatively small businesses with limited assets and relatively little credit capacity. While the Company monitors funds being advanced to such businesses and seeks to limit its exposure to any one supplier, if a problem develops with such a supplier, the Company might not be able to fully recover amounts previously advanced to that supplier.
Volumes of recycling materials available in the marketplace fluctuate substantially in response to changes in PGM prices. Lower PGM prices normally reduce the volume of recycling material available in the market, resulting in less earnings and cash flow from the recycling segment, and therefore less economic support for the mining operations. Should it become necessary at any point to reduce or suspend operations at the mines, the proportion of processing costs allocated to the recycling segment would increase substantially. Further, the ability to operate the smelter and refinery without significant volumes of mine concentrates and the contained copper and nickel has never been demonstrated and would likely require modification to the processing facilities. There is no assurance that the recycling facilities can operate profitably in the absence of significant mine concentrates, or that capital would be available to complete necessary modifications to the processing facilities.
Users of PGMs may reduce their consumption and substitute other materials for palladium and platinum.
High PGM prices or pricing volatility may lead users of PGMs to look for other materials to substitute for palladium and platinum or to reduce the quantities of these metals they consume. The automobile, electronics, jewelry and dental industries are the largest consumers of palladium. In varying degrees, demand from each of these applications is sensitive to prices. During periods of high palladium prices in the past, there has been some substitution of other materials for palladium in electronics and dental applications. In some cases this substitution has not reversed when palladium prices returned to more normal levels, resulting in a permanent or prolonged decrease in demand from that industry. High platinum prices likewise tend to reduce demand by driving consumers toward alternative materials. The principal demand for platinum comes from the automobile and chemical industries, which utilize platinum as a catalyst in emissions control systems similar to palladium, and from jewelry makers. Substitution in these industries may increase if PGM market prices rise or if supply becomes unreliable. Significant substitution for any reason, in the absence of alternative uses for PGMs being identified, could result in a material and sustained decrease in the price of PGMs, which would negatively affect the Company’s revenues and profitability.
High PGM prices also tend to drive consumers toward ever more efficient utilization of PGMs. In the past, the development of new flow geometries and substrate configurations has resulted in manufacturers “thrifting down” the amount of PGMs in catalytic converters required to meet specific emission standards. From time to time, various researchers have announced technological innovations that if realized could significantly reduce the volume of PGMs required in each catalytic converter. Such emerging applications could tend to drive down PGM demand in the future and result in lower PGM prices, as well as reducing the volume of material available for recycling at the end of a catalytic converter’s useful life.
To the extent existing and future environmental regulations or fundamental technological change in the auto industry tend to create disincentives for the use of internal combustion engines, demand for palladium and platinum in automotive catalytic converters could be reduced. Small engines in general tend to have smaller catalytic converters and require less PGMs than those used with larger engines. Less demand for PGMs as a result of these trends could drive down PGM prices and could impair the Company’s financial performance.
The Company’s mining activities are subject to risks that may not be covered by insurance.
Underground mining and milling, smelting and refining operations involve a number of risks and hazards, including:
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unusual and unexpected rock formations affecting ore or wall rock characteristics;
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ground or slope failures;
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cave-ins, ground water influx, rock bursts and other mining or ground-related problems;
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organized labor disputes or work slow-downs;
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•
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metallurgical and other processing, smelting or refining problems;
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wild fires, flooding and periodic interruptions due to inclement or hazardous weather conditions or other acts of God;
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•
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mechanical equipment failure and facility performance problems; and
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availability and cost of critical materials, power, equipment and skilled manpower.
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Such risks could result in damage to or destruction of mining assets or production facilities, personal injuries or death, environmental damage, delays in mining or processing, monetary losses and possible legal liability. Some fatal accidents and other non-fatal serious injuries have occurred at the Company’s mines since operations began in 1986. Future industrial accidents or occupational disease occurrences could have a material adverse effect on the Company’s business and operations. The Company cannot be certain that its insurance will cover certain risks associated with mining or that it will be able to maintain insurance to cover these risks at economically feasible premiums. The Company might also become subject to liability for environmental damage or other hazards which may be uninsurable or for which it may elect not to insure because of high premium costs or commercial impracticality. Such events could result in a prolonged interruption in operations that would have a negative effect on the Company’s ability to generate revenues, profits, and cash flows.
The Company's sales arrangements concentrate all of the Company's final refining activity and a large portion of its PGM sales from mine production with one entity.
Under the terms of the Company’s agreements with JM, the Company utilizes JM for all of its precious metals refining services. In addition, with the exception of certain pre-existing platinum sales commitments to Tiffany & Co., all of the Company’s current mined palladium and platinum is committed for sale to JM. Approximately
56.9%
of the Company’s total revenues for the year ended
December 31, 2016
, were derived from mine production. Separately, JM has the right to bid on any recycling PGM ounces the Company has available.
This significant concentration of business with JM could leave the Company without precious metal refining services should JM experience significant financial or operating difficulties during the contract period. Under such circumstances, it is not clear that sufficient alternate processing capacity would be available to cover the Company’s requirements, nor that the terms of any such alternate processing arrangements as might be available would be financially acceptable to the Company. Any such disruption in refining services would have a negative effect on the Company’s ability to generate revenues, profits, and cash flows.
Certain of the Company’s properties are subject to title risk, particularly related to the validity of unpatented mining claims
.
Montana
The Company's Montana properties include a number of unpatented mining and mill site claims. See “
Business and Properties – Title and Royalties
.” The validity of unpatented mining claims on public lands is often uncertain, and possessory rights of claimants may be subject to challenge. The rights to use such claims are granted under the Mining Law of 1872. Unpatented mining claims may be located on lands open to appropriation of mineral rights and are generally considered to be subject to greater title risk than other real property interests because the validity of unpatented mining claims is often uncertain and vulnerable to challenges by third-parties or the federal government. This uncertainty arises, in part, out of the complex federal and state laws and regulations under the 1872 Mining Law and the interaction of the 1872 Mining Law with other federal and state laws, such as those enacted for the protection of the environment. Maintaining the validity of an unpatented mining or mill site claim requires strict compliance with this complex body of federal and state statutory and decisional law and, for unpatented mining claims (as opposed to mill sites), the existence of a discovery of valuable minerals. In addition, few public records exist to definitively control the issues of validity and ownership of unpatented mining claims or mill sites.
The Company pays annual maintenance fees and has obtained mineral title reports and legal opinions for some of the unpatented mining claims or mill sites making up portions of its properties, in accordance with applicable laws and what the Company believes is standard industry practice. However, the Company cannot be certain that applicable laws will not be changed nor that the Company’s possessory rights to any of its unpatented claims may not be deemed defective and challenged. In particular, Members of the U.S. Congress have repeatedly introduced bills which would supplant or alter the provisions of the Mining Law of 1872. If adopted, such legislation could, among other things:
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Impose a royalty on the production of metals or minerals from unpatented mining claims;
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Reduce or prohibit the ability of a mining company to expand its operations; and
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Require a material change in the method of exploiting the ore reserves located on unpatented mining claims.
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As a result, any such legislation could change the cost of holding unpatented mining claims and could significantly affect the Company’s ability to develop ore reserves located on unpatented mining claims. All of the foregoing could adversely affect the economic and financial viability of future mining operations at the Company’s Montana mines. Although it is impossible to predict at this point what any legislated royalties might be, enactment could adversely affect the potential for development of such federal unpatented mining claims.
Canada
In Canada, paramount title to minerals typically vests in the Crown, subject only to any standing claims of Aboriginal title, while the various Ministries of the Provinces enjoy legislative powers to administer the disposition of minerals within their jurisdiction. In Ontario, mining claims grant the claimant conditional rights of access for exploration of hard rock minerals conducted in compliance with regulations regarding surface disturbance, environmental stewardship and annual expenditures to maintain the validity of the claims. New regulations began taking effect in Ontario in November 2012 providing, among other requirements, additional Aboriginal consultation and environmental protection in conjunction with new exploration activities. Mining claims in Ontario do not authorize removal of minerals for other than test work and analyses. To commercially extract minerals, a mining lease is necessary. Crown mining leases provide the claimant with a preference right to develop and extract minerals for a (renewable) 21-year term, under more specific conditions of Aboriginal consultation, environmental protection, approved closure / reclamation plans and financial assurances provided to the Crown over the life of the project. While the Company believes that its mining claims and crown leases provide adequate security of mineral and surface tenure to sustain its mineral exploration activities in the Marathon region of Ontario, there can be no assurance that this tenure will not be challenged in the future nor that all necessary mining leases will ultimately be issued.
The Company holds mining claims and crown leases covering the more prospective portions of the Port Coldwell Intrusive Complex. The Company’s aggregate property holdings in the Coldwell Complex include 43 crown leases and 82 mining claims comprised of 830 claim units. Thirty-six of the leases grant both surface and mineral rights while five of the leases presently grant mineral rights, two leases grant surface rights only. Applications have been submitted for surface leases on the five mineral leases as well as for both mineral and surface crown leases on certain additional property currently held by the Company under valid mining claims
Argentina
The Company holds a 100% interest in nine mining concessions and holds options on five other mining concessions associated with the Altar project in Argentina. Several of these concessions require that the Company make periodic option payments, meet minimum exploration expenditure commitments, or both. All concessions require periodic mining concession fees. Failure to meet these minimum obligations could result in the forfeiture of such concessions. Future mining on these properties will require securing mining permits and obtaining control of surface rights on these properties. There is no guarantee that the Company will be able to secure these permits or acquire the surface rights on acceptable terms.
The Company’s operation of ore concentration, smelting and refining facilities subjects it to operating and environmental risks.
The Company’s processing facilities include concentrators at each mine site that grind produced ore and extract the contained metal sulfides, and a smelter and base metal refinery located in Columbus, Montana. While the environmental and safety performance of these facilities to date has been in material compliance with all applicable laws, there can be no assurance that incidents such as solution spills, sulfur dioxide discharges, explosions or accidents involving hot metals and product spills in transportation will not occur in the future. Such incidents potentially could result in losses or claims for damages being brought against the Company, more stringent environmental or operating restrictions on these facilities and additional expenses to the Company, which could negatively affect its results of operations and cash flows. Further, the Company processes virtually all its metals through these processing facilities, and any incident interrupting processing operations for an extended period would have a material adverse effect on the Company’s performance.
The Company is required to obtain and renew governmental permits in order to conduct operations, a process which is often costly and time-consuming
.
In the normal course of its business, the Company is required to obtain and renew governmental permits for exploration, operations and expansion of existing operations and for the development of new projects. Obtaining and renewing governmental permits is a complex and time-consuming process, especially where federal agency analysis and review of the potential environmental impact is required under the National Environmental Policy Act (NEPA), by the USFS or the Bureau of Land Management (BLM). The timeliness and success of permitting efforts are contingent upon many variables not within the Company's control, including the interpretation of permit approval requirements administered by the applicable permitting authority. The Company may not be able to obtain or renew permits that are necessary to its operations or the costs and time required to obtain or renew permits may exceed the Company's expectations. Any unexpected delays or costs associated with the permitting process could delay the development or impede the operation of a mine, which in turn could materially adversely affect the Company's revenues and future growth.
Compliance with current and future statutes and regulations could affect production, increase costs and cause delays.
The Company’s business is subject to extensive federal, state and local environmental controls and regulations, including regulations associated with the implementation of the Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, Metals Mines Reclamation Act and numerous permit stipulations as documented in the Record of Decision for each operating entity, including those relating to the protection of threatened and endangered species under the Endangered Species Act. Properties controlled by the Company in Canada and Argentina are subject to analogous federal and provincial controls and regulations in those respective countries. The body of environmental laws is continually changing and, as a general matter, is becoming more restrictive. Compliance with these regulations requires the Company to obtain permits issued by federal, state, provincial and local regulatory agencies. Failure to comply with applicable environmental laws, regulations and permitting requirements, whether now or in the future, may result in enforcement actions, including orders issued by regulatory or judicial authorities, causing operations to cease or to be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. Non-renewal of permits, the inability to secure new permits, or the imposition of additional conditions could eliminate or severely restrict the Company’s ability to conduct its operations. See “
Business and Properties - Regulatory and Environmental Matters
.”
The Company’s existing mining operations are located adjacent to the Absaroka-Beartooth Wilderness Area and are situated approximately 30 miles from the northern boundary of Yellowstone National Park. While the Company works closely and cooperatively with local environmental organizations, the Montana DEQ and the USFS, there can be no assurance that future political or regulatory efforts will not further restrict or seek to terminate the Company’s operations in this sensitive area. In addition, environmental hazards or damage may exist on mineral properties held by the Company that were caused by previous owners or operators or that may have occurred naturally, and that are unknown to the Company at the present time. In some cases, the Company could be required to remedy such damage.
Mining activities also are subject to extensive laws and regulations governing occupational health and safety, including mine safety, toxic substances and other matters. The costs associated with compliance with such laws and regulations are substantial. The Company employs various measures in its operating facilities in an effort to protect the health and safety of the Company’s workforce. Underground mines in the U.S., including the Stillwater and East Boulder mines, are continuously inspected by MSHA, which inspections often lead to notices of violation. Any of the Company's U.S. mines could be subject to a temporary or extended shut down as a result of a violation alleged by MSHA. Possible future laws and regulations, or more restrictive interpretations of current laws and regulations by governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspensions of operations and delays in the development of new properties.
The Company is required to post and maintain surety for its reclamation obligations, which are substantial. At
December 31, 2016
, the Company had outstanding $42.6 million of environmental surety bonds. Such reclamation obligations generally increase over time as costs rise and the physical extent of mining operations expands. Failure to secure and maintain adequate surety coverage could result in the Company's operating permits being revoked and mining operations terminated.
Parties engaged in mining operations or in the exploration or development of mineral properties may be required to compensate those suffering loss or damage by reason of the mining activities and may be subject to civil or criminal fines or penalties imposed for violations of applicable laws or regulations. Any such costs could have a material adverse effect on the Company's business and results of operations.
Litigation and regulatory proceedings may affect the revenues, profits and cash flows of the Company
.
The Company may be subject to civil claims (including class action claims) based on allegations of negligence, breach of statutory duty, public nuisance or private nuisance or otherwise in connection with its operations or investigations relating thereto or in connection with the proposed merger with Sibanye. While the Company is presently unable to quantify its potential liability under any of the above, such liability may be material to the Company and may have a material adverse effect on its ability to continue in operation.
In addition, the Company may be subject to actions or related investigations by governmental or regulatory authorities. Such actions may include civil or criminal prosecution for breach of relevant statues, regulations or rules or failure to comply with the terms of the Company's licenses and permits and may result in liability for pollution, other fines or penalties, revocation of consents, permits, approvals or licenses or similar action, which could be material and may affect the Company's results of operations. Exposures to fines and penalties generally are uninsurable as a matter of public policy.
The Company is subject to income taxes in various jurisdictions; income tax structures are subject to changes that could increase the Company’s effective tax rate.
In the U.S., the Company enjoys certain beneficial tax provisions afforded to natural resource companies that have the effect of reducing the Company’s overall effective tax rate. Preliminary discussions in the U.S. Congress with regard to restructuring the corporate income tax include consideration of reducing or eliminating some or all of these preferential benefits. The revenue needs of state and local jurisdictions may lead to revisions in tax structures or nexus considerations that may adversely affect the Company. While it is not possible at this time to predict the direction such changes might ultimately take, if such changes were enacted they could increase the effective tax rate paid by the Company for federal and state income taxes.
The Company's foreign assets subject the Company to additional risks.
Through its ownership of Marathon and Peregrine, which represent significant resource properties in Canada and Argentina, respectively, the Company is subject to risks inherent in operating in foreign jurisdictions outside of the United States. These risks include without limitation:
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The effect of currency exchange rate fluctuations, which may reduce the U.S. dollar value of the revenues, profits and cash flows the Company receives from non-U.S. markets or its assets in non-U.S. countries, or increase the Company’s costs, as measured in U.S. dollars in those markets;
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Political or economic instability, social or labor unrest or changing macroeconomic conditions or other changes in political, economic or social conditions in the respective jurisdictions;
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Different legal and regulatory structures (including creditor rights that may be different than in the United States) and unexpected changes in regulatory environments, including changes resulting in potentially adverse tax consequences or imposition of onerous trade restrictions or barriers, price and currency controls, industry constraints, employee welfare schemes or other government regulations;
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Increased financial accounting and reporting burdens and complexities; and
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Disruptions in shipping or reduced availability of freight transportation.
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In addition, the Company’s management has limited experience managing foreign operations, and may be required to devote significant time and resources to adapting its systems, policies and procedures in order to successfully manage the integration and operation of foreign assets.
Capital costs for new mine developments are difficult to estimate and may change over time.
The Company may from time to time become involved in various exploration and development activities, some of which may require substantial future capital and resource commitments to bring into production. The Company normally performs engineering studies before committing to such projects, which studies include a detailed review of the project design and anticipated costs to construct and operate the proposed facilities. Experience in the mining industry has demonstrated that as a project progresses, various factors may cause the initial estimates of such costs to escalate, sometimes significantly. Examples of these factors include unforeseen construction delays, background inflation, lack of timely availability of contractors or required equipment, labor unrest, political and environmental obstacles, late changes to the project design, and so forth. There is no assurance that the Company's projects will not experience such cost escalation as they advance, which could impair the economics of these projects, require additional funding that might not be available or might be costly to secure, and could weaken the Company's financial position.
Limited availability of skilled mining and management personnel may affect the Company’s ability to achieve its production targets
.
The Company’s success depends in part on its ability to attract, retain and motivate skilled professional employees. Achieving this objective may be difficult at times due to a variety of factors, including fluctuations in the global economic and industry conditions, competitors' hiring practices, cost reduction activities, and the effectiveness of compensation programs. Competition for qualified personnel can be intense and the pool of fully qualified candidates is limited. The Company must continue to recruit, retain, and motivate its management, miners and other key personnel in order to maintain its business and support its projects. A loss of key management or other personnel could prevent the Company from capitalizing on business opportunities, and its operating results could be adversely affected.
Union represented labor creates an increased risk of work stoppages and higher labor costs.
The Company had a total of
1,432
employees at
December 31, 2016
. Of these,
763
employees located at the Stillwater Mine and the Columbus processing facilities are covered by a collective bargaining agreement with the USW Local 11-0001, which expires June 1, 2019 with re-negotiation (for wages only) in 2017. At
December 31, 2016
, a total of
317
employees at the East Boulder Mine are covered by a separate collective bargaining agreement with USW Local 11-0001, which expires December 31, 2019 with re-negotiation (for wages only) in 2017. As a majority of the Company’s workforce is unionized, the Company is subject to a risk of strikes and other labor disputes like the Company experienced in 2015, and its ability to alter labor costs is restricted by the fact that unionized employees are party to collective bargaining agreements. Collective bargaining agreements are negotiated on a periodic basis, and the risk exists that such agreements may not be renewed on terms reasonably satisfactory to the Company or at all. The Company cannot predict what issues may be raised by the unions representing its unionized employees and, if raised, whether negotiations concerning those issues will be concluded successfully. While the Company recently renegotiated these labor contracts and focuses on maintaining positive relationships with its represented employees and their respective unions, any future labor disputes or disruptions, such as strikes, work stoppages or slowdowns, could have a significant adverse effect on the Company.
The Company is dependent on information technology and its systems and infrastructure face certain risks, including cybersecurity risks and data leakage risks.
The Company utilizes a variety of information technology systems and infrastructure. Any significant breakdown, invasion, destruction or interruption of these systems by employees, others with authorized access to the systems, or unauthorized persons could negatively impact operations. There is also a risk that the Company could experience a business interruption, theft of information, or reputational damage as a result of a cyber-attack, such as an infiltration of a data center, or data leakage of confidential information either internally or by third-party providers. While the Company has invested in the protection of its data and information technology to reduce these risks and periodically tests the security of its information systems network, there can be no assurance that these efforts will prevent breakdowns or breaches in the Company's systems that could adversely affect its business.
The Company's information technology and infrastructure is based on specific platforms and architectures that to some extent are dependent on third-party maintenance and support. The Company is required to regularly update many of its key systems to ensure that the suppliers of those systems will continue to support and maintain them. If support for one or more of the Company's critical information technology systems were to be withdrawn, the Company's activities that depend on those systems could be at risk.
ITEM 3
LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the ordinary course of business, primarily employee lawsuits and employee injury claims. In the opinion of management, the ultimate disposition of these types of matters is not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.
Litigation Related to the Sibanye Merger
Three putative shareholder class action lawsuits have been filed in the United States District Court for the District of Colorado in connection with the Sibanye merger, alleging violations of the U.S. federal securities laws related to disclosure in the Company's preliminary proxy statement and seeking injunctive relief and damages:
Assad, individually and on behalf of all others similarly situated, v. Stillwater Mining Company, Brian D. Schweitzer, Michael J. McMullen, George M. Bee, Patrice E. Merrin, Lawrence Peter O’Hagan, Michael S. Parrett, Gary A. Sugar, Sibanye Gold Limited, Thor US Holdco Inc. and Thor Mergco Inc,; Topf, individually and on behalf of all others similarly situated, v. Stillwater Mining Company, Brian D. Schweitzer, Michael J. McMullen, George M. Bee, Patrice E. Merrin, Lawrence Peter O’Hagan, Michael S. Parrett, Gary A. Sugar, Thor US Holdco Inc. and Thor Mergco Inc.; and
Rempel, on behalf of himself and all others similarly situated, v. Stillwater Mining Company, Brian D. Schweitzer, Michael J. McMullen, Michael S. Parrett, Gary A. Sugar, George M. Bee, Patricia E. Merrin and Lawrence Peter O’Hagan.
The Company intends to vigorously defend these claims.
ITEM 4
MINE SAFETY DISCLOSURE
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), each operator of a coal or other mine is required to include certain mine safety results within its periodic reports filed with the SEC. In accordance with the reporting requirements included in Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K (17 CFR 229.104), the required mine safety results regarding certain mining safety and health matters for each of the Company’s mine locations that are covered under the scope of the Dodd-Frank Act are included in
"Exhibit 95
Mine Safety Disclosures"
of this Annual Report on Form 10-K. In
2016
, the Company received a total of 47 violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a coal or other mine safety or health hazard under section 104 of the Federal Mine Safety and Health Act. See
"Exhibit 95 Mine Safety Disclosures”
of this Annual Report on Form 10-K for more information.