Mine Could Stay Shut if Metal Prices Don’t Rebound

By Beacon Staff

BILLINGS – Stillwater Mining Co. executives say a temporary production shutdown at one of its two southern Montana mines could become permanent if precious metals prices don’t rebound from a slump that is shuttering mines around the globe.

On Tuesday, Stillwater was negotiating with union leaders in the wake of announcing 60-day layoff notices to 526 employees at its East Boulder mine. Most were told Monday not to report to work until further notice.

The company operates the country’s only platinum and palladium mines, extracting the metals from shafts deep beneath Montana’s Beartooth Mountains. But it’s not alone in taking a hit from a 64 percent drop in prices for the metals over the past eight months.

On Tuesday, one of the world’s largest platinum producers, London-based Lonmin PLC, announced it was suspending operations at one South Africa mine, closing another and putting expansion projects on hold.

In Thunder Bay, Ontario, North American Palladium Ltd. last month idled its Lac des Iles Mine, resulting in 350 layoffs.

Platinum prices hovered at about $825 per US ounce Tuesday, down from $2,327 in March.

Mining industry analyst Victor Flores with HSBC said companies that had been pouring cash into mine improvements are suddenly spending more than they can make digging metals from the ground.

“They need to make decisions that will allow them to produce profitably, or at least stop burning cash,” Flores said. “In the case of Stillwater, they have two operations. Everybody knows East Boulder was the weaker of the two, and if it got to this it would be the first to suffer cutbacks. That’s exactly what’s happening.

Stillwater said Tuesday it will permanently cut at least 370 employees and contractors from its 1,770 person work force. That’s a 21 percent reduction.

The move comes after Stillwater’s economic conditions deteriorated in the third quarter. It is now selling its ore for just under $500 per mined ounce, which is below the cost of production.

How many of those jobs are among its mine workers hinges on pending negotiations with the United Steelworkers International. Stillwater spokesman John Beaudry said Tuesday that negotiations with the union have begun, but no timetable for reaching an agreement has been set.

“The plan is to resume operations with a substantially reduced work force, and that’s once the restructuring plan is finalized,” Beaudry said. “We are hopeful it can be done sooner than later.”

Stillwater’s chairman and chief executive, Francis R. McAllister, said the restructured operations plan would keep the mine going for the next 18 to 24 months, but beyond that prices would dictate if it stayed open.

McAllister said the company will begin offering jobs at its Stillwater Mine to a portion of the miners from East Boulder.

“Although the total number of miners at the Stillwater Mine will increase, some work force reductions on a smaller scale are slated there,” he said.

On top of the job cuts, marketing and exploration expenses will be trimmed more than 40 percent next year, from $35 million in 2008 to $20 million. Spending on capital projects will drop 56 percent, from $90 million to $40 million.

Stillwater’s shares on the New York Stock Exchange were down just over 4 percent to $2.25 Tuesday, after trading as high as $22.72 in March.

The company produced about 2 percent of the world’s platinum and 6 percent of its palladium in 2006.

Also looming over Stillwater are its ties to the country’s ailing auto industry, long a dependable customer. Palladium and platinum are used in vehicle catalytic converters to reduce pollution.

Flores, the HSBC analyst, said 100 percent of the company’s palladium was under contract with one or two auto companies — which are suffering their own financial problems and looking to Congress for a bailout.

“The concern is that one or both of them go into some type of restructuring and say, ‘Sorry, we can’t honor these contracts,'” he said. “You could imagine why there’s a sense of urgency at Stillwater mining.”