Stillwater Mining Co. parent looks for exit

By JAN FALSTAD
The Billings Gazette

Published: Friday, October 24, 2008 1:16 PM CDT

STILLWATER, MONT. — The global economic sickness is hitting one of the largest and best-paying employers in the region.

Russian mining giant Norilsk Nickel is offering to sell its majority shares in Billings-based Stillwater Mining Co. for less than it paid in 2003 to take effective control of the company.

Norilsk reportedly is starved for cash and needs to sell its 55.4 percent ownership in the nation’s only platinum and palladium mine, which is nestled in the Beartooth Mountains.

MoscowTimes.com has reported that Norilsk’s chief financial officer, Oleg Lobanov, said his company is preparing for a “hard year” because of falling demand for metals and the worldwide economic downturn.

“In a crisis situation, cash is king and we have to prioritize our projects,” Lobanov said.

No Norilsk official bothered to call Stillwater Mining bosses to tell them of the decision.

“This is unfolding so suddenly we only have the information from The Moscow Times at this time,” said John Beaudry, Stillwater Mining’s public-affairs manager.

After wild gains in platinum and palladium prices this year, the crash has been swift.

Palladium has fallen from $471 to $171 an ounce. Platinum swung from a high of $2,201 to $857. That’s a 61 percent drop in just six months.

“We have been hoping for a synergy with our palladium assets in Russia and the United States, but it hasn’t worked out,” Lobanov told The Moscow Times. “The crisis has aggravated the situation with Stillwater Mining.”

He said Norilsk has the $400 million needed to pay off an unrelated loan next month. Stillwater Mining finished the second quarter, which ended June 30, with more than $102 million in cash.

In 2003, Norilsk bought majority control of Montana’s only hardrock mining company after Stillwater Mining officials said they had to sell stock or go bankrupt. The Billings-based company employs 1,656 people.

Todd Buchanan, a financial adviser at Buchanan Capital in Billings, said investors with IRAs or 401(k) retirement accounts have been watching the stock market declines over the past 12 months, but the commodity prices have been even more volatile.

In July, headlines were all about record-high oil prices, corn prices and the insatiable demand for steel and coal, especially in India and China.

“Can’t build fast enough. Can’t feed enough people. Can’t fuel cars fast enough,” Buchanan said. “But that story has reversed itself in just three months.”

With the exception of gold, commodity prices have fallen 50 to 70 percent since March. Gold peaked at $1,004 an ounce March 17 and was trading at $721 an ounce Wednesday.

The commodities sell-off started just a day or two before Wall Street giant JPMorgan Chase announced that it would buy Bear Stearns in a going-out-of-business sale.

“Since then we’ve seen commodity prices fall dramatically. It’s kind of coincidental with all the Federal Reserve rescue moves on the financial system,” said Fred Dickson, chief market strategist for D.A. Davidson & Co., based in Great Falls.

Dickson, who works out of Lake Oswego, Ore., said the slackening demand for metals worldwide has had a cascading effect.

“Most of the metals are very, very sensitive to small changes in demand,” Dickson said.

Stillwater Mining, formed in 1992, runs a mine at Nye and the East Boulder mine in Sweet Grass County.

The metals have become increasingly popular in jewelry but are used mostly in catalytic converters in automobiles. The recent sharp decline in demand for cars and trucks is affecting demand for the metals.

After hitting a peak of 16.5 million automobiles sold in 2006, U.S. automakers expect to sell 12.5 million cars and trucks this year.

The Moscow Times calculated that Norilsk’s stake in Stillwater Mining is worth $230 million. That is less than the $270 million it paid four years ago, when one share was valued at $7.50.

Two potential buyers for Stillwater Mining were identified as Estrata of Switzerland and Empala Palladium of South Africa.

Platinum and palladium are so rare that only three significant deposits are known. Along with Montana, there are reserves in Russia and South Africa.

A 2004 Harper’s magazine article titled “The Oligarchs’ Ball” detailed how President Bush; his father, former President George H.W. Bush; and Vice President Dick Cheney helped guide the sale of Stillwater Mining to the Russian corporation. The deal quickly passed muster with U.S. regulators, including antitrust and strategic-asset laws.

Combined, Stillwater and Norilsk control more than half the world’s supply of palladium. The Carlyle Group, a private equity giant, helped lobby for the sale.

Over the past 52 weeks, Stillwater Mining stock hit a high of $22.72. On Wednesday, the stock closed down $1.07 at $3.21.

During a teleconference Aug. 12, Stillwater chairman and chief executive Frank McAllister told investors that strong prices for platinum and palladium gave Stillwater Mining “an excellent second quarter.” The company earned $17.2 million for the three months ending July 31. During the same quarter last year, the company lost $2.5 million.

However, McAllister said production at the two Montana mines had fallen to 126,000 ounces for the second quarter, off 7,000 ounces from last year’s levels. And he said the company didn’t expect to meet production goals this year.

“The mines continue to suffer from staffing shortfalls and logistical issues underground,” McAllister said.

Since McAllister’s latest rosy report, the world of commodities and stocks has undergone a startling transformation.