PGMs miner Stillwater prepares for GM bankruptcy consequences

While the GM bankruptcy casts an uncertain light on its supplier contracts with U.S. companies, Stillwater Mining has long been prepared to weather a restructuring or outright loss of its GM contract.

RENO, NV - 

As General Motors filed for the fourth largest bankruptcy in history Monday as part of the Obama Administration's plan to downsize the automaker and give a majority ownership stake to the federal government, among the GM suppliers, dependent on the fortunes of the auto industry, is Montana's Stillwater Mining.

In a press release filed last month with the SEC, Stillwater CEO Frank McAllister said, "The overall consequences of a General Motors bankruptcy are difficult to predict. The contractual floor prices in our automotive contracts and the collectability of our accounts receivable could be placed in jeopardy. We are monitoring these risks closely."

In December 2008, Standard & Poor's downgraded its rating on Stillwater Mining, the only U.S. PGM miner, to ‘B-‘  with a negative outlook due to S&P's belief "substantially reduced demand in the U.S. automotive industry will materially hurt the company's near-term results. The U.S. automotive industry is a key end-market for the company."

At the time, S&P Credit Analysts Maurice Austin and Marie Shmaruk noted the auto industry consumed 100% of Stillwater's platinum production and 70% of palladium production through contracts with GM and Ford Motors.

Stillwater CFO Greg Wing told Mineweb Tuesday, "Stillwater of course has important contracts with GM and Ford that provide, among other things, for floor (and to a lesser extent, ceiling) prices on the platinum and palladium we deliver to them. The question naturally arises as to whether GM will walk away from these pricing commitments as part of its bankruptcy process. We don't know for sure at this point, as bankruptcy judges have wide latitude to restructure existing agreements."

"Although we have no assurances, we are cautiously optimistic that in a carefully structured GM bankruptcy process might stand as written-or perhaps just be adjusted to reflect somewhat lower volumes in the current depressed auto sales environment," he said.

Meanwhile, Wing stressed, "Because independent terminal markets exist for both platinum and palladium, should the GM contract be dissolved we believe we will still be able to sell the metal we produce, although the prices that we realize naturally would fluctuate with market."

Because of the extensive coverage devoted to the plight of General Motors for a number of months, Stillwater had many months of lead time to position the company "with solid liquidity and have worked hard to bring down costs and target performance generally toward remaining economically viable in an environment without the GM floor prices," he said.

"Overall, while a GM bankruptcy has the potential to create a chain of events leading to a general collapse of the auto industry, it does not appear at this point that things are headed that direction," Wing stressed. "As the only U.S. producer of mined platinum and palladium, we believe Stillwater has certain logistical advantages that make it a desirable supplier to the auto industry."

Although Stillwater had made substantial changes and cuts to its mining operations, both the Stillwater and East Boulder mines remain in operation at this point. While recycling business volumes fell sharply at the end of last year, Wing said they recovered somewhat during the first quarter, and "typically we would expect them to continue to strengthen in the face of recently improving PGM prices."

Platinum prices closed at $1.239 an ounce Tuesday while palladium closed at $247/oz.

"While substantial market uncertainties remain, we believe the company's finances and operations are in good shape at the moment and that we have taken the steps available to us to prepare for a restructuring or outright loss of the GM contact," Wing concluded.

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