Stillwater puts expansion on fast track — New tunnel to East Boulder expected to speed development

Stillwater Mining (SWC-X) is stepping up expansion plans at its namesake operation in southwestern Montana.

The company had planned to boost platinum and palladium production to 1.3 million oz. per year by 2003. The new plan calls for 1.2 million oz. per year by 2001.

The acceleration is to be achieved by revising the completion date for construction of a tunnel designed to provide access to the East Boulder project, 13 miles west of the Stillwater mine. It is now believed the 18,000-ft. tunnel can be completed in 12 months, as opposed to the original estimate of 18 months.

The company has already tunneled more than 3,200 ft. from the portal and is within 200 ft. of reaching the rocks of the Stillwater Complex, an ultramafic intrusive body.

To help finance the expansion, Stillwater has secured US$175 million in financing commitments from the Bank of Nova Scotia. The funds will be used to develop a new mine at East Boulder and to increase in the production rate at the main Stillwater mine. Stillwater is required to raise an additional US$50 million through an equity offering.

The total cost of the expansion is pegged at US$385 million, most of which has been secured. The remainder is to be derived from operating cash flow.

Capital requirements at East Boulder are estimated at US$270 million, whereas the Stillwater mine expansion will require about US$75 million. The company has also designated US$40 million to expand its smelter and base metal refinery in Columbus, Mont. The facility will have to be modified to handle the additional load coming from East Boulder.

East Boulder is expected to start up in 2001, a year earlier than originally scheduled. Its capacity will be 2,000 tons per day, and capital costs for the project include US$35 million for expansion. Underground facilities, including a crusher and conveyor system, are expected to cost US$65 million, while the total cost of underground facilities and equipment is pegged at $100 million.

On an annual basis, East Boulder is expected to produce 450,000-470,000 oz. platinum and palladium at a cash cost of US$140-160 per oz.

Expansion at the Stillwater mine should boost capacity to 3,000 tons per day from the current 2,000 tons; at this rate, production would jump to as much as 725,000 oz. platinum and palladium. The company recently completed an environmental impact statement for the proposal, and expects a record of decision by November. Once this is received, Stillwater can begin construction on a tailings plant, priced at US$20 million, at which point the government would lift the 2,000-ton-per-day capacity limit.

Stillwater expects to produce as much as 470,000 oz. platinum and palladium in 1998 at a cash cost of US$140-160 per oz. Production rates will climb each year toward 1.2 million oz. by 2001, though production will not reach 1.2 million oz. until 2002.

Meanwhile, a long-term sales contract, signed by the company in early September, covers a percentage of yearly production. The contract was made with end-users of the platinum-group metals, including manufacturers of catalytic converters.

The agreement sets a minimum price for nearly all of the company’s palladium and 20% of the platinum production for 1999 through to 2003. Essentially, Stillwater has created a hedge for 90% of palladium production at a minimum price of US$225 per oz., with 30% of the production subject to a cap of US$400 per oz. The remaining 80% of the platinum could be sold at prevailing market prices.

As a result of the long-term sales contract, shares of the company have steadily climbed to an all-time high of over US$32 per share from about US$17.