During the twelve-year tenure of the Chief Executive Officer, Frank McAllister, stockholders have lost more than $900 million as the cash costs associated with mining have doubled, overhead expenses have tripled  and marketing expenses (in just the last three years) have quintupled. During this same period, the ounces of metal produced for market have declined. The operating performance has been disappointing.
You do not need to take our word for it. On every metric the executive team used in its March 2011 investor presentation to measure the Company's so-called "strong performance," recent results are markedly worse. Since then, ounces of metal produced per worker have declined by 14%; EBITDA margins have been cut by one-third; capital expenditures as a percentage of sales are up 50%; and the return on assets in the recycling business has been cut in half.
The strategic decisions have been even worse than the operating performance.
Once Norilsk (the former majority owner) could no longer summon the Stillwater management team to Russia to deliver strict instructions to Stillwater about strategy (which we understand they did often), the Board had free reign to do as they pleased. And what pleased them was the building of a foreign empire. So, they went about transforming the only pure-play, US-based platinum group metals ("PGMs") mining company (that, because of its unique asset, had commanded a premium multiple) into yet another "mid-cap diversified mining company".What a woeful mistake. To execute on its vision, the Board bought two public companies. For the first, Marathon PGM, the Board agreed to pay a 259% premium.  And, after assuring stockholders that Stillwater had "great expertise in house"  to evaluate the asset and execute on the exploration and development plan, the Company has had to peddle backwards, fast. Now, Stillwater management admits the cost to develop the asset "has gone up quite dramatically from what we originally thought" and that there is "deterioration in both the project economics and in the estimate of proven and probable reserves." No longer will stockholders see production from this as-yet unbuilt mine in 2013 as originally promised; now, Stillwater is hoping for 2017 production. On the second acquisition, the Board approved a 290% premium to buy Peregrine Metals, diversifying Stillwater into copper and Argentina. The Board agreed to pay 18 times the total capital invested by Peregrine - $450 million for mining licenses that cost Peregrine just $4.8 million, two years earlier. Stillwater stock fell 47% in the thirty days after the announcement of the transaction as stockholders were concerned about the risks associated with the project, which would involve many billions in capital the Company did not have being invested across many years before the first bit of base metal was mined, assuming that Argentina did not seize the asset first. And although Mr. McAllister was convinced as recently as the beginning of 2012 that " Argentina is probably more mining-friendly than the United States or Canada," he has come now to recognize the "political uncertainties in Argentina" and has backed off the project.  These blunders have cost the stockholders dearly. The stock is down 66% on Mr. McAllister's watch, even while the PGM basket price has gone up.  The only other thing to increase is Mr. McAllister's pay, which has now topped $5 million for two years in a row. (We note with some concern that last week a Stillwater stockholder brought a lawsuit against the Stillwater directors alleging the Board has violated the Company's stock option plan and has awarded Mr. McAllister more than $1 million of improper compensation.) We stockholders lose. Mr. McAllister wins. More of this may be coming. As recently as late October 2012, the Board reiterated its strategy of "identifying opportunities to establish a broader operating base, reducing the Company's sole reliance on the Stillwater and East Boulder mine properties" by looking "around the world" for "various mineral exploration and development efforts" to acquire.  As if two over-priced, ill-conceived acquisitions were not enough! The Company has spent more than $525 million outside the United States on "mineral exploration and development" projects in the last few years while spending less than half that amount on capital expenditures on the J-M Reef in Montana. We believe the Company needs to refocus its efforts on the unique and valuable Montana PGM assets. The presentation on our website ( www.tapstillwater.com) provides further details on the strategic and operating plan we recommend for the Company. We would have expected the incumbent Board, as fiduciaries for stockholders, to explain their record, describe their vision and defend their decisions. We are open to hearing their tale. They have chosen not to tell it.