This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Clinton Group Believes Stockholders Should Replace The Stillwater Mining Board Of Directors

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 [1] 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. [2] And, after assuring stockholders that Stillwater had "great expertise in house" [3] 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."[4] 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. [5]

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. [6] 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. [7] 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 ( 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.

2 of 5

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $95.01 1.05%
FB $99.75 -4.15%
GOOG $682.74 -0.12%
TSLA $147.99 -8.99%
YHOO $27.05 -3.29%


Chart of I:DJI
DOW 16,027.05 -177.92 -1.10%
S&P 500 1,853.44 -26.61 -1.42%
NASDAQ 4,283.7530 -79.3910 -1.82%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs