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All is not still, let alone well, at Stillwater Mining (
SWC
). A number of analysts and investors are getting increasingly frustrated with the company, whose management has continued to disappoint the Street in recent quarters on earnings expectations. Stillwater is the sole U.S. producer of platinum and palladium -- and is the only significant source of these metals outside of South Africa and Russia. Yet in spite of climbing platinum and palladium prices, the company's shares have been on the skids, dropping some 50% so far this year.
Platinum group metals, referred to as PGMs, are sought after because of their vital industrial uses in automobile catalytic converters and pollution-control equipment and in developing alternative energies, such as fuel cells. Demand for PGMs is also high in the jewelry business.
Platinum, which averaged $377 an ounce in 1999, has climbed to $593 an ounce in September. Palladium has shot up even higher, from an average of $359 an ounce last year to $730 in September.
POSSIBLE BUYERS. "This sad situation -- Stillwater's falling stock price amid rising PGM prices -- has come about because management has missed every earnings projection [in the past three quarters]," says Stephen Leeb, editor of the Personal Finance market letter. "Either management gets its act together," warns Leeb, or "Stillwater and its extremely valuable properties will be acquired by a larger mining company."
Indeed, some industry sources close to investment banks advising several major mining companies say the likes of Anglo American (
AAUK
), formerly Anglo American Corp. of South Africa, and Barrick Gold (
ABX
) have privately expressed an interest in acquiring Stillwater.
The two companies, these sources note, have ample resources to do so. Anglo American, one of the world's largest mining and natural-resource companies, has a market cap of $21.5 billion, and Barrick, a leading global producer of gold, carries a market value of $5.4 billion. Stillwater, on the other hand, is currently trading at 25 a share, giving it a market cap of $995 million.
UNDER PRESSURE. Leeb says based on Stillwater's platinum and palladium reserves and properties, the stock could be worth close to $100 a share. Right now, he notes, it's trading at just 19 times estimated 2001 earnings. In a takeover, "shareholers would be disappointed if they don't get at least 40 a share," says Leeb.
The stock has been under pressure since analysts cut back their earnings projections on Stillwater after the company recently unveiled a new three-year plan suggesting that production growth would be lower over the next three years and costs per ounce in mining metals would be higher.
So analyst Robert Doyle of Credit Suisse First Boston on Oct. 11 downgraded his rating on the stock to a hold from a buy, and he scaled back his earnings estimates. Explains Doyle: "Until operating performance improves and uncertainty regarding East Boulder [the second platinum and palladium mine that Stillwater is constructing in Montana] is resolved, Stillwater does not offer superior relative performance."
UNLOCKING VALUE. The company insists that it's on target in getting its East Boulder mine up and running in late 2001 and will reach full capacity in 2002. The new operation is part of the company's plan to triple production in the next few years, it says.
Doyle argues that there's no assurance that production and costs at the East Boulder project "will be as originally expected." He reduced his 2000 earnings estimate to $1.38 a share from $1.57, and his 2001 projection to $1.40 from $2.40. The analyst acknowledges that Stillwater's prime properties are undervalued. The intrinsic value of the company's platinum and palladium deposits, are priced materially lower than the current prices of the metals, he notes.
Until Stillwater succeeds in boosting the price of its stock to reflect the worth of those deposits, speculation about how to unlock their value will persist. That's why some big investors think Stillwater may soon find itself in play.
Copyright 2000, by The McGraw-Hill Companies Inc. All rights reserved.
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