Laurent Tigrani blog

Montana's Stillwater buying Toronto metals company

BILLINGS, Mont. – Stillwater Mining Co. is buying Marathon PGM Corp. for $118 million to gain control of the Canadian company's Ontario precious metals reserve and other properties, the companies announced Tuesday.

The deal reflects the resurgence of precious metals market after a price collapse two years ago sent the industry into retreat and forced Stillwater to cut about 300 workers. If it is approved by regulators, Stillwater plans to develop a $400 million pit mine near Marathon, Ontario over the next three years, chief executive Frank McAllister said.

The mine would allow the Columbus-based company to increase its platinum and palladium production by 40 percent. That's equal to about 1,250 pounds annually of the metals used in jewelry, in industrial processes and to make catalytic converters for vehicles — a market that's been booming in developing countries such as China and India.

Stillwater, with its two mines in southern Montana's Beartooth Mountains, is the only U.S. producer of platinum group metals.

Marathon is headquartered in Toronto. It has been developing the Marathon PGM-Cu project near the town of Marathon, Ontario, since 2004.

The deal is expected to be completed by the end of November pending regulatory and shareholder approvals. It comes amid strong demand for platinum group metals and the depletion of overseas inventories, McAllister said.

"The timing of the Marathon transaction is ideal for Stillwater, and it positions the company to benefit from the convergence of these market factors," he said.

For Stillwater, it represents a sharp turnaround from two years ago when the company was laying off workers and temporary idling its East Boulder mine.

In a measure of the company's confidence that the hard times are past, McAllister also said Tuesday that Stillwater was re-evaluating the use of floor and ceiling prices in its contract with Ford Motor Co. that expires this year.

Such contracts have allowed Stillwater to hedge against low metal prices, but they also limited the company's gains when prices were high.

The Marathon mine would operate for at least 12 years based on platinum and palladium reserve estimates of more than 3 million ounces, or about 94 tons.

The reserve also contains an estimated 500 million pounds of copper that will be mined as a byproduct. Sales of copper and small amounts of gold and silver from the site would offset almost all production costs, McAllister said.

Marathon CEO Phillip Walford said Stillwater first approached his company about five years ago to discuss a joint venture or acquisition, but nothing came of those discussions until Stillwater returned in recent months as precious metal prices rebounded.

Increasing demand for catalytic converter materials has helped drive prices higher. Developing countries are setting new environmental regulations to deal with smog caused by soaring automobile ownership rates.

"I don't know a place in the world where you can buy a new vehicle without a catalytic converter in it," Walford said. "The whole worldwide production of platinum and palladium is about 14 million ounces a year. Gold is 100 million ounces a year, so this is pretty rare stuff."

Through its acquisition of Marathon, Stillwater also gains control over a second Ontario project, Geordie Lake, and an emerging platinum resource in Manitoba known as the Bird River property.

Stillwater shares fell 55 cents, or 3.6 percent, to $14.73 on Tuesday.

The company is majority owned by Russian metals-industry giant Norilsk Nickel. In July, Stillwater reported a second-quarter profit of $14.6 million on revenue of $134.9 million. That compared with a profit of $4.6 million in the second quarter of 2009 on revenue of $94.8 million.