Under the Ford agreement, the Company has continuing commitments to deliver fixed percentages of its mined palladium and platinum production through 2010. Upon the expiration of the Ford contract at the end of 2010, and assuming no replacement contracts are negotiated in the interim, the Company expects to be fully exposed thereafter to any downward cycle in PGM prices. Although the sharp decline in PGM prices late last year highlighted the Company's market exposure, management's longer-term focus on improving mining efficiency and reducing costs to a large extent has been driven by the recognition of the upcoming added exposure to the loss of the Company's favorable automotive supply agreements. However, despite these measures, there can be no assurance that PGM prices will not decline further in the future, or that there may not be continued weakening of the automobile industry that may place demand for the Company's products in jeopardy. Such changes could have a significant effect on the Company's future financial performance.
Loss of the Company's GM supply agreement has not constrained the Company's ability to sell its mine output. There are well-established terminal markets for platinum and palladium where the Company can readily sell any of its uncommitted palladium production. The Company has utilized these markets for many years in selling the output of its catalyst recycling business, and during the third quarter successfully used these same outlets to market the mine palladium that formerly would have been sold to GM.
The Company's profitability is significantly driven by the prices realized for its palladium and platinum production, as well as by the operating performance of the mines and the economic benefit that stems from its recycling operations and from sales of by-product metals. During the second and third quarters of 2009, the Company's average realized price for platinum strengthened significantly from its low in the fourth quarter of 2008, when sales realizations for mined platinum averaged $929 per ounce. Mined palladium realizations were governed by contractual floor prices during the same period and so averaged $368 per ounce. In the 2009 third quarter, the Company's sales realizations on mined platinum averaged $1,174 per ounce, while sales of mined palladium averaged $360 per ounce. In comparison, market prices quoted during the third quarter of 2009 averaged $1,230 per ounce for platinum and $272 per ounce for palladium, highlighting the effect on the Company's sales realizations of the floor and ceiling prices in its automotive supply agreements.
It is useful to note that the loss of the GM supply agreement had only a very small effect on the Company's average metal realizations during the 2009 third quarter. The charts below show quarterly average market prices and the Company's average realized sales prices for sales of platinum and palladium produced from the Company's mines. The difference between market prices and realized prices principally reflects the effect of floor and ceiling prices embedded in the Company's supply agreements.

[[Image Removed: (PERFORMANCE GRAPH)]] [[Image Removed: (PERFORMANCE GRAPH)]]

MMC Norilsk Nickel, a Russian mining company, is the majority owner of the Company, holding approximately 53% of the Company's outstanding common shares. By virtue of its majority shareholding, and in accordance with the provisions of a Shareholders' Agreement entered into at the time Norilsk Nickel acquired its interest in the Company, Norilsk Nickel is currently entitled to nominate five of the Company's nine directors, none of whom can be an employee or affiliate of Norilsk Nickel. All nominees to the Company's board of directors must be approved by the Governance and Nominating Committee of the board, and Norilsk Nickel nominees also must be approved by a majority of the "non-Norilsk" outside directors.
Two new Norilsk Nickel nominees were approved as directors of the Company during the third quarter of 2009 - Mr. Mark Sander, a co-founder of and partner in Plinian Capital, a mining investment

venture, and Mr. Ajay Paliwal, a U.K. based chartered accountant and currently a principal of London-based Jiva Capital, Ltd. Both Mr. Sander and Mr. Paliwal have extensive experience in the mining industry. The new directors replaced The Honorable Donald W. Riegle, Jr. and Mr. Michael E. McGuire, Jr., both of whom have recently stepped down from the Company's board.
Subsequent to the end of the 2009 third quarter, the Company concluded a transaction with an unaffiliated third-party bondholder for the exchange of approximately 1.8 million newly issued common shares for $15 million principal amount of its outstanding 1.875% convertible debentures maturing in 2028. The repurchased debentures have been retired. Although the exchange was economically advantageous, the Company accounted for the transaction as an "induced conversion," which will result in a fourth quarter non-cash transaction loss of approximately $8.1 million. An induced conversion is a transaction in which the conversion privileges in a convertible debt instrument are changed or additional consideration is paid to debt holders for the purpose of inducing prompt conversion of the debt to equity securities. Mining Operations
Although PGM ore grades in the J-M Reef are some of the best in the world, the uplifted configuration of the reef makes the ore costly and complex to mine. The Company's mines compete primarily with operations on the Bushveld complex in the Republic of South Africa, which are of lower grade but enjoy a higher proportion of platinum than the J-M Reef and are less steeply dipping, and with nickel mines in the Russian Federation and Canada which produce PGMs as a major by-product and so at a very low marginal cost. In periods of low PGM prices, Stillwater Mining Company's palladium-rich production and complex cost structure at times has put it at a disadvantage to these competitors.
However, the Company's mine performance relative to South African producers in the 2009 third quarter has been more complex. South African labor rates on an hourly basis are substantially lower than in the U.S. industry, but labor productivity in South African mines also tends to be lower and wages in rand terms are increasing. Power prices historically have been steeply subsidized in South Africa, but the subsidies are now being reduced through a series of stepped pricing increases. And further offsetting some of the U.S. cost disadvantage, the South African mines have lower ore grades and so the mines typically must produce three to four times more ore tons per PGM ounce than the Company's operations. Finally, as the chart below indicates, the appreciation in PGM market prices that has taken place during the second and third quarters of 2009 has been largely a U.S. dollar phenomenon, and for South African producers has been almost entirely offset by a strengthening rand.

The Company reported previously that as a result of last year's sharp decrease in PGM prices and in light of the impact of the worldwide financial crisis, the Company is restructuring its operations in an effort to conserve cash and reduce anticipated losses. This restructuring effort has resulted in changes to the scope and organization of mining operations, with principal focus on improving mining efficiency and so reducing costs. The restructuring is intended to better position the Company's operations to accommodate an environment with lower PGM prices, while preserving much of the Company's workforce for an eventual turnaround in pricing and the markets, although there can be no assurance as to when or if such a turnaround may emerge. The operating focus on cost reduction has led to significant improvements in mining efficiency during the past year or so, and the Company intends to continue these efforts.
In recent years and through most of 2008, the Company and the mining industry generally experienced increasing costs for certain key goods and services that exceeded the trend of core inflation. The increase in costs affected both the Company's operating expenses and its capital programs. These cost pressures began to abate somewhat in late 2008 and through the first half of 2009. Prices of many commodities dropped precipitously from their highs in mid-2008 as the economy slowed and demand slackened. This reduced level of costs has continued into 2009, although some commodity prices have begun to increase recently in response to the weaker U.S. dollar.
For the third quarter of 2009, the Company has reported net income of $4.4 million, or $0.05 per share, compared to net income of $0.1 million, or less than $0.01per share, in the third quarter 2008. Earnings improved despite sharply lower PGM prices compared to the year-earlier quarter - the combined average realization per mined ounce sold for platinum and palladium was $574 in the third quarter of 2009, down 12% compared to $652 in the third quarter of 2008. However, the third quarter of 2008 included $6.4 million in write-downs of product inventories and long-term investments, driven mostly by the decline in realizable prices for PGMs and in prices for equities. Mine production of platinum and palladium totaled 129,100 ounces in the 2009 third quarter, as compared to 120,000 ounces in the same period of 2008, reflecting performance improvement at the Stillwater Mine offset in part by some scaling back of operations at the East Boulder Mine. Net working capital (including cash and investments) increased slightly during the quarter to $258.0 million, up from $235.9 million at the end of second quarter 2009, and $230.4 million at year end 2008.
The Company's stated operating objectives for 2009 as previously reported include achieving mine production of 495,000 ounces at a total cash cost of $399 per ounce and capital expenditures of $39.0 million while maintaining a stable liquidity balance (cash plus short-term investments) in the range of $180 million. The Company performed well against these objectives during the 2009 third quarter, producing 129,100 platinum and palladium ounces at a total cash cost of $357 per ounce with capital spending of $7.1 million. Year to date, the Company has produced 391,600 PGM ounces, or 79% of the full-year objective, at a total cash cost of $363 per ounce, with total capital expenditures of $32.3 million. Capital expenditures to date during 2009 have included $6.3 million of spending to complete construction of a second electric furnace at the Columbus smelter and $5.6 million for a new system of electric truck haulage in the deeper portions of the Stillwater Mine. The Company's total available cash and short-term investments at September 30, 2009, was $200.1 million, up from $175.4 at June 30, 2009, and $180.8 million at the end of 2008. The Company has now updated its earlier full-year 2009 mine production guidance from 495,000 PGM ounces previously to 515,000 PGM ounces. With combined total cash costs for the third quarter at $357 per ounce and year-to-date total cash costs at $363 per ounce, the Company has also improved its 2009 guidance for average combined total cash costs to $375 per ounce from $399 per ounce earlier.
At the East Boulder Mine, an operational restructuring carried out late last year has resulted in a smaller and more focused workforce and a team-centered approach to mining that operates only in those areas that can be justified economically at current PGM prices. Performance at East Boulder in the third quarter of 2009 overall exceeded expectations, with platinum and palladium production of 34,000 ounces, considerably stronger than planned and total cash costs per ounce of $391 per ounce, also much better than plan. Capital expenditures at the mine were $1.3 million in the third quarter, a little higher than originally planned, as the mine has expanded its primary development efforts somewhat in response to its improved operating performance.

Third quarter 2009 platinum and palladium production at the Stillwater Mine totaled 95,100 ounces, essentially equal to plan. Total cash costs were $344 per ounce, better than planned, driven mostly by improved mining efficiencies. Capital expenditures at the Stillwater Mine of $5.2 million in the third quarter were nearly on plan.
PGM Recycling
The Company's processing facilities in Columbus, Montana, recycle spent catalytic converter cores and other materials by commingling them with the Company's mine concentrates to facilitate recovering the contained palladium, platinum and rhodium. The recycling segment has been a very attractive and profitable ancillary business that utilizes copper and nickel contained in the concentrates as collecting agents and available capacity in the Company's smelting and refining facilities. Between 2004 and 2008, the volumes of catalyst recycled grew substantially and the profitability of the business frequently exceeded that of the Company's mining operations. However, the volumes of recycling material available to the Company declined substantially with the fall in PGM prices during the second half of 2008, and the contribution to earnings of the Company's recycling activities has declined concurrently. In response to this decline, the Company has reviewed the current state of its recycling activities and, subject to various adjustments in its business model, has concluded to remain an aggressive competitor in the business of recycling PGM catalysts.
For the third quarter of 2009, the Company recognized net income from its recycling operations of $1.9 million on revenues of $26.2 million, reflecting a combined average realization during the quarter of about $686 per sold ounce. Total tons of recycling material fed to the furnace during the 2009 third quarter, including tolled material, averaged 9.6 tons per day. By way of comparison, for the third quarter of 2008 when PGM prices were much higher, the Company recorded recycling segment net income of $19.9 million on revenues of $169.8 million, at an average realization of $2,008 per sold ounce. Total recycling tons fed to the furnace in last year's third quarter averaged 22.3 tons per day. The lower volume in 2009 has been in response to more limited advances to suppliers and to the significant decline in PGM prices which has reduced the incentives in the market to collect recycled material. Volumes of material available for recycling appear to be gradually recovering during 2009 but remain well below plan and substantially below the levels experienced in prior years.
In acquiring recycled automotive catalysts, the Company advances funds to its suppliers in order to facilitate procurement efforts. During 2009, the Company has modified its recycling business model to narrow its exposure in advancing funds to suppliers while at the same time continuing to support and grow the recycling segment. Total outstanding procurement advances to recycling suppliers had declined to $2.6 million at September 30, 2009. In the current business environment, the Company has generally limited new supplier working capital advances to material in process or in transit. Strategic Considerations
Amid the current worldwide economic downturn and generally lower industrial demand for palladium, both automotive and jewelry consumption of palladium reportedly has continued fairly strong in Asia, at least partially in response to strong economic stimulus from the Chinese government. Investment interest in both platinum and palladium also has remained strong worldwide, apparently offsetting part of the drop in industrial demand. The mining industry's production of PGMs, particularly at higher-cost operations, remains reduced or shut in, cutting back PGM supply to some degree. The volume of PGMs supplied from recycling likewise remains depressed in the present market. Overall, the strengthening in PGM prices during the first nine months of 2009 appears to have been driven by speculative interest in the metals as an inflation hedge and by weakness in the U.S dollar relative to other major currencies. Typically, prices for the PGMs particularly in commodity-linked currencies like the South African rand and the Australian dollar have not paralleled the appreciation seen in U.S. dollar terms during 2009.
With the steep decline in PGM prices during the fourth quarter of 2008, the Company indicated that during 2009 its management focus would center on cash preservation and improving mining efficiency rather than on reported earnings. In this vein, the Company has assessed the approximate PGM price levels that it requires in order to maintain its operations in a cash neutral position while still providing for adequate reinvestment in the business. For the third quarter of 2009, all-in cash requirements to cover operations, capital spending and

corporate overhead, offset by by-product sales proceeds and recycling profits, averaged $462 per ounce. The Company's combined average realized price for platinum and palladium, as noted earlier, was $574 per ounce in the third quarter of 2009. While the margin therefore appears healthy, to some extent it is dependent upon the effect of floor and ceiling prices in the automotive contracts and constrained capital spending. Because the remaining automotive PGM supply agreement with Ford will expire at the end of 2010, in gauging longer-term performance it is useful to exclude the effect of the floors and ceilings on the Company's realizations. If all third-quarter sales of mined material had been priced at market, the average realization would have declined to $525 per ounce - still a positive margin, but substantially less robust than with the automotive contracts. Looked at slightly differently, if platinum and palladium prices remained in approximately the same ratio as in the third quarter, a cash breakeven level for prices would be about $250 per ounce for palladium and $1,200 per ounce for platinum.
Although the third quarter results suggest that the Company has made good progress in its effort to bring ongoing cash costs into line with current market conditions, several cost-focused efforts are continuing. Constraints on capital expenditures during 2009 have helped restrict cash spending, but the level of capital spending during 2009 likely is not adequate to maintain operations at their current levels longer term. The Company anticipates a need to increase spending on mine development somewhat in 2010, particularly at the East Boulder Mine. Absent higher PGM prices in the interim, the cash for this increased mine development will have to be generated through cost reductions elsewhere. Consequently, several internal multifunctional teams have been engaged in reviewing various facets of the Company's operations in an effort to increase the efficiency of various mining and support functions. Key materials costs generally have declined from their 2008 levels and the Company has been able to negotiate more favorable rates in 2009 for a number of outside services. Continuing efforts will include focus on improving mining productivity and broadened involvement in identifying potential operating efficiencies and opportunities. Despite these efforts, in the current economic environment there can be no assurance that the Company will succeed in its efforts to keep its costs in line with PGM prices, nor that PGM prices will not decline to levels that put additional pressure on the Company's earnings and cash flows.
For a number of years management has designated three major strategic areas of focus intended to strengthen the Company's financial and competitive position. Resources allocated to these strategies have been adjusted in conjunction with the recent market shifts, but the Company has nevertheless maintained this strategic emphasis.
1. Transformation of Mining Processes to Increase Mining Efficiency The Company normally measures its mining efficiency in terms of total cash costs per ounce of PGMs extracted. This non-GAAP measure is discussed in more detail in Reconciliation of Non-GAAP Measures to Costs of Revenues beginning on page 38 of this document. Mining efficiency is affected by the total cost of labor and materials incurred in mining and processing ore and by net PGM production. In general, lowering costs or increasing net production per hour worked will benefit mining efficiency. Labor and materials costs are influenced by the mix of mining methods used, by the type and volume of equipment employed in the mines, by the effectiveness of mine planning and by the state of general economic conditions. The Company's net palladium and platinum production is determined by the number of total ore tons mined, the grade of the extracted ore, and the metallurgical recovery percentages achieved in each stage of processing. As discussed previously, the Company's principal operating focus in the current economic environment has been to minimize costs and maintain a stable cash position. While at times in the past the Company has sought to reduce costs by increasing mine production and thereby benefit from improved economies of scale, in practice the marginal cost of the increased production in some areas may exceed the incremental benefit. This is particularly true when metal prices are low. Consequently, during 2009, the Company has attempted to hold production at a level commensurate with available resources and instead has focused on improving mining efficiency. These efforts to improve efficiency have been broad based and include emphasis on increased productivity, better coordination among mining and support functions, strategic procurement and inventory management processes and more efficient utilization of resources. Various initiatives have been introduced in support of this objective.

The Stillwater Mine also has seen excellent efficiency improvements during 2009. Following the restructuring at the East Boulder Mine, a significant portion of the miners previously employed at East Boulder were transferred over to the Stillwater Mine, providing much-needed additional staffing for mining areas there. Several of the critical support functions at the mine, including materials and supply, muckhaul, backfill and maintenance, were revamped and made more efficient by implementing the recommendations of several cross-functional study teams that identified inefficiencies in each process. Some refinements also have been made to mining operations, including blasting methods and timing, crew rotations and turnover at shift and crew changes, thereby improving productivities. Significant training has accompanied each of these adjustments.

                                                  Three months ended September 30,                Nine months ended September 30,
                                                   2009                     2008                  2009                     2008
Stillwater Mine
Total Cash Costs per Ounce before credits      $         407          $            531        $         403          $            529
Less recycling and by-product credits                    (63 )                    (200 )                (54 )                    (178 )

Total Cash Costs per Ounce as reported         $         344          $            331        $         349          $            351

East Boulder Mine
Total Cash Costs per Ounce before credits      $         467          $            619        $         469          $            614
Less recycling and by-product credits                    (76 )                    (227 )                (65 )                    (182 )

Total Cash Costs per Ounce as reported         $         391          $            392        $         404          $            432

Please see the discussion of non-GAAP reporting measures beginning on page 38.
At the East Boulder Mine, following a brief suspension of mining and sharp cutbacks in manpower at the end of 2008, the mine workforce was restructured into a number of relatively autonomous teams, each assigned responsibility for all mining operations in a particular area of the mine. Because the average ore grade at East Boulder is consistently lower than at the Stillwater Mine, the per-ounce costs of production at East Boulder have tended to be substantially higher. Consequently, the very viability of the East Boulder Mine was put at risk when PGM prices fell in 2008. The restructured workforce at East Boulder has performed spectacularly during 2009, bringing average cash mining costs before credits (see table above) down by more than $150 per ounce, and producing in this year's third quarter about 94% of the PGM ounces produced in the same period last year, but with slightly less than 50% of the workforce. The . . .