From our perspective, we believe the new Board (if stockholders agree to put in place a new Board), should take the following concrete actions:
- First, the Company’s Chief Executive Officer, Mr. McAllister, should be replaced by a proven executive with a commitment to operating the Montana mines efficiently and to ridding the Company of its prospecting and speculative investments in Canada and Argentina. Mr. McAllister has had his chance; he has served as Chief Executive Officer and Chairman for more than a decade. And while the incumbent Board has rewarded him handsomely – with more than $39 million in pay over that time – stockholders are worse off; the Common Stock is down 64% (through March 25, 2013) during his tenure and stockholders have lost nearly $900 million in value. The Company needs new leadership and the alignment of executive pay with performance.
- The Nominees have not selected a replacement Chief Executive Officer, but we believe there are many qualified executives that could effectively lead the organization and know that there are executive recruiting firms with experience in the mining industry that stand ready to assist the Nominees in identifying, recruiting and hiring such a candidate. We would expect the Nominees to consider, among other things, a candidate’s (i) professional record in the mining industry for enhancing stockholder value, optimizing operations, allocating capital, managing executives and labor, operating safely and in an environmentally responsible manner, marketing and selling, raising capital efficiently, and operating with lean corporate overhead; (ii) strategic commitment to the Company’s Montana PGM operations; (iii) cultural fit with the Company’s key constituents, such as stockholders, labor representatives, customers and regulators; (iv) reputation for integrity and transparency; and (v) public company leadership experience. We understand that the Board has a succession plan that, presumably, provides for interim leadership in the event Mr. McAllister decides to leave before a replacement can be named. If the succession plan does not include a plan for interim leadership, we believe one or more of the Nominees is qualified to serve as interim management.
- Second, the Company should cease all spending in Argentina, except that which is absolutely necessary, and look to sell the Altar asset as soon as practicable. With the current political and currency environment, it may be hard to sell Argentinian assets today, but there should be no further cash flow leakage to a speculative project in such an unstable part of the world. This asset should essentially be reclassified as “held for sale.”
- Third, the Company should quickly determine whether its Canadian asset is worthy of further development or whether the due diligence mistakes made by the Company are so severe as to render the project uneconomic. We hope the Company will be lucky and these PGM assets can be profitable for stockholders going forward, but we certainly think no additional betting should be done without first accurately assessing the resource. In particular, the Company has stated that it plans to spend approximately $21.9 million in 2013 on the Marathon project, a significant portion of which is spending on environmental studies and local approvals, which are only valuable if the resource is economic to mine. We believe that the Company should refrain from making these expenditures until it can demonstrate that the project is economic and that the prior due diligence mistakes are not so severe as to render the project unable to generate a sufficient rate of return.
- Fourth, the Company should accelerate in any way possible, including increased capital spending, the mining of PGMs from its Montana properties. Development of the Graham Creek, Blitz and Far West areas of the J-M Reef should proceed as quickly as practicable to bring production from these areas online as soon as possible. We believe the other potential Montana mine expansion projects identified by the Company in 2010 should be re-evaluated in the context of applying substantially all of Stillwater’s financial resources to Montana and the massive J-M Reef, without the diversion of foreign acquisitions or the unnecessary spending on uncertain foreign projects. We believe that it may be feasible to develop profitably additional access to the J-M Reef and that once such access is available, Stillwater will be able to increase its production of PGMs. Stockholders are not well served by resources that remain buried.
- Fifth, all spending on the Alliance should be suspended unless and until the Alliance can attract other palladium suppliers as supporters. We are, as noted, skeptical of the value of this spending; in all events, the Company should not be carrying the industry by itself. A full accounting of the Alliance’s financials and the identity of its owners should also be provided to stockholders.
- Sixth, a complete review of all overhead and administrative spending should be conducted with a goal of bringing spending levels back to those in the early 2000s. There is no excuse for mining markedly fewer ounces with higher administrative and selling expenses.