Greetings and welcome to the Stillwater Mining Company’s Second Quarter 2016 Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mick McMullen, the CEO. Thank you, Mr. McMullen. You may begin.

Thank you very much and I’ve got Chris Bateman, our Chief Financial Officer here with me. And there is a deck that is available online for people to look at which I’ll refer to during the course of this presentation. So, if people want to go to Slide 2 of that deck I’ll just draw your attention to the forward-looking statements, and in particular, those statements that relate to our assumptions and expectations for some of our growth projects. And then we’ll go to Slide 3, where the second quarter highlights are listed here. In summary, I can say it was a very strong quarter for us on many fronts. Of particular importance I think was our very large improvement in safety year-on-year, we’ve seen a 60% reduction in safety incidents rate year-on-year. We saw our sales increase to about 151,000 ounces versus 133,000 for the prior year. Cost of metals sold came down by about 17% year-on-year. And our mine production was up on a year-on-year basis and reasonably consistent with the prior quarter at about 137,000 ounces of platinum and palladium. Again, whenever I talk about a PGM ounce from the mine it’s roughly at a mix of 3.3, palladium to 1 platinum. All-in sustaining cost which is sort of the measure that I typically use to sort of assess how the business is tracking. It came down to a very low $594 PGM ounce. It was a 24% reduction on the prior year and well and truly the lowest that it’s been since opening of the company. We’ve seen the trend AISC continue to come down quarter-on-quarter very consistently. And the June month actually was a very strong month. It was below the low-end of our recent sort of medium-term target of the mid-to-high 500s. Cash and…

With respect to quarterly net income as Mick said, just under $1 million. We’ve already mentioned the price recovery in the quarter and you can see that on the blue line in the graph. We also as foreshadowed last quarter drove inventories down this quarter with sales exceeding production. We would expect to continue to look at that inventory level and drive it down going forward. The recycling business as Mick said, was a strong contributor this quarter, so, all-in-all, a good quarter given the prices. And the current price hovering around the $800 per PGM ounce should continue to drive performance in the third quarter. Moving on to the next slide on the cash, again, we continue to maintain a very strong balance sheet $442.2 million of cash and highly liquid investments. The increasing volumes that we saw with the shift back to more purchase material in the recycled and the higher price of PGMs, drove working capital up by $20.5 million as volumes strengthened. In addition, we continue to self-fund all of the investments in the business. And the Blitz capital expenditure stepped up in the second quarter on a cash basis, just over $9 million compared to $5 million spent in the first quarter. So, with the increase in working capital and the continued capital expenditure, we saw an overall of around $10 million in our cash and cash equivalents. The convertible remains outstanding but not due until October 2019. So I think this strong liquidity profile gives us a lot of opportunities in the current commodity cycle.

Thanks Chris. And we might just go to Slide 10 now, which is slide we’ve been putting up for several quarters now which, where we just look at our cost a ton. And you can see a couple of highlights on that. We’ve seen the mining cost of the Stillwater Mine which historically has been much higher, down to $119 a ton, which is actually now getting to be relatively close to the East Boulder Mine, there used to be a very large gap between those two costs, it’s closing rapidly. Our milling cost at $13 a ton for each site truly is sort of best-in-class. And I would say that our recoveries in that milling in concentrating area at 92% to 93% are also best-in-class. So, again across the board, we’re just continuing to squeeze the cost down. We’re seeing a little bit of an increase in our byproduct credit process, which is helping us a bit. Those have been depressed for quite some time. So, in general on the cost control side, both sites have had a very well, including the met completes [ph] had a very strong quarter. Going on to Slide 11, I talk a lot about mine productivity. And people sort of say well, why does that matter? Well, in this basic sense, mine productivity has a very strong inverse correlation with our all-in sustaining cost. You can see on that graph there, the green line, the all-in sustaining cost has had a very strong downward trend. The blue line is one our mine productivity metrics which is ounces per employee per month, all those to one-to-one inverse correlation between those two. As I said, June all-in sustaining cost was very low. It was a very strong performance. We would like to continue to push…

[Operator Instructions]. Our first question comes from the line of Andrew Quail of Goldman Sachs. Please proceed with your question.

Hi Mick, Chris, great quarter, congratulations. I just had a few questions. Firstly on Blitz, I think it’s on Slide 16, you talked about that stope. We’re hoping to do that hopefully in 2017, is that right? And just talk about the cost profile Blitz versus the rest of Stillwater like? Is it because it’s close to surface and from rile, that the cost is low?

Yes, that’s right. So, at the moment we’re looking at late ‘17 or early ‘18 for that first stope block with 10,000 blocks to come online. And the drilling that we’ve done there, we’ve put some, put the results in the deck. The grade is very good, it’s what they call typical sort of off-shop material which is sort of what the mine had originally started on. And so, yes, the grade is higher than what we’re currently mining now. It is much closer to the portal. So in terms of getting people in and material lean, it’s a much quickly drive. And so therefore our productive day is longer. And yes, then we can drop everything on to rile and come straight out at the concentrate a little. So, it’s a factor of all those things. I will say that that ground is more challenging and we will need to do more actually some block field. But even with that we do expect to see Blitz to have much better cost profile than some of the other ounces we mine now.

Nice. Just on recycling, obviously rebound in scraps still has been good for you guys, there is capacity there. But have you got signed any new customers last quarter, I know you’re sort of couple starting in the last quarter?

I wouldn’t say we’ve seen any large major customers come on this quarter. But what I will say is some of the people we saw in the previous quarter have picked up their volumes. So it’s typically these businesses, it’s very much about getting to know the customers and they getting to know us. And over a period of time then you will grow your business with those customers.

And last one. On contract, are you still 100% with Johnson Matthey or is there you had an option to update that? And when is that contract actually come up for renewal?

That’s debt contract, there are two separate contracts, one for sales and one for refining and it’s filed. So, we the sales contract expires in about three years. And we do have the option to opt out of that with a reasonable modest period for a nominal pricing at any time. And so we sell all of our mined ounces to Johnson Matthey except for a reasonable proportion of our platinum mined ounces which goes to Tiffany.

Got it. That’s it from me. Thanks guys.

Thanks Andrew.

Our next question comes from the line of David Gagliano of BMO Capital Markets. Please proceed with your questions.

Thanks for taking my questions. I was wondering if we could just step back for a minute, I appreciate the update on the organic growth opportunities. And obviously things are going very well at Blitz cost savings initiatives progressing well self-funding Blitz based our numbers. And your balance sheet is obviously very strong. So I wanted to ask, as you think about the next three to five years, are you considering acquisitions as part of your growth strategy? And if so, is your preference for upstream PGM related acquisitions for the recycling growth or would you even look to other commodities? That’s my first question.

Well, that’s a fairly broad question Dave. But I think as I say - I would say that we would look at anything that we thought would add value to shareholders. And one part of that would be that you would look at acquisitions now. I think that our criteria for that would be very strict. And what we see is that in the upstream part of the PGM business, there are very, very limited opportunities there I would say. We feel that our shareholders would not want us to diversify into less favorable jurisdictions for instance, which I think given the location of most of your PGMs it would make that very hard. In the downstream, yes, look, we do like the downstream business. And there are downstream assets that in the PGM space that are located in reasonable jurisdictions. So I would say that we would look at them as a general observation I would say that assets appear to be trading at levels that sort of pricing high metal prices, is probably my general observation of this point. So, we would look at everything difficult you’d say never-say-never. Difficult to see that we could find an upstream asset in the PGM space that would satisfy our requirements. On the downstream side there are some potential opportunities I guess. But we need to assess what that return on a risk-adjusted basis would be for shareholders versus funding our own organic growth here as I said we’ve got lots of stuff we can do here. But if we found the right thing that we thought on a risk adjusted basis gave us a better return, you wouldn’t rule it out. And I think a lot by the equation is would we go outside PGMs, again I guess you would say you never-say-never. But obviously the further you get away from your core business the harder it is to put up a narrative around that I guess.

Okay, that’s helpful. Thank you. And then, just one quick one with regards to the commentary on Altar, I just wanted to double-check and make sure. The plan with Altar is still, if there is divestment opportunities to divest that project, is that correct?

Yes, as I’ve been very clear with the non-core assets. So I think there are multiple ways we can realize value from it. But I think it should be fairly clear that we as still would are not envisioning that we would be building a mine there.

Okay, great. And then last question.

Sorry, but I think also on the other side of that equation is that, as I’ve said from day one, I just didn’t think it was in shareholder interest to far side of asset, just for various historical reasons when, large assets in the right market that I think could be worth quite a lot of money with a very large goal credit which in this market, people seem to be interested in. So, we felt that the right thing to do to shareholders has been to spend a nominal smallish amount of money, mine timing and actually adding value to that asset to the point where for shareholders at some point we think we can realize some value.

Okay. I just have one last one real-quick from me. Obviously a lot of talk about cost savings and there has been quite a bit of progress there at the Stillwater Mine. I wanted to reverse it a little bit that last year the two highest cost stopes offline, prices are starting to recover. Would you consider bringing higher cost stopes back online if prices continue to recover and roughly what would that - what would the price - what price will be needed to get to that, to bring those two back on?

Well, it’s prudentially priced. So, we have just, you have an industry cost curve, we have a mine and stope-by-stope cost curve. So there is no one-price that we need to bring all of our stopes back online. It’s really just, if we brought it back online, is that stope making money. And for different stopes there is a variety of different prices. I will say that I spent the first year and half, two years of my tenure very much focused on stripping costs out to get the culture out so that we’re focused on getting the cost right and profitability of stopes. You will notice that we are now pushing ounces. I feel that we have the culture, internal culture right where people, we can push ounces without losing focus on cost. So, the guidance indicates that in the last two quarters that we are starting to push ounces up higher. We have gold now part of the sort of gold to get cost down lower. An integral part of that equation is to produce more ounces.

Okay, great. Thank you.

Our next question comes from the line of John Bridges with JPMorgan. Please proceed with your question.

Hi Mick, everybody. Congratulations again on the results. You sounded quite excited about Altar. What other alternatives are there to monetize that?

Yes, look, well, I am excited. I guess I was a geologist originally. And I think the drilling actually, this is the first time the Company has sort of really done any true exploration apart from sort of just drilling out what was known there. Look, obviously the optimal way to realize value for shareholders is to sell it all for cash to someone. And may or may not happen. But there are other ways where we could look at some alternatives like a joint venture with someone who wants to build something or we could look at potentially listing acceptably. Those plans are not underway as we speak. But as we see the market improve and we’ve done the work to add value to the asset, I think those are all options that we could look at. And the fact that we had such a strong balance sheet and haven’t been forced to act on that asset or have not been able to spend the money that is needed. I think there has been a better value creation strategy for the shareholders than if we just pass out at the bottom of the market for instance.

Right, right. And the cost cuts just seem to continue. How much more potential do you think there is there? How far up the sort of cost cutting learning curve you see yourself? And then you were talking again about technology, what are the technologies are you thinking of bringing in and what do you think their impact would be?

Yes, again, well, again we’ve, as I think I’ve said, we’ve been taking us in mine management touring in minds in Australia and Canada and looking at what other people do. We benchmark our productivity. So, whilst we’ve had a very respectable improvement in productivity. That benchmarking indicates that we’re probably I’m single-heading development for argument sake. We maybe halfway of where we could be potentially. And that has a similarly large impact on your cost, so not only that does two things, one: you can accelerate your projects and two: you can get the cost of doing it down. The technology things, it’s like automated LHDs. It’s allowing you to work from surface on shift chain, so you pick up an extra two-hour as worth a day. The remaining things, one thing that is going to have a massive improvement on its own but the remaining things that we are in the process of implementing that I think had big potential, the tracking of people and equipment, which is underway now. And we’ve done some things like the rapid map which I think I spoke about on one of the calls where for very normal number, $120,000 we put a system in place at one of the mines that allows us to track accurately how much dilution we’re getting. And we’ve seen that dilution in terms of feet of extra over-break path since about November at the Stillwater Mine. So, lots of things. Where can we get to? I’d like to see us as I say at least in the middle of the pack or even leading edge. We’ve still got a long way to go to get there. Now, it’s all about colorful change. We do need to spend some money. It’s not tens of millions of dollars, but it will be $5 million to $10 million over the next 12 months that we will spend in sustaining CapEx which I will have to take on my all-in sustaining cost. But if we do so, it benefits our 12 to 24-month period out of that. So, I know my mine management will not want to give a firm answer of where we think we can get to. But all I can say is when we benchmark ourselves, we still have a long way to go to get to best-practice I would say.

Very impressive. And you mentioned in I think in response to Dave the way you took steps off proactively at the end of last year. So, should we expect the production that you’re forecasting for the rest of the year to be sort of weighted in the Q3 with a bit of a fallback in Q4?

Yes, that’s probably a fair comment actually. I think November/December, we do have to take a couple of our best stopes of line of the Stillwater Mine in order to get that 32-pass system in we’ll arrive on the 2,000. And so therefore we’re working around it. But you could see production in Q4 being, not a lot weaker but a little weaker potentially.

Okay, cool. Many thanks and best of luck.

Our next question comes from the line of Lucas Pipes of FBR & Company. Please proceed with your question.

Hi, good day everybody. I wanted to follow-up a little bit on Dave’s question. With kind of regarding M&A. But it sounded like it’s pretty hard to check all the boxes on the M&A front. And in light of that, Mick, how do you think about allocation of capitals, could you share with us kind of your priority list to what’s the first use and then going down the list from there? Thank you.

So, thanks. And well, yes, look, I would say that on M&A you’re getting, you would never-say-never but we do have a pretty stringent list of things that would need to happen for us to deploy the capital externally. So, then it comes down to, we’re obviously funding Blitz as a growth project. And we’re still funding that out of operating cash flow broadly. We then look at well, do we return some cash to shareholders or do we move on and do say for instance a Lower East Boulder project as a growth. And we find shareholders depending on where they are and who they are, who have got different views on what they would like to see us do. I would say I don’t feel the need, I have to spend the money. But at some point we would like to get to a point where we could give a return to shareholders. And it’s just a balancing act between obviously prices six months ago were lot worse than where they are today. And we want to be very conservative the way we run the balance sheet. I think it’s the best outcome for shareholders to not get forced into something in an emergency, so very solid balance sheet is number one priority for us. But if prices stay at these levels, we clearly will have some surplus cash that we could look to maybe return at some point.

Very interesting. Thank you for that. And then, a follow-up on the recycling business. You mentioned you still have excess capacity there and it’s a priority for you to improve that. And I was looking for maybe a little bit more color about the steps you’re taking there and over what timeframe we could maybe model higher utilization rates? How should we think about that? Thank you.

It very much comes down to what contracts we can sign up. But in general we target that we’d like to grow that business by about 10% CAGR. Now, obviously we’ve done a bit better than that. But however, let’s call it a three to five year horizon. That’s about the sort of CAGR that we look to, we really want to try and get to.

Very interesting. So, and from here on out going forward 10% CAGR over the next three to five years is what we should be looking at?

That’s what I’m hoping for. Now, it might be lumpy as and when contracts come on and come off. But if you average that over that period, yes, that’s about what we’re looking for.

Very good. Thank you very much. And good job.

Thanks.

There are no further questions in the audio portion on the conference. I would now like to turn the conference back over to management for closing remarks.

Thanks everyone for taking the time to dial-in. And we look forward to speaking again at the third quarter results. And I’d just like to thank everyone again.

This concludes today’s teleconference. Thank you for your participation. You may disconnect your lines at this time.