Judge OKs GM’s move to drop Montana mine contract

Wednesday, July 22, 2009

Judge OKs GM’s move to drop Montana mine contract

Associated Press

Billings, Mont. — A bankruptcy judge on Wednesday granted General Motors Co.’s request to drop its precious metals contract with a Montana mining company so it can instead use cheaper foreign suppliers.

Stillwater Mining Co. attorney Garry Graber said the cancellation was approved Wednesday following a hearing in U.S. Bankruptcy Court in New York.

"They could possibly appeal, but they are assessing that right now," Graber said.

GM canceled the contract to slim down expenses as it emerges from federal bankruptcy protection.

The Detroit company is keeping its two other precious metals suppliers, based in Russia and South Africa. That has drawn a political backlash from elected officials in Montana who say the taxpayer bailout of the automaker is effectively subsidizing mining jobs overseas.

For the last decade, Stillwater has supplied GM and other automakers with palladium and rhodium, which are used to make catalytic converters that filter pollutants from vehicle exhaust. In court filings, Stillwater argued GM was compelled to honor its sole domestic contract for those metals as the recipient of up to $50 billion in government loans.

The deal between the two companies included a floor price requiring GM to often pay above market value for Stillwater’s metals. GM also had to buy a certain amount of metal every year.

In exchange, the automaker was guaranteed a steady supply of materials and a discount if metals prices soared. But with vehicle production on the decline and cheaper metals available elsewhere, GM said the agreement no longer made sense.

"GM was left with no other decision," said company spokesman Dan Flores. "We were in discussions with them for months on end. We just couldn’t come to an agreement."

Stillwater Vice President John Stark disputed that. He said negotiations already had resulted in two amendments to the contract that were more favorable to GM. As a third amendment was nearing completion, the talks ended abruptly when GM said it was dropping the Montana company, Stark said.

It’s uncertain how the cancellation will play out for miners.

Columbus-based Stillwater employs more than 1,300 people and runs the only mines in the United States producing the metals, about 90 miles southwest of Billings.

Company officials have warned that hundreds of jobs were on the line with the GM agreement.

The GM contract accounted for about 11 percent of Stillwater’s 2008 revenues. That’s only about one-third of the size of Stillwater’s contract with Ford Motor Co., which is set to expire at the end of 2010.

Stillwater already had gone through a belt-tightening last year as precious metal prices plummeted. To become more efficient, the company reduced its work force by about 16 percent.

Stillwater in May reported a first-quarter loss of $11.6 million on revenue of $85.8 million. That’s down from a 2008 first-quarter profit of $2.8 million on revenue of $186.4 million.

Stillwater shares fell 15 cents, or 2.4 percent, to $6.20 in afternoon trading.

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