August 3, 2011 / 2:43 PM / in 6 years

UPDATE 2-Platinum miner Stillwater's Q2 profit misses

* Q2 EPS 39 cents vs Wall Street view 42 cents

* Revenue up 65 pct to $222.6 mln

* Stock rallies - up 6 percent (Adds CEO comments, stock rallies)

By Steve James

NEW YORK, Aug 3 (Reuters) - Platinum and palladium producer Stillwater Mining Co’s SWC.N quarterly profit almost tripled and the company’s shares rallied on Wednesday after its CEO told skeptical Wall Street analysts why it wants to diversify into copper and gold.

“The rising price of gold has been one of the top commodity stories of the past year,” Francis McAllister said.

“We believe the copper story is already well-known,” he told the analysts on a conference call.

McAllister, who is also chairman, spent most of the call justifying the company’s recent plan to acquire Canadian exploration company Peregrine Metals PGM.TO, which owns an undeveloped copper and gold property in Argentina.

Since the $450 million deal was announced last month, Stillwater’s stock has fallen 37 percent.

On Wednesday, after its second-quarter profit missed Wall Street estimates, Stillwater shares fell as much as 2 percent. But after McAllister spoke, they rallied and in afternoon trade were up 3.6 percent at $15.29 on the New York Stock Exchange.

Analyst Leon Esterhuizen, of RBC Capital Markets, said investors were confused by Stillwater’s move to diversify when many held the company’s stock because it was the only U.S. supplier of platinum group metals (PGMs).

Another analyst noted Stillwater’s value had declined by about $1 billion as a result of the stock drop since the deal was announced. He asked McAllister outright whether the company had made a strategic mistake and if it had plans to extricate itself from the proposed deal.

”The answer to both is no. We do not want to extricate ourself from the transaction,“ the CEO said. ”What we want to do is regain the value we lost; we recognize the loss of value, but I can’t argue with your concern or your question.

“The answer to the second is no there is no way for us to extricate ourselves from the transaction,” McAllister said.

Earlier he said the Peregrine acquisition was attractive because of record gold prices and strong copper prices.

“We expect the pricing environment remains strong with appreciation for 2014 and beyond driven largely by macroeconomic factors such as the Europeans solving the debt crisis, general weakness in the U.S. dollar and investment demand from nations seeking to diversify beyond the dollar as reserve currency.”

He said although Peregrine’s Altar porphyry copper-gold deposit in Argentina had no proven and probable reserves, “it does have a published Canadian National Instrument 43-101 measured and indicated resource of about 7.4 billion pounds of copper and 1.5 million ounces of gold.”

“The Altar porphyry copper-gold deposit is a high-quality resource opportunity that has the potential to create significant long-term value for Stillwater,” McAllister said.

He expected engineering and feasibility studies would cost about $25 million per year.

Stillwater posted second-quarter net profit of $42.7 million, or 39 cents a share, up from $14.6 million, or 15 cents a share, a year earlier. Analysts were expecting 42 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose 65 percent to $222.6 million on higher metals prices. Stillwater said average realization on palladium sales was $752 per ounce in the quarter, up from $491 in the same period in 2010. The average net realization on platinum was $1,769 per ounce, up from $1,526.

The Columbus, Montana-based company said production costs per ounce fell 9.6 percent to an average of $384.

In the second quarter, Stillwater produced 142,700 ounces of platinum-group metals -- 108,900 ounces from the Stillwater Mine and 33,800 ounces from the East Boulder Mine, both in Montana. Both platinum and palladium are in great demand from the auto industry, where they are used in the production of catalytic converters.

Stillwater forecast palladium and platinum output of 515,000 ounces this year, up from its prior view of 500,000 ounces.

Reporting by Steve James with additional reporting by Vaishnavi Bala in Bangalore; Editing by Viraj Nair, John Wallace and Bernard Orr

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