During 2010, Stillwater Mining's (NYSE: SWC) shares embarked on a steady uphill climb. In 2011, the stock retreated down the mountain swiftly. What will be the story in 2012? Let's look at the buy, sell, and hold arguments for this Montana-based mining company.

Stillwater extracts, processes, and refines platinum and palladium metals in Montana's J-M Reef rock formation, currently home to the only key source of these metals in the U.S. Stillwater's customers, including Ford (NYSE: F) and General Motors (NYSE: GM), create automotive catalysts from platinum and palladium, which limit harmful emissions in their cars. On the other hand, customers like Tiffany (NYSE: TIF) craft these metals into fine jewelry (for individuals who probably don't drive Ford or GM vehicles). Kidding aside, the market for these metals is growing, and Stillwater Mining could be poised to take advantage of a dwindling Russian stockpile.

Down 54% from a peak in July, Stillwater looks like a bargain. The market responded negatively to a recent acquisition of Peregrine Metals, and the stock's subsequent decline places it in an attractive range. Compared to its peers, Stillwater trades at a slight discount with a price-to-earnings ratio of 8.4 compared to an industry average of 9.8.

Revenue has increased 17%, 31%, and 14% in the past three quarters, partly due to a positive rebound in the auto market. As of November, year-over-year U.S. auto sales have increased 9%, 11.8%, and 25.5% for cars, light-duty trucks, and SUVs, respectively. Even if auto sales taper off, the investment in Peregrine could provide diversification through copper and gold deposits in Argentina.

Further, a shaky stock market and inflation fears often leave investors clamoring for commodities like gold, platinum, and copper. In recent years, these factors and surging demand in China have led to soaring metals prices. Stillwater's diverse metal resources make the company an attractive investment for investors bullish on commodities for the decade ahead.

Stillwater's financial results can fluctuate wildly from year to year, making this pure-play mining company unattractive for the faint of heart. Sure, the price multiple might look attractive today, but Stillwater's beta stands at 2.81. In other words, Stillwater's performance tends to follow the broader market, and a market movement of 10% could be accompanied by a 28% swing for Stillwater's stock.

On top of the volatility risk, Stillwater is not in the practice of shoveling dividends. Investors looking for consistent returns in the form of cash would do better with industry peers like Rio Tinto (NYSE: RIO), Barrick Gold (NYSE: ABX) and BHP Billiton (NYSE: BHP), which offer yields of 2.3%, 1.3%, and 3.8%, respectively. Considering the economic climate in Europe and the uncertainty around the 2012 elections, investors might want to avoid volatile stocks lacking regular dividend streams.

Following the acquisition of Peregrine in July, Stillwater CFO Greg Wing discussed the company's outlook with the editor of a commodities website. When asked about the acquisition of the South American mine, Wing made an interesting point: "It's not a mine, it's a property."

In other words, the company will need to invest heavily in the property before it can begin mining. Beyond the $450 million price tag, Wing noted, "It would be somewhere between $2 billion and $2.5 billion to develop it. We're still probably five years from the time when that financing would be necessary."

For investors, the implications of this time frame are significant. Shareholder concerns over the purchase price might be justified, and waiting around five years to find out what the property is really worth could be frustrating and futile.

The final call
Stillwater remains a popular pick on CAPS, where 93% of those rating the mining outfit think it will outperform the broad market averages. I, however, am less optimistic. While I believe there could be some riches in the copper and gold properties, I recommend a hold for Stillwater in the near term. This particular stock has proven highly volatile, and the payoffs from the South American assets may take years to uncover.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.