Why Stillwater Mining Shot Upward in 2012

The year is nearing its end, and now's a good opportunity to look at what happened throughout 2012 to the stocks you follow. If you know the important things that a company achieved, as well as any challenges it failed to overcome, then you can make a better decision about whether it really deserves a spot in your portfolio.

Today, I'll look at Stillwater Mining (SWC). The mining company is the only producer of platinum and palladium in the U.S., giving it unique exposure to metals that are both precious and vitally important for industrial purposes. Yet with the company having taken steps to diversify its operations last year, Stillwater isn't just a platinum-group metals company anymore. Read on for more about what happened with shares of Stillwater Mining this year.

Stats on Stillwater Mining

Source: S&P Capital IQ.

What pushed Stillwater Mining higher in 2012?
Much of the reason for Stillwater's rise in 2012 can be traced to rising platinum and palladium prices. Bullion funds ETFS Physical Platinum (PPLT -0.80%) and ETFS Physical Palladium (PALL -0.18%) posted gains of about 10% over the past year, helping to support Stillwater's profitability.

But the company hasn't been entirely shareholder-friendly. In October, Stillwater said it would offer $345 million in convertible 20-year notes. Although the notes carry a very low interest rate of 1.75%, they give bondholders the right to convert their bonds into stock at an initial price of $16.53 per share. Although that's well above the current share price, it still will potentially dilute current shareholders if Stillwater stock moves higher.

Admittedly, Stillwater has fared much better than rival North American Palladium (PALDF), which has seen its shares lose half their value. But both companies rely on demand from automakers, which use platinum-group metals for catalytic converters. With European economic woes posing a big problem for the auto industry, weak auto-sales expectations are hurting Stillwater's prospects. Moreover, with Tiffany (TIF) and other high-end jewelers starting to face difficulties from high-end shoppers dealing with fiscal cliff concerns, the prospect of increased jewelry demand for platinum-group metals is questionable at best.

Although Stillwater has done fairly well in 2012, investors are looking for action. With shareholder Clinton Group seeking the retirement of CEO Frank McAllister and pointing to "strategic missteps" such as the purchase of Peregrine Metals last year, the spring shareholder meeting should be an interesting one for the mining company. What happens there could define how Stillwater performs in 2013 and beyond.

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