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COLUMBUS - Stillwater Mining Co. may have to restate last year's net income if it has to revise probable mineral reserves to comply with Securities and Exchange Commission accounting standards.

Stillwater, a platinum and palladium producer, issued a statement acknowledging that having to restate earnings could place the company in violation or default of credit agreements.

"Any adjustment could be material," the firm said.

"While the company is in compliance with its credit agreement, an adverse decision with respect to its reserve methodology could result in violations of, or a default under, the credit agreement."

The market reacted quickly to news of the company's latest trouble.

Share prices had been approaching $20, but fell 22 percent. At the close of trading, the price was $15.47, a drop of 17 percent from the prior day. Volume was heavy with 4.7 million shares traded. The average is about 330,000 per day.

The company will "vigorously defend" its position on reporting reserves and will pursue all avenues of appeal, said Stillwater Chairman and CEO Frank McAllister.

He said the company's reporting methods have been reviewed since 1994 by an independent consultant, Behre Dolbear & Co. A second consulting company also reviewed the company's method of reporting reserves and found it in compliance with SEC guidelines, he added.

The proven reserve accounting is not affected by the SEC's decision, according to the company.

Stillwater Mining was not alone in having the SEC review its reporting, said analyst Geoff Stanley with Nesbitt Burns Securities, one of a dozen companies listed on the company's Web site that track Stillwater's performance.

"I suspect the disappointing operational performance indicated problems that made the SEC less confident about allowing drilling data to go unchecked, Stanley said.

While Stillwater's proven reserves were not an issue, the probable reserves are 90 percent of the mineral reserves, according to a Goldman Sachs report.

"If there's doubts about how good the probable reserves are, it probably originates from drilling," Stanley said. "If the drilling isn't dense enough, the SEC might reason the quality of probable reserves is in doubt."

But, Stanley said, regardless of whether the SEC is correct, it "adds another element of uncertainty" about the company for the market.

Stanley said Behre Dolbear & Co. is "highly regarded," meaning that Stillwater's accounting is likely to withstand SEC scrutiny.

"The mineral deposits are still there, so, even if they have to restate the probable reserves, it doesn't mean they've gone away," he said.

The problem is how long it could take the SEC and Stillwater to resolve the issue. While that occurs, "a cloud is over the company and makes investors nervous," he said.

"How long is a piece of string?" Stanley said about the time it could take the SEC to make a decision. "It could be a couple weeks or a month."

Stanley said the target price he has for company stock is $15.

"It looks like it's approaching that number today," he said.

A second analyst following Stillwater said the SEC issue is one that he anticipated.

"I've told them they weren't doing enough drilling to validate the uniformity of the mineralization," said Victor Flores of HSBC Securities.

Admitting that he is "not a fan of this company," Flores said the SEC review of Stillwater's probable reserves "is not good news."

"Fan or not, it's a serious issue for the company," he said.

Flores said there are three scenarios for Stillwater. The SEC could conclude that it was too harsh in doubting the company's accounting.

Or the SEC could make the company restate its probable reserves, which then means reducing prior earnings, Flores said. Stillwater could salvage the situation by writing down its assets.

Finally, the SEC could make Stillwater restate reserves, reduce earning, and the revisions would annoy lenders, he said.

"Things could get nasty, but the banks wouldn't want the company to default so they would be unlikely to make demands that closed them down," Flores said.

But they could assert more control, and that could mean a management change as well as operational changes.

"There are a lot of ifs," Flores said. "I'll say one thing. This company cannot fault 9/11 for its troubles. I'm in Manhattan. and I know … what 9/11 did, but this company's problems have gone on for three years."

Flores said he put the target price for Stillwater at $12.

"I don't think this stock has hit where it should," he said.

For the year ended Dec. 31, 2001, Stillwater earned $65.8 million on revenue of $277.4 million. Stillwater trades on the NYSE under the symbol SWC.

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