Montana gov blasts GM mine contract cancellation

BILLINGS, Mont. - Gov. Brian Schweitzer is calling on the Obama administration to force General Motors to honor its contract with a Montana mining company instead of going overseas to buy the precious metals used to control vehicle pollution.

By failing to shield the platinum and palladium mines, the Democrat said Friday that the administration had shown a bias against his state — at a time when other U.S. jobs were protected with a "buy American" clause in the $787 billion stimulus act. GM is shedding its contracts with Stillwater Mining Co.'s platinum and palladium mines as part of the automaker's emergence from bankruptcy protection.

Details of the case paint a complex picture: GM was effectively subsidizing production by Stillwater, often paying above market price for the metals. And since 2003, the mines have been majority-owned by a Russian company, Norilsk Nickel.

GM's reorganization is fueled by $50 billion in government loans. The loans are separate from the stimulus bill.

"When it comes to protecting the industries of the Midwest it's buy American first," Schweitzer said. "When it comes to Montana, they say buy anywhere but Montana."

The state's sole U.S. representative, Republican Denny Rehberg, said it was "beyond outrageous" that GM would use bailout funds to "move American jobs overseas."

Platinum, palladium and a third metal produced by Stillwater, rhodium, are used in catalytic converters to control car pollution.

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.

With platinum and palladium mined in just two other countries, Russia and South Africa, Schweitzer said GM's cancellation would put the U.S. at a strategic risk and hurt the mining industry.

A White House spokesman declined comment.

All the palladium and 70 percent of the platinum produced by Stillwater's mines had gone to GM and Ford Motor Co. Stillwater representatives won't give specifics on how much GM's contract was worth. It had been set to expire in 2012.

Stillwater Vice President John Stark said the contract cancellation will be challenged at a July 22 hearing in U.S. Bankruptcy Court in New York.

Detroit-based GM defended its decision to cancel the Stillwater contract, saying the deal had been "uncompetitive" and could have hobbled its efforts to repay the government loan.

"We will continue to make difficult decisions that best position the new GM for long-term viability," said GM spokesman Dan Flores. "There is an obligation to the taxpayers to provide a return on their investment to our company."

The contract set a floor price requiring GM at times to buy metals at prices above those on the open market. It also set production volumes, meaning GM had to keep buying a set amount from Stillwater even as its vehicle production fell from 9.2 million cars in 2006 to 8.4 million last year.

The Ford contract has similar terms.

At recent palladium market prices, the contracts had been shielding Stillwater from the equivalent of $57 million in lost annual sales, according to the company's filings with the Securities and Exchange Commission.

Norilsk controls 53 percent of Stillwater's stock.

If the Obama administration does not intervene and Stillwater fails to get relief through bankruptcy court, the company would have to file a claim for its losses and line up alongside the automaker's many other creditors.

It's not uncommon in such cases for creditors to walk away with pennies on every dollar owed.

Beyond its GM contract woes, Stillwater Mining has been hit by falling commodity prices that last year led it to shed 16 percent of its work force.

The company 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.

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