--Stillwater CEO says Argentina acquisition was right choice

--Shareholder Clinton Group has nominated board candidates

--U.S. palladium miner Stillwater has expanded with acquisitions in Argentina, Canada

Stillwater Mining Co. (SWC) Chief Executive Francis McAllister meant for his company's acquisition of copper deposits in Argentina to serve as a lifeline if its precious-metals business ran into trouble. Now, it threatens to cost him his job.

The purchase of the 29,000-acre Altar deposit in the mountains of Argentina was a sore spot with some investors as soon as it was announced in July 2011. They worried the palladium mining company had overpaid for assets far from both its Montana base and its area of expertise.

Since then, Stillwater has put the project on the backburner, Mr. McAllister said in an interview. He described the deposits as potentially vital if precious-metal prices fall but said the company was concentrating on other projects.

"It's an extraordinary property," Mr. McAllister said. "Is it critical to us? Not as critical as when we [bought] it."

A New York hedge fund with a 1.2% stake in Stillwater is arguing the management team should go, citing Altar and what it calls a wasteful palladium promotional campaign that at one point enlisted Pamela Anderson and Kelly Osbourne. Clinton Group Inc. has proposed its own candidates for the board of directors, with the goal of unseating the current directors and forcing Mr. McAllister's ouster.

Among Clinton's candidates is former Montana Gov. Brian Schweitzer, a Democrat who left office two months ago after term limits prevented him from seeking re-election. Mr. Schweitzer owns 29,000 shares of Stillwater, Montana's largest corporation by market capitalization, Clinton said in a regulatory filing.

Mr. McAllister, 70 years old, has been Stillwater's chairman and CEO since 2001 and said he isn't stepping down. Both sides have about a month to make their case ahead of a shareholder vote scheduled for the company's annual meeting on May 2.

"We're staying the course," Mr. McAllister said. "We have a great board."

The fight to control Stillwater comes during a period of turmoil in the mining industry, as investors voice frustration with share prices and spending on big projects. During the last year, chief executives at Rio Tinto PLC (RIO, RIO.LN), Anglo American PLC (AAUKY, AAL.LN) and Barrick Gold Corp. (ABX, ABX.T) were removed by their boards for boom-era dealmaking that led to write-downs and a slump in share prices.

Mr. McAllister said the Argentine acquisition was the right decision at the time. But now, with the company developing its first mine in Canada and expanding its flagship mines in Montana, Argentina can wait.

"We can back off a bit," Mr. McAllister said. The company has trimmed its spending there and expects drilling results to give it a better idea of what to do with the prospective mine by the third quarter.

Rio Tinto sold the concessions that would form Altar to Peregrine Metals Ltd. in 2009 for $2.7 million. After two years of development work and expansion of the claims, Stillwater's initial $487 million bid to buy Peregrine was at a 290% premium to its share price, stunning investors and sending Stillwater shares down 22% at the time.

Stillwater's shares are still worth about half of their recent peak of $25.51, reached in 2011 before the acquisition. Shares were recently up 0.9% at $12.91.

Mr. McAllister said Stillwater was unlikely to make a deal on the scale of Altar as the company pursues its current strategy. "Would we do it again? No."

Clinton is pushing for a sale of the Argentine property.

The move to "diversify the company away from its historical roots and become a more global and diversified mining company...have been bad decisions in our view," said Greg Taxion, a managing director with Clinton and one of the group's eight board candidates.

Clinton also criticizes the company's creation and funding of a market-development group to tout palladium.

Palladium Alliance International, formed in 2006, has marketed the metal beyond its most common use, as a component of autocatalysts, which scrub emissions from automobile exhaust.

Mr. McAllister says the work is necessary to stoke palladium demand and substitution for platinum, which is also used in jewelry, automobiles and as an investment. "I'm the only one who's informing the market what the value proposition is for palladium," he says.

Write to Matt Day at matt.day@dowjones.com

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