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Derivative Financial Instruments | 9 Months Ended
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Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE FINANCIAL INSTRUMENTS | DERIVATIVE FINANCIAL INSTRUMENTS & HEDGING ACTIVITIES The Company is exposed to various market risks, including the effect of changes in metal prices and interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading or speculative purposes. The Company may elect to designate certain derivatives as hedging instruments under U.S. GAAP. The Company formally documents all relationships between designated hedging instruments and hedged items as well as its risk management objectives and strategies for undertaking hedge transactions. This process includes linking all derivatives designated as hedges to either recognized assets or liabilities or forecasted transactions and assessing, both at inception and on an ongoing basis, the effectiveness of the hedging relationships. Derivatives Not Designated as Hedging Instruments Provisional Metal Sales The Company enters into sales contracts with third-party smelters, refiners and off-take customers which, in some cases, provide for a provisional payment based upon preliminary assays and quoted metal prices. The provisionally priced sales contracts contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable recorded at the forward price at the time of sale. The embedded derivatives do not qualify for hedge accounting and are marked to market through earnings each period until final settlement. Interest Rate Swap The Company enters into interest rate swap contracts in which it receives variable-rate interest and pays fixed-rate interest. The Company uses these instruments to manage its exposure to changes in interest rates related to the RCF (see Note 8-- Debt) and does not designate the instruments as hedges from an accounting standpoint and does not apply hedge accounting. The notional amount is used to measure interest to be paid or received. During the second quarter of 2019, an interest rate swap derivative instrument, with a notional amount of $50.0 million, expired and was replaced with an instrument with a notional amount of $75.0 million, which became effective in June 2019, covering a contractual term of six months and net settles monthly. Subsequent to the end of the period covered by this Report, the Company early-settled this interest rate swap derivative instrument to reflect the Company’s reduced interest rate risk exposure. At September 30, 2019, the Company had the following derivative instruments that settle as follows:
In thousands except average prices and notional ounces | 2019 |  | Thereafter
Provisional silver sales contracts | $ | 10,406 |  |  | $ | — |
Average silver price per ounce | $ | 17.53 |  |  | $ | — |
Notional ounces | 593,523 |  |  | — |
Provisional gold sales contracts | $ | 23,032 |  |  | $ | — |
Average gold price per ounce | $ | 1,472 |  |  | $ | — |
Notional ounces | 15,652 |  |  | — |
Provisional zinc sales contracts | $ | 14,451 |  |  | $ | — |
Average zinc price per pound | $ | 1.07 |  |  | $ | — |
Notional pounds | 13,512,379 |  |  | — |
Provisional lead sales contracts | $ | 7,650 |  |  | $ | — |
Average lead price per pound | $ | 0.93 |  |  | $ | — |
Notional pounds | 8,212,898 |  |  | — |
Fixed interest rate swap payable | $ | 240 |  |  | $ | — |
Fixed Interest rate | 2.51 | % |  | — |
Notional dollars | $ | 37,500 |  |  | $ | — |
Variable interest rate swap receivable | $ | 185 |  |  | $ | — |
Average variable interest rate | 2.37 | % |  | $ | — |
Notional dollars | $ | 37,500 |  |  | $ | — |
The following summarizes the classification of the fair value of the derivative instruments:
| September 30, 2019
In thousands | Prepaid expenses and other |  | Accrued liabilities and other
Provisional metal sales contracts | $ | 785 |  |  | $ | 2,107 |
Interest rate swaps | — |  |  | 55 |
| $ | 785 |  |  | $ | 2,162 |
| December 31, 2018
In thousands | Prepaid expenses and other |  | Accrued liabilities and other
Provisional metal sales contracts | $ | 784 |  |  | $ | 644 |
Zinc options | 113 |  |  | — |
Interest rate swaps | 17 |  |  | — |
| $ | 914 |  |  | $ | 644 |
The following represent mark-to-market gains (losses) on derivative instruments for the three and nine months ended September 30, 2019 and 2018, respectively (in thousands):
|  | Three months ended September 30, |  | Nine months ended September 30,
Financial statement line | Derivative | 2019 |  | 2018 |  | 2019 |  | 2018
Revenue | Provisional metal sales contracts | $ | 233 |  |  | $ | 34 |  |  | $ | (1,461 | ) |  | $ | 15 |
Fair value adjustments, net | Zinc options | — |  |  | 225 |  |  | — |  |  | 588 |
Fair value adjustments, net | Interest rate swaps | 15 |  |  | 206 |  |  | (173 | ) |  | 18 |
|  | $ | 248 |  |  | $ | 465 |  |  | $ | (1,634 | ) |  | $ | 621 |
Derivatives Designated as Cash Flow Hedging Strategies To protect the Company’s exposure to fluctuations in metal prices, in the third quarter of 2019, the Company entered into Asian (or average value) put and call option contracts in net-zero-cost collar arrangements on a volume of 21,000 ounces of gold per month for the fourth quarter of 2019 and 12,000 ounces of gold per month for the first 8 months of 2020. The contracts are net cash settled monthly and, if the price of gold at the time of expiration is between the put and call prices, would expire at no cost to the Company. The Company has elected to designate these instruments as cash flow hedges of forecasted transactions at their inception. At September 30, 2019, the Company had the following derivative cash flow hedge instruments that settle as follows:
In thousands except average prices and notional ounces | 2019 |  | 2020
Gold put options |  |  |
Average gold strike price per ounce | $ | 1,405 |  |  | $ | 1,408 |
Notional ounces | 63,000 |  |  | 96,000 |
Gold call options |  |  |
Average gold strike price per ounce | $ | 1,798 |  |  | $ | 1,803 |
Notional ounces | 63,000 |  |  | 96,000 |
The effective portions of cash flow hedges are recorded in accumulated other comprehensive income (loss) (“AOCI”) until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of metal sales revenue are recognized as a component of net sales in the same period as the related revenue is recognized. For options designated as cash flow hedges, the total change in cash flows value will be considered when assessing of hedge effectiveness. The Company has performed an assessment and determined that the terminal value of the hedging instrument and the forecasted transaction match and has qualitatively concluded that changes in the cash flows attributable to the variability of the total sales price of gold are expected to completely offset and the hedging relationship is considered perfectly effective. Future assessments are performed to verify that critical terms of the hedging instrument and the forecasted transaction continue to match, and the forecasted transactions remain probable, as well as an assessment of any adverse developments regarding the risk of the counterparties defaulting on their commitments. There have been no such changes in critical terms or adverse developments and the Company has concluded that there is no ineffectiveness to be recorded. Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in AOCI associated with such derivative instruments would be reclassified into fair value adjustments, net in the period of de-designation. Any subsequent changes in fair value of such derivative instruments would be reflected in fair value adjustments, net unless they are re-designated as hedges of other transactions. As of September 30, 2019, the Company had $1.1 million of after-tax gains in AOCI related to gains from commodity cash flow hedge transactions. The Company does not expect to recognize any of these after-tax gains in its consolidated statement of comprehensive income during the next 12 months. Actual amounts ultimately reclassified to net income are dependent on the price of gold in effect when derivative contracts currently outstanding mature. The following summarizes the classification of the fair value of the derivative instruments designated as cash flow hedges:
| September 30, 2019
In thousands | Prepaid expenses and other |  | Accrued liabilities and other
Gold zero cost collars | $ | 1,497 |  |  | $ | — |
The following table sets forth the pre-tax gains (losses) on derivatives designated as cash flow hedges that have been included in AOCI and the consolidated statement of comprehensive income for the three and nine months ended September 30, 2019 and 2018.
|  | Three months ended September 30, |  | Nine months ended September 30,
In thousands |  | 2019 |  | 2018 |  | 2019 |  | 2018
Gains (losses) recognized in OCI - effective portion: |  |  |  |  |  |  |
Gold zero cost collars | $ | 1,497 |  |  | $ | — |  |  | $ | 1,497 |  |  | $ | — |
Gains (losses) reclassified from AOCI into net income - effective portion: |  |  |  |  |  |  |
Gold zero cost collars | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Credit Risk The credit risk exposure related to any derivative instrument is limited to the unrealized gains, if any, on outstanding contracts based on current market prices. To reduce counter-party credit exposure, the Company enters into contracts with institutions management deems credit-worthy and limits credit exposure to each institution. The Company does not anticipate non-performance by any of its counterparties.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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