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Derivative Financial Instruments | 3 Months Ended
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Mar. 31, 2020
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, foreign currency exchange rates 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. At March 31, 2020, the Company had the following derivative instruments that settle as follows:
In thousands except average prices and notional ounces | 2020 |  | Thereafter
Provisional silver sales contracts | $ | 4,500 |  |  | $ | — |
Average silver price per ounce | $ | 14.86 |  |  | $ | — |
Notional ounces | 302,871 |  |  | — |
Provisional gold sales contracts | $ | 8,346 |  |  | $ | — |
Average gold price per ounce | $ | 1,596 |  |  | $ | — |
Notional ounces | 5,230 |  |  | — |
Provisional zinc sales contracts | $ | 11,769 |  |  | $ | — |
Average zinc price per pound | $ | 0.86 |  |  | $ | — |
Notional pounds | 13,615,188 |  |  | — |
Provisional lead sales contracts | $ | 3,028 |  |  | $ | — |
Average lead price per pound | $ | 0.79 |  |  | $ | — |
Notional pounds | 3,830,017 |  |  | — |
The following summarizes the classification of the fair value of the derivative instruments:
| March 31, 2020
In thousands | Prepaid expenses and other |  | Accrued liabilities and other
Provisional metal sales contracts | $ | 1,023 |  |  | $ | 46 |
| December 31, 2019
In thousands | Prepaid expenses and other |  | Accrued liabilities and other
Provisional metal sales contracts | $ | 753 |  |  | $ | 275 |
The following represent mark-to-market gains (losses) on derivative instruments in the three months ended March 31, 2020 and 2019, respectively (in thousands):
|  | Three Months Ended March 31,
Financial statement line | Derivative | 2020 |  | 2019
Revenue | Provisional metal sales contracts | $ | 500 |  |  | $ | 250 |
Fair value adjustments, net | Interest rate swaps | — |  |  | (46 | )
|  | $ | 500 |  |  | $ | 204 |
Derivatives Designated as Cash Flow Hedging Strategies To protect the Company’s exposure to fluctuations in metal prices the Company entered into Asian (or average value) put and call option contracts in net-zero-cost collar arrangements. 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. To protect the Company’s exposure to fluctuations in foreign currency exchange rates for subsidiaries whose functional currency is U.S dollar and are exposed to forecasted transaction denominated in the Mexican Peso and the Canadian Dollar, in March 2020, the Company entered into foreign currency forward exchange contracts to manage this risk and designated these instruments as cash flow hedges of forecasted foreign denominated transactions. At March 31, 2020, the Company had the following derivative cash flow hedge instruments that settle as follows:
In thousands except average prices and notional ounces | 2020 | 2021
Gold put options |  |
Average gold strike price per ounce | $ | 1,447 |  | $ | 1,600 |
Notional ounces | 153,000 |  | 12,000 |
Gold call options |  |
Average gold strike price per ounce | $ | 1,826 |  | $ | 1,800 |
Notional ounces | 153,000 |  | 12,000 |
Foreign currency forward exchange contracts - Mexican Peso |  |
Average Mexican Peso exchange rate | 24.09 |  | 25.00 |
Notional US dollar | $ | 45,000 |  | $ | 60,000 |
Foreign exchange forward exchange contracts - Canadian Dollar |  |
Average Canadian Dollar exchange rate | 1.44 |  | — |
Notional US dollar | $ | 25,000 |  | $ | — |
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. Deferred gains and losses associated with cash flow hedges of foreign currency transactions are recognized as a component of costs applicable to sales in the same period the related expenses are incurred. As of March 31, 2020, the Company had $0.1 million of after-tax gains in AOCI related to gains from 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:
| March 31, 2020
In thousands | Prepaid expenses and other |  | Accrued liabilities and other
Gold zero cost collars | $ | 27 |  |  | $ | — |
Foreign currency forward exchange contracts | 65 |  |  | — |
| $ | 92 |  |  | $ | — |
| December 31, 2019
In thousands | Prepaid expenses and other |  | Accrued liabilities and other
Gold zero cost collars | $ | — |  |  | $ | 136 |
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 months ended March 31, 2020.
In thousands | December 31, 2019 |  | Amount of Gain (Loss) Recognized in Other Comprehensive Income |  | Less: Amount of Gain (Loss) Reclassified From AOCI to Earnings |  | March 31, 2020
Gold zero cost collars | $ | (136 | ) |  | 163 |  |  | — |  |  | $ | 27 |
Foreign currency forward exchange contracts | $ | — |  |  | 65 |  |  | — |  |  | $ | 65 |
Derivative contracts designated as cash flow hedges | $ | (136 | ) |  | 228 |  |  | — |  |  | $ | 92 |
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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