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Note 6 - Business Segments and Sales of Products | 9 Months Ended
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Sep. 30, 2019
Notes to Financial Statements |
Segment Reporting Disclosure [Text Block] | Note 6. Business Segments and Sales of Products We discover, acquire and develop mines and other mineral interests and produce and market concentrates, carbon material and doré containing silver, gold, lead and zinc. We are currently organized and managed in five segments, which represent our operating units: the Greens Creek unit, the Lucky Friday unit, the Casa Berardi unit, the San Sebastian unit and the Nevada Operations unit. The Nevada Operations unit was added as a result of our acquisition of Klondex in July 2018 (see Note 13 for more information). General corporate activities not associated with operating units and their various exploration activities, as well as discontinued operations and idle properties, are presented as “other.” Interest expense, interest income and income taxes are considered general corporate items, and are not allocated to our segments. The following tables present information about our reportable segments for the three and nine months ended September 30, 2019 and 2018 (in thousands):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Net sales to unaffiliated customers: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Greens Creek |  | $ | 59,015 |  |  | $ | 65,187 |  |  | $ | 194,542 |  |  | $ | 205,642 |
Lucky Friday |  |  | 4,017 |  |  |  | (11 | ) |  |  | 11,150 |  |  |  | 8,253 |
Casa Berardi |  |  | 53,453 |  |  |  | 52,850 |  |  |  | 139,015 |  |  |  | 164,501 |
San Sebastian |  |  | 15,435 |  |  |  | 14,129 |  |  |  | 39,028 |  |  |  | 40,727 |
Nevada Operations |  |  | 29,612 |  |  |  | 11,494 |  |  |  | 64,586 |  |  |  | 11,494 |
|  | $ | 161,532 |  |  | $ | 143,649 |  |  | $ | 448,321 |  |  | $ | 430,617 |
Income (loss) from operations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Greens Creek |  | $ | 17,556 |  |  | $ | 10,705 |  |  | $ | 52,130 |  |  | $ | 59,373 |
Lucky Friday |  |  | (3,727 | ) |  |  | (5,404 | ) |  |  | (8,779 | ) |  |  | (14,811 | )
Casa Berardi |  |  | (380 | ) |  |  | (1,146 | ) |  |  | (26,262 | ) |  |  | 3,118 |
San Sebastian |  |  | 1,077 |  |  |  | (2,381 | ) |  |  | (2,358 | ) |  |  | 2,275 |
Nevada Operations |  |  | (8,346 | ) |  |  | (13,741 | ) |  |  | (43,812 | ) |  |  | (13,741 | )
Other |  |  | (11,293 | ) |  |  | (18,409 | ) |  |  | (35,633 | ) |  |  | (50,885 | )
|  | $ | (5,113 | ) |  | $ | (30,376 | ) |  | $ | (64,714 | ) |  | $ | (14,671 | )
The following table presents identifiable assets by reportable segment as of September 30, 2019 and December 31, 2018 (in thousands):
|  | September 30, 2019 |  |  | December 31, 2018 |
Identifiable assets: |  |  |  |  |  |  |  |
Greens Creek |  | $ | 648,420 |  |  | $ | 637,386 |
Lucky Friday |  |  | 438,946 |  |  |  | 437,499 |
Casa Berardi |  |  | 717,631 |  |  |  | 754,248 |
San Sebastian |  |  | 50,549 |  |  |  | 44,152 |
Nevada Operations |  |  | 558,219 |  |  |  | 581,194 |
Other |  |  | 259,413 |  |  |  | 249,465 |
|  | $ | 2,673,178 |  |  | $ | 2,703,944 |
Our products consist of metal concentrates and carbon material, which we sell to custom smelters, brokers and third-party processors, and unrefined bullion bars (doré), which may be sold as doré or further refined before sale to precious metals traders. Revenue is recognized upon the completion of the performance obligations and transfer of control of the product to the customer. For sales of metals from refined doré, which we currently have at our Casa Berardi, San Sebastian and Nevada Operations units, the performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of control of the agreed-upon metal quantities to the customer by the refiner. For sales of doré, the performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of title and control of the doré containing the agreed-upon metal quantities to the customer. Refining, selling and shipping costs related to sales of doré and metals from doré are recorded to cost of sales as incurred. For carbon sales, the performance obligation is met, the transaction price is known, and revenue is recognized generally at the time of arrival at the customer's facility. For concentrate sales, which we currently have at our Greens Creek and Lucky Friday units, the performance obligation is met, the transaction price can be reasonably estimated, and revenue is recognized generally at the time of shipment. Concentrates sold at our Lucky Friday unit typically leave the mine and are received by the customer within the same day. However, there is a period of time between shipment of concentrates from our Greens Creek unit and their physical receipt by the customer, and judgment is required in determining when control has been transferred to the customer for those shipments. We have determined the performance obligation is met and title is transferred to the customer upon shipment of concentrate parcels from Greens Creek because, at that time, 1) legal title is transferred to the customer, 2) the customer has accepted the parcel and obtained the ability to realize all of the benefits from the product, 3) the concentrate content specifications are known, have been communicated to the customer, and the customer has the significant risks and rewards of ownership of it, 4) it is very unlikely a concentrate parcel from Greens Creek will be rejected by a customer upon physical receipt, and 5) we have the right to payment for the parcel. Judgment is also required in identifying the performance obligations for our concentrate sales. Most of our concentrate sales involve “frame contracts” with smelters that can cover multiple years and specify certain terms under which individual parcels of concentrates are sold. However, some terms are not specified in the frame contracts and/or can be renegotiated as part of annual amendments to the frame contract. We have determined parcel shipments represent individual performance obligations satisfied at a point in time when control of the shipment is transferred to the customer. The consideration we receive for our concentrate sales fluctuates due to changes in metals prices between the time of shipment and final settlement with the customer. However, we are able to reasonably estimate the transaction price for the concentrate sales at the time of shipment using forward prices for the month of settlement, and previously recorded sales and accounts receivable are adjusted to estimated settlement metals prices until final settlement with the customer. Also, it is unlikely a significant reversal of revenue for any one concentrate parcel will occur. As such, we use the expected value method to price the parcels until the final settlement date occurs, at which time the final transaction price is known. At September 30, 2019, metals contained in concentrates and exposed to future price changes totaled 2.9 million ounces of silver, 8,831 ounces of gold, 10,737 tons of zinc, and 6,344 tons of lead. However, as discussed in Note 11, we seek to mitigate the risk of negative price adjustments by using financially-settled forward and put option contracts for some of our sales. Sales and accounts receivable for concentrate shipments are recorded net of charges for treatment, refining, smelting losses, and other charges negotiated by us with the customers, which represent components of the transaction price. Charges are estimated by us upon shipment of concentrates based on contractual terms, and actual charges typically do not vary materially from our estimates. Costs charged by customers include fixed treatment and refining costs per ton of concentrate and may include price escalators which allow the customers to participate in the increase of lead and zinc prices above a negotiated baseline. Costs for shipping concentrates to customers are recorded to cost of sales as incurred. Sales of metal concentrates and metal products are made principally to custom smelters, brokers, third-party processors and metals traders. The percentage of sales contributed by each segment is reflected in the following table:
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Greens Creek |  |  | 37 | % |  |  | 45 | % |  |  | 44 | % |  |  | 48 | %
Lucky Friday |  |  | 2 | % |  |  | — | % |  |  | 2 | % |  |  | 2 | %
Casa Berardi |  |  | 33 | % |  |  | 37 | % |  |  | 31 | % |  |  | 39 | %
San Sebastian |  |  | 10 | % |  |  | 10 | % |  |  | 9 | % |  |  | 9 | %
Nevada Operations |  |  | 18 | % |  |  | 8 | % |  |  | 14 | % |  |  | 2 | %
|  |  | 100 | % |  |  | 100 | % |  |  | 100 | % |  |  | 100 | %
Sales of products by metal for the three- and nine-month periods ended September 30, 2019 and 2018 were as follows (in thousands):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Silver |  | $ | 40,588 |  |  | $ | 38,009 |  |  | $ | 122,392 |  |  | $ | 111,656 |
Gold |  |  | 103,889 |  |  |  | 82,628 |  |  |  | 261,734 |  |  |  | 233,308 |
Lead |  |  | 7,114 |  |  |  | 7,552 |  |  |  | 22,809 |  |  |  | 27,469 |
Zinc |  |  | 15,292 |  |  |  | 20,990 |  |  |  | 62,995 |  |  |  | 78,714 |
Less: Smelter and refining charges |  |  | (5,351 | ) |  |  | (5,530 | ) |  |  | (21,609 | ) |  |  | (20,530 | )
Sales of products |  | $ | 161,532 |  |  | $ | 143,649 |  |  | $ | 448,321 |  |  | $ | 430,617 |
The following is sales information by geographic area based on the location of smelters and brokers (for concentrate shipments) and location of parent companies (for doré sales to metals traders) for the three- and nine-month periods ended September 30, 2019 and 2018 (in thousands):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Canada |  | $ | 88,610 |  |  | $ | 83,723 |  |  | $ | 258,708 |  |  | $ | 266,915 |
Korea |  |  | 33,683 |  |  |  | 35,796 |  |  |  | 109,184 |  |  |  | 110,036 |
Japan |  |  | 17,339 |  |  |  | 3,301 |  |  |  | 34,924 |  |  |  | 20,971 |
Netherlands |  |  | 445 |  |  |  | — |  |  |  | 16,500 |  |  |  | — |
China |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 66 |
United States |  |  | 20,407 |  |  |  | 15,807 |  |  |  | 29,142 |  |  |  | 24,296 |
Total, excluding gains/losses on derivative contracts |  | $ | 160,484 |  |  | $ | 138,627 |  |  | $ | 448,458 |  |  | $ | 422,284 |
Sales by significant product type for the three- and nine-month periods ended September 30, 2019 and 2018 were as follows (in thousands):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Doré and metals from doré |  | $ | 87,525 |  |  | $ | 80,074 |  |  | $ | 231,391 |  |  | $ | 227,812 |
Carbon |  |  | 17,745 |  |  |  | 2,994 |  |  |  | 27,376 |  |  |  | 4,273 |
Lead concentrate |  |  | 37,685 |  |  |  | 36,728 |  |  |  | 122,727 |  |  |  | 113,211 |
Zinc concentrate |  |  | 12,345 |  |  |  | 14,965 |  |  |  | 51,876 |  |  |  | 63,197 |
Bulk concentrate |  |  | 5,184 |  |  |  | 3,866 |  |  |  | 15,088 |  |  |  | 13,791 |
Total, excluding gains/losses on derivative contracts |  | $ | 160,484 |  |  | $ | 138,627 |  |  | $ | 448,458 |  |  | $ | 422,284 |
Sales of products for the three- and nine-month periods ended September 30, 2019 included a net gain of $1.1 million and a net loss of $0.1 million, respectively, on financially-settled forward and put option contracts for silver, gold, lead and zinc contained in our sales. Sales of products for the three- and nine-month periods ended September 30, 2018 included net gains of $5.0 million and $8.3 million, respectively, on forward contracts. See Note 11 for more information. Sales of products to significant customers as a percentage of total sales were as follows for the three- and nine-month periods ended September 30, 2019 and 2018:
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
CIBC |  |  | 36 | % |  |  | 26 | % |  |  | 24 | % |  |  | 34 | %
Scotia |  |  | 18 | % |  |  | 19 | % |  |  | 26 | % |  |  | 13 | %
Korea Zinc |  |  | 9 | % |  |  | 15 | % |  |  | 16 | % |  |  | 22 | %
Teck Metals Ltd. |  |  | 3 | % |  |  | 11 | % |  |  | 7 | % |  |  | 11 | %
Cliveden |  |  | 12 | % |  |  | — | % |  |  | 4 | % |  |  | — | %
Trafigura |  |  | — | % |  |  | 10 | % |  |  | 4 | % |  |  | 3 | %
Our trade accounts receivable balance related to contracts with customers was $6.2 million at September 30, 2019 and $4.2 million at December 31, 2018, and included no allowance for doubtful accounts. We have determined our contracts do not include a significant financing component. For doré sales and sales of metal from doré, payment is received at the time the performance obligation is satisfied. Payment for carbon sales is received within a relatively short period of time after the performance obligation is satisfied. The amount of consideration for concentrate sales is variable, and we receive payment for a significant portion of the estimated value of concentrate parcels within a relatively short period of time after the performance obligation is satisfied. We do not incur significant costs to obtain or fulfill contracts which are not addressed by other accounting standards. Therefore, we have not recognized an asset for such costs as of September 30, 2019 or December 31, 2018. In September 2019, we received $20.1 million in proceeds for two parcels of concentrate at our Greens Creek unit which were not shipped and recognized as revenue until October 2019. We sold the concentrate in September, but arrival of the ship at the loading facility at Greens Creek was delayed due to weather, which resulted in the loaded ship leaving Greens Creek shortly after September 30. As of September 30, 2019, a current deferred revenue liability was recognized for the $20.1 million in proceeds, and the related cost of sales and other direct production costs of $9.2 million and depreciation, depletion and amortization of $2.6 million were included in inventory. The sales and income (loss) from operations amounts reported above include results from our Lucky Friday segment. The Lucky Friday mine is our only operation where some of our employees are subject to a collective bargaining agreement, and the most recent agreement expired on April 30, 2016. On February 19, 2017, the unionized employees voted against the Company's offer, and on March 13, 2017 went on strike and have been on strike since that time. Production at Lucky Friday was suspended from the start of the strike until July 2017, when limited production resumed. For the first nine months of 2019 and 2018, suspension costs not related to production of $5.7 million and $13.5 million, respectively, along with $3.1 million and $3.7 million, respectively, in non-cash depreciation expense, are reported in a separate line item on our consolidated statements of operations. In September 2019, a tentative agreement was reached between the Company and the union negotiating committee. Before the collective bargaining agreement is finalized, it must be ratified by a majority of the union members. If the agreement is voted on and ratified, we would expect the mine to be staffed in stages, and that this would put Lucky Friday on a path back to full production. We believe it would take approximately one year to return to full production after re-staffing starts. We cannot predict whether or when the current tentative agreement will be ratified or if an agreement will otherwise be reached, or, if an agreement is not ratified, how long the strike will last or when there will be a return to full production. As a result of the strike or other related events, operations at Lucky Friday could continue to be disrupted, which could adversely affect our financial condition and results of operations. If the strike continues for a further extended period or it is determined an eventual resolution is unlikely, it may be appropriate in the future to review the carrying value of properties, plants, equipment and mineral interests at Lucky Friday. Under such review, if estimated undiscounted cash flows from Lucky Friday were less than its carrying value, an impairment loss would be recognized for the difference between the carrying value and the estimated fair value. The carrying value of properties, plants, equipment and mineral interests at Lucky Friday as of September 30, 2019 was approximately $437.0 million. However, Lucky Friday has significant identified reserves and mineralized material and a current estimated mine life of approximately 17 years.

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- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -URI http://asc.fasb.org/topic&trid=2134510 + Details
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