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Note 8 - Derivative Instruments | 3 Months Ended
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Mar. 31, 2021
Notes to Financial Statements |
Derivative Instruments and Hedging Activities Disclosure [Text Block] | Note 8. Derivative Instruments General Our current risk management policy provides that up to 75% of:
| • | our future foreign currency-related operating cost exposure for five years into the future may be hedged and for potential additional programs to manage other foreign currency-related exposure areas; and
| • | our planned lead and zinc metals price exposure for five years into the future, with certain other limitations, to be covered under derivatives programs that would establish a ceiling for prices to be realized on future metals sales.
These instruments do, however, expose us to (i) credit risk in the form of non-performance by counterparties for contracts in which the contract price exceeds the spot price of the hedged commodity or foreign currency and (ii) price risk to the extent that the spot price exceeds the contract price for quantities of our production and/or forecasted costs covered under contract positions. Foreign Currency Our wholly-owned subsidiaries owning the Casa Berardi and San Sebastian operations are USD-functional entities which routinely incur expenses denominated in CAD and Mexican pesos ("MXN"), respectively. Such expenses expose us to exchange rate fluctuations between the USD and CAD and MXN. We have a program to manage our exposure to fluctuations in the exchange rate between the USD and CAD and MXN for these subsidiaries' future operating costs denominated in CAD and MXN. The programs utilize forward contracts to buy CAD and MXN, and each contract is designated as a cash flow hedge. As of March 31, 2021, we have 133 forward contracts outstanding to buy a total of CAD$256.8 million having a notional amount of USD$194.8 million. The CAD contracts are related to forecasted cash operating costs at Casa Berardi to be incurred from 2021 through 2024 and have CAD-to-USD exchange rates ranging between 1.2702 and 1.3785. There were no outstanding contracts for MXN as of March 31, 2021. As of March 31, 2021 and December 31, 2020, we recorded the following balances for the fair value of the contracts (in millions):
|  | March 31, |  |  | December 31, |
Balance sheet line item: |  | 2021 |  |  | 2020 |
Current derivatives assets |  | $ | 5.0 |  |  | $ | 3.5 |
Non-current derivatives assets |  |  | 4.2 |  |  |  | 4.2 |
Net unrealized gains of approximately $9.5 million related to the effective portion of the hedges were included in accumulated other comprehensive loss as of March 31, 2021. Unrealized gains and losses will be transferred from accumulated other comprehensive loss to current earnings as the underlying operating expenses are recognized. We estimate approximately $4.8 million in net unrealized gains included in accumulated other comprehensive loss as of March 31, 2021 will be reclassified to current earnings in the next twelve months. Net realized gains of approximately $0.6 million on contracts related to underlying expenses which have been recognized were transferred from accumulated other comprehensive loss and included in cost of sales and other direct production costs for the three months ended March 31, 2021. No net unrealized gains or losses related to ineffectiveness of the hedges were included in current earnings for the three months ended March 31, 2021. Metals Prices We are currently using financially-settled forward contracts to manage the exposure to:
| • | changes in prices of silver, gold, zinc and lead contained in our concentrate shipments between the time of shipment and final settlement; and
| • | changes in prices of zinc and lead (but not silver and gold) contained in our forecasted future concentrate shipments.
The following tables summarize the quantities of metals committed under forward sales contracts at March 31, 2021 and December 31, 2020:
March 31, 2021 |  | Ounces/pounds under contract (in 000's) |  |  | Average price per ounce/pound |
|  | Silver |  |  | Gold |  |  | Zinc |  |  | Lead |  |  | Silver |  |  | Gold |  |  | Zinc |  |  | Lead |
|  | (ounces) |  |  | (ounces) |  |  | (pounds) |  |  | (pounds) |  |  | (ounces) |  |  | (ounces) |  |  | (pounds) |  |  | (pounds) |
Contracts on provisional sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2021 settlements |  |  | 1,492 |  |  |  | 5 |  |  |  | 12,070 |  |  |  | 1,587 |  |  | $ | 25.48 |  |  | $ | 1,736 |  |  | $ | 1.26 |  |  | $ | 0.89 |
Contracts on forecasted sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2021 settlements |  |  | — |  |  |  | — |  |  |  | 33,841 |  |  |  | 30,479 |  |  |  | N/A |  |  |  | N/A |  |  | $ | 1.20 |  |  | $ | 0.89 |
2022 settlements |  |  | — |  |  |  | — |  |  |  | 53,407 |  |  |  | 42,715 |  |  |  | N/A |  |  |  | N/A |  |  | $ | 1.26 |  |  | $ | 0.96 |
2023 settlements |  |  | — |  |  |  | — |  |  |  | 41,171 |  |  |  | — |  |  |  | N/A |  |  |  | N/A |  |  | $ | 1.27 |  |  |  | N/A |
December 31, 2020 |  | Ounces/pounds under contract (in 000's) |  |  | Average price per ounce/pound |
|  | Silver |  |  | Gold |  |  | Zinc |  |  | Lead |  |  | Silver |  |  | Gold |  |  | Zinc |  |  | Lead |
|  | (ounces) |  |  | (ounces) |  |  | (pounds) |  |  | (pounds) |  |  | (ounces) |  |  | (ounces) |  |  | (pounds) |  |  | (pounds) |
Contracts on provisional sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2021 settlements |  |  | 1,282 |  |  |  | 4 |  |  |  | 23,314 |  |  |  | 4,905 |  |  | $ | 25.00 |  |  | $ | 1,858 |  |  | $ | 1.19 |  |  | $ | 0.90 |
Contracts on forecasted sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2021 settlements |  |  | — |  |  |  | — |  |  |  | 41,577 |  |  |  | 30,876 |  |  |  | N/A |  |  |  | N/A |  |  | $ | 1.17 |  |  | $ | 0.88 |
2022 settlements |  |  | — |  |  |  | — |  |  |  | 18,519 |  |  |  | — |  |  |  | N/A |  |  |  | N/A |  |  | $ | 1.28 |  |  |  | N/A |
In June 2019, we began utilizing financially-settled put option contracts to manage the exposure of our forecasted future gold and silver sales to potential declines in market prices for those metals. These put contracts gave us the option, but not the obligation, to realize established prices on quantities of silver and gold to be sold in the future. As of December 31, 2020, we had put contracts that provided average floor prices of $16.50 per ounce for silver and $1,650 per ounce for gold for a total of 1.1 million silver ounces and 12,992 gold ounces. We had no put option contracts outstanding as of March 31, 2021. These forward and put option contracts are not designated as hedges for accounting purposes and are marked-to-market through earnings each period. We recorded the following balances for the fair value of the forward contracts as of March 31, 2021 and forward and put option contracts as of December 31, 2020 (in millions):
|  | March 31, 2021 |  |  | December 31, 2020 |
Balance sheet line item: |  | Contracts in an asset position |  |  | Contracts in a liability position |  |  | Net asset (liability) |  |  | Contracts in an asset position |  |  | Contracts in a liability position |  |  | Net asset (liability) |
Current derivatives assets |  | $ | 3.3 |  |  | $ | (1.1 | ) |  | $ | 2.2 |  |  | $ | 0.2 |  |  | $ | (0.2 | ) |  | $ | — |
Non-current derivatives assets |  |  | 2.3 |  |  |  | (0.2 | ) |  |  | 2.1 |  |  |  | 0.5 |  |  |  | (0.1 | ) |  |  | 0.4 |
Current derivatives liability |  |  | — |  |  |  | (3.9 | ) |  |  | (3.9 | ) |  |  | 0.1 |  |  |  | (11.8 | ) |  |  | (11.7 | )
Other non-current liabilities |  |  | 0.4 |  |  |  | (1.2 | ) |  |  | (0.8 | ) |  |  | — |  |  |  | — |  |  |  | — |
We recognized $2.8 million and $1.7 million net gains during the first quarters of 2021 and 2020, respectively, on the contracts utilized to manage exposure to prices of metals in our concentrate shipments, which is included in sales of products. The net gains recognized on the contracts offsets losses related to price adjustments on our provisional concentrate sales due to changes to silver, gold, lead and zinc prices between the time of sale and final settlement. We recognized $0.5 million and $7.9 million net gains during the first quarters of 2021 and 2020, respectively, on the contracts utilized to manage exposure to prices for forecasted future sales. The net gains on these contracts are included as a separate line item under other income (expense), as they relate to forecasted future sales, as opposed to sales that have already taken place but are subject to final pricing as discussed in the preceding paragraph. The net gain for the first quarter of 2021 is the result of a decrease in zinc and lead prices. Credit-risk-related Contingent Features Certain of our derivative contracts contain cross default provisions which provide that a default under our revolving credit agreement would cause a default under the derivative contract. As of March 31, 2021, we have not posted any collateral related to these contracts. The fair value of derivatives in a net liability position related to these agreements was $6.4 million as of March 31, 2021, which includes accrued interest but excludes any adjustment for nonperformance risk. If we were in breach of any of these provisions at March 31, 2021, we could have been required to settle our obligations under the agreements at their termination value of $6.4 million.

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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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