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Note 9 - Derivative Instruments | 9 Months Ended
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Sep. 30, 2021
Notes to Financial Statements |
Derivative Instruments and Hedging Activities Disclosure [Text Block] | Note 9. 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;
| • | our planned lead and zinc metals price exposure for five years into the future, with certain other limitations, may be covered under derivatives programs that would establish prices to be realized on future metals sales; and
| • | our planned silver and gold metals price exposure for five years into the future, with certain other limitations, may be covered under derivatives programs that would establish a floor, but not a ceiling, for prices to be realized on future metals sales. We currently do not utilize this program.
In addition, our risk management policy provides that price exposure between the time of shipment and final settlement on silver, gold, lead and zinc contained in our concentrate shipments may be covered under derivatives programs that would establish prices to be realized on those sales. These instruments 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 subsidiary owning the Casa Berardi operation is a USD-functional currency entity which routinely incurs expenses denominated in CAD. Such expenses expose us to exchange rate fluctuations between the USD and CAD. We have a program to manage our exposure to fluctuations in the exchange rate between the USD and CAD for this subsidiary’s future operating costs denominated in CAD. The program utilizes forward contracts to buy CAD, and each contract is designated as a cash flow hedge. As of September 30, 2021, we have 73 forward contracts outstanding to buy a total of CAD$245.6 million having a notional amount of USD$187.7 million. The CAD contracts are related to forecasted cash operating costs at Casa Berardi to be incurred from 2021 through 2025 and have CAD-to-USD exchange rates ranging between 1.2702 and 1.3753. As of September 30, 2021 and December 31, 2020, we recorded the following balances for the fair value of the contracts (in millions):
|  | September 30, |  |  | December 31, |
Balance sheet line item: |  | 2021 |  |  | 2020 |
Current derivatives assets |  | $ | 2.5 |  |  | $ | 3.5 |
Non-current derivatives assets |  |  | 2.2 |  |  |  | 4.2 |
Current derivatives liability |  |  | — |  |  |  | — |
Non-current derivative liability |  |  | 0.2 |  |  |  | — |
Net unrealized gains of approximately $4.8 million related to the effective portion of the hedges were included in accumulated other comprehensive loss as of September 30, 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 $2.7 million in net unrealized gains included in accumulated other comprehensive loss as of September 30, 2021 will be reclassified to current earnings in the next twelve months. Net realized gains of approximately $3.5 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 nine months ended September 30, 2021. No net unrealized gains or losses related to ineffectiveness of the hedges were included in current earnings for the nine months ended September 30, 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 September 30, 2021 and December 31, 2020:
September 30, 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 |  |  | 1,190 |  |  |  | 4 |  |  |  | 20,867 |  |  |  | 9,866 |  |  | $ | 23.15 |  |  | $ | 1,776 |  |  | $ | 1.35 |  |  | $ | 1.01 |
Contracts on forecasted sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2021 settlements |  |  | — |  |  |  | — |  |  |  | 7,771 |  |  |  | 6,779 |  |  |  | N/A |  |  |  | N/A |  |  | $ | 1.26 |  |  | $ | 0.94 |
2022 settlements |  |  | — |  |  |  | — |  |  |  | 60,043 |  |  |  | 63,769 |  |  |  | N/A |  |  |  | N/A |  |  | $ | 1.28 |  |  | $ | 0.98 |
2023 settlements |  |  | — |  |  |  | — |  |  |  | 76,280 |  |  |  | 70,327 |  |  |  | N/A |  |  |  | N/A |  |  | $ | 1.29 |  |  | $ | 1.00 |
2024 settlements |  |  | — |  |  |  | — |  |  |  | 43,762 |  |  |  | — |  |  |  | N/A |  |  |  | N/A |  |  | $ | 1.31 |  |  |  | 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 |
As of September 30, 2021, these forward contracts are not designated as hedges for accounting purposes and are adjusted to fair value through earnings each period. Effective in the fourth quarter of 2021, we anticipate designating as hedges forwards contracts utilized to manage exposure to prices for forecasted future zinc and lead sales. As a result, unrealized gains and losses related to the effective portion of the hedges for the designated contracts will be included in accumulated other comprehensive loss, and then transferred from accumulated other comprehensive loss to current earnings as the underlying sales are recognized. We recorded the following balances for the fair value of the forward contracts as of September 30, 2021 and forward and put option contracts as of December 31, 2020 (in millions):
|  | September 30, 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 |  | $ | 3.1 |  |  | $ | (0.4 | ) |  | $ | 2.7 |  |  | $ | 0.2 |  |  | $ | (0.2 | ) |  | $ | — |
Non-current derivatives assets |  |  | 7.1 |  |  |  | (2.5 | ) |  |  | 4.6 |  |  |  | 0.5 |  |  |  | (0.1 | ) |  |  | 0.4 |
Current derivatives liabilities |  |  | 0.3 |  |  |  | (4.4 | ) |  |  | (4.1 | ) |  |  | 0.1 |  |  |  | (11.8 | ) |  |  | (11.7 | )
Non-current derivatives liabilities |  |  | 1.2 |  |  |  | (1.8 | ) |  |  | (0.6 | ) |  |  | — |  |  |  | — |  |  |  | — |
We recognized net gains of $5.0 million and $4.5 million during the third quarter and first nine months of 2021, respectively, and net losses of $9.6 million and $12.9 million during the third quarter and first nine months of 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 and/or losses recognized on the contracts offset gains and/or 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 a net gain of $12.1 million and net loss of $4.7 million during the third quarter and first nine months of 2021, respectively, and net losses of $6.7 million and $12.8 million during the third quarter and first nine months of 2020, respectively, on the contracts utilized to manage exposure to prices for forecasted future sales. The net losses 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 losses in the 2021 periods were the result of increasing zinc and lead prices, while the net losses for the 2020 periods were the result of increasing silver, gold and zinc prices, partially offset by decreasing 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 September 30, 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 $9.3 million as of September 30, 2021, which includes accrued interest but excludes any adjustment for nonperformance risk. If we were in breach of any of these provisions at September 30, 2021, we could have been required to settle our obligations under the agreements at their termination value of $9.3 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 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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