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Note 8 - Derivative Instruments | 3 Months Ended
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Mar. 31, 2022
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;
| • | 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; 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 for (i) potential additional programs to manage other foreign currency exposures and (ii) 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 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 utilize a program to manage our exposure to fluctuations in the exchange rate between the USD and CAD and the impact on our future operating costs denominated in CAD. In November 2021, we initiated a similar program related to future development costs denominated in CAD, and have used a similar program, on a limited basis, related to interest payments on our IQ Notes (see Note 7). The programs utilize forward contracts to buy CAD. Each contract related to operating costs is designated as a cash flow hedge, while contracts related to development and interest costs have not been designated as hedges as of March 31, 2022. As of March 31, 2022, we have 146 forward contracts outstanding to buy a total of CAD$276.7 million having a notional amount of USD$213.3 million. The CAD contracts are related to forecasted cash operating and development costs at Casa Berardi to be incurred from 2022 through 2025 and have CAD-to-USD exchange rates ranging between 1.2702 and 1.3333. As of March 31, 2022 and December 31, 2021, we recorded the following balances for the fair value of the contracts (in millions):
|  | March 31, |  |  | December 31, |
Balance sheet line item: |  | 2022 |  |  | 2021 |
Other current assets |  | $ | 3.9 |  |  | $ | 2.7 |
Other non-current assets |  |  | 3.9 |  |  |  | 2.5 |
Net unrealized gains of approximately $7.8 million related to the effective portion of the hedges were included in accumulated other comprehensive loss as of March 31, 2022. 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 $3.7 million in net unrealized gains included in accumulated other comprehensive loss as of March 31, 2022 will be reclassified to current earnings in the next twelve months. Net realized gains of approximately $1.1 million on contracts related to underlying operating 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, 2022. Net gains of approximately $0.4 million related to contracts not designated as hedges and no net unrealized gains or losses related to ineffectiveness of the hedges were included in fair value adjustments, net on our consolidated statements of operations and comprehensive income for the three months ended March 31, 2022. 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, 2022 and December 31, 2021:
March 31, 2022 |  | 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 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2022 settlements |  |  | 1,573 |  |  |  | 5 |  |  |  | 16,976 |  |  |  | 5,732 |  |  | $ | 24.73 |  |  | $ | 1,912 |  |  | $ | 1.27 |  |  | $ | 0.97 |
Contracts on forecasted sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2022 settlements |  |  | — |  |  |  | — |  |  |  | 37,644 |  |  |  | 46,517 |  |  |  | N/A |  |  |  | N/A |  |  | $ | 1.31 |  |  | $ | 0.98 |
2023 settlements |  |  | — |  |  |  | — |  |  |  | 78,264 |  |  |  | 75,618 |  |  |  | N/A |  |  |  | N/A |  |  | $ | 1.30 |  |  | $ | 1.00 |
2024 settlements |  |  | — |  |  |  | — |  |  |  | 64,650 |  |  |  | 23,149 |  |  |  | N/A |  |  |  | N/A |  |  | $ | 1.32 |  |  | $ | 1.01 |
December 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 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2022 settlements |  |  | 1,814 |  |  |  | 6 |  |  |  | 13,371 |  |  |  | 4,575 |  |  | $ | 23.02 |  |  | $ | 1,812 |  |  | $ | 1.39 |  |  | $ | 0.96 |
Contracts on forecasted sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2022 settlements |  |  | — |  |  |  | — |  |  |  | 57,706 |  |  |  | 59,194 |  |  |  | N/A |  |  |  | N/A |  |  | $ | 1.28 |  |  | $ | 0.98 |
2023 settlements |  |  | — |  |  |  | — |  |  |  | 76,280 |  |  |  | 71,650 |  |  |  | N/A |  |  |  | N/A |  |  | $ | 1.29 |  |  | $ | 1.00 |
Effective November 1, 2021, we designated the contracts for lead and zinc contained in our forecasted future shipments as hedges for accounting purposes, with gains and losses deferred to accumulated other comprehensive loss until the hedged product ships. Prior to November 1, 2021, these contracts had not been designated as hedges for hedge accounting and were therefore marked-to-market through earnings each period. The forward contracts for silver and gold contained in our concentrate shipments have not been designated as hedges 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, 2022 and forward and put option contracts as of December 31, 2021 (in millions):
|  | March 31, 2022 |  |  | December 31, 2021 |
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) |
Other current assets |  | $ | 0.3 |  |  | $ | (0.2 | ) |  | $ | 0.1 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Current derivatives liability |  |  | 0.5 |  |  |  | (39.5 | ) |  |  | (39.0 | ) |  |  | 0.7 |  |  |  | (20.1 | ) |  |  | (19.4 | )
Other non-current liabilities |  |  | 0.1 |  |  |  | (43.5 | ) |  |  | (43.4 | ) |  |  | 0.4 |  |  |  | (18.9 | ) |  |  | (18.5 | )
Net unrealized losses of approximately $63.0 million related to the effective portion of the contracts designated as hedges were included in accumulated other comprehensive loss as of March 31, 2022, and are net of related deferred taxes. 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 $28.0 million in net unrealized losses included in accumulated other comprehensive loss as of March 31, 2022 would be reclassified to current earnings in the next twelve months. We recognized a net loss of $4.8 million, including a $0.3 million gain transferred from accumulated other comprehensive loss, and net gain of $2.8 million during the first quarters of 2022 and 2021, 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 losses and gains recognized on the contracts offset gains and 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 $0.6 million in net losses and $0.5 million in net gains during the first quarters of 2022 and 2021, respectively, on the contracts utilized to manage exposure to prices for forecasted future sales. The net losses and 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. Increases in zinc and lead prices resulted in the net loss for the first quarter of 2022. 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, 2022, we have not posted any separate collateral related to these contracts. The fair value of derivatives in a net liability position related to these agreements was $83.2 million as of March 31, 2022, which includes accrued interest but excludes any adjustment for nonperformance risk. If we were in breach of any of the cross default provisions at March 31, 2022, we could have been required to settle our obligations under the agreements at their termination value of $83.2 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 https://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 https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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