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Note 8 - Derivative Instruments | 9 Months Ended
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Sep. 30, 2023
Disclosure Text Block [Abstract] |
Derivative Instruments | Note 8. Derivative Instruments General Our current risk management policy provides that up to 75% of five years of our foreign currency, lead and zinc metals price and silver and gold price exposure may be covered under a derivatives program with certain other limitations. Our program also utilizes derivatives to manage price risk exposure created from when revenue is recognized from a shipment of concentrate until final settlement. 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 or currency exchange rate 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 operation and Keno Hill operation are USD-functional entities which routinely incur 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 USD exchange rate for these subsidiaries' future operating and capital costs denominated in CAD. The program related to forecasted cash operating costs at Casa Berardi and Keno Hill utilizes forward contracts to buy CAD, some of which are designated as cash flow hedges. As of September 30, 2023, we have a total of 642 forward contracts outstanding to buy a total of CAD $510.8 million having a notional amount of USD$383.6 million for Casa Berardi, Keno Hill, and some corporate Canadian expenses. The CAD contracts that are related to forecasted cash operating costs at Casa Berardi and Keno Hill from 2023-2026 have a total notional value of CAD$406.3 million and have CAD-to-USD exchange rates ranging between 1.27550 and 1.37250 The CAD contracts that are related to forecasted capital expenditures at Casa Berardi from 2023-2026 have a total notional value of CAD$52.6 million at an average CAD-to-USD exchange rate of 1.357. The CAD contracts that are related to forecasted capital expenditures at Keno Hill from 2023-2026 have a total notional value of CAD$27.1 million at an average CAD-to-USD exchange rate of 1.3533. As of September 30, 2023 and December 31, 2022, we recorded the following balances for the fair value of the foreign currency forward contracts (in millions):
|  | September 30, |  |  | December 31, |
Balance sheet line item: |  | 2023 |  |  | 2022 |
Other current assets |  | $ | 0.9 |  |  | $ | 1.1 |
Other non-current assets |  | $ | 0.4 |  |  | $ | 0.4 |
Other current liabilities |  | $ | 3.3 |  |  | $ | 4.0 |
Other non-current liabilities |  | $ | 2.2 |  |  | $ | 3.6 |
Net unrealized losses of $4.9 million related to the effective portion of the foreign currency forward contracts designated as hedges are included in accumulated other comprehensive income (loss) as of September 30, 2023. Unrealized gains and losses will be transferred from accumulated other comprehensive income (loss) to current earnings as the underlying operating expenses are recognized. We estimate $2.9 million in net unrealized losses included in accumulated other comprehensive income (loss) as of September 30, 2023 will be reclassified to current earnings in the next twelve months. Net realized losses of $0.6 million and $2.5 million on contracts related to underlying expenses which have been recognized were transferred from accumulated other comprehensive income (loss) and included in cost of sales and other direct production costs for the three and nine months ended September 30, 2023, respectively. Net losses of $3.2 million and net gains of $0.1 million for the three and nine months ended September 30, 2023, respectively, related to contracts not designated as hedges and no net unrealized gains or losses related to ineffectiveness of the hedges are included in fair value adjustments, net on our consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023, respectively. 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 metals contracts at September 30, 2023 and December 31, 2022:
September 30, 2023 |  | 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 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2023 settlements |  |  | 931 |  |  |  | — |  |  |  | — |  |  |  | 11,188 |  |  | $ | 23.30 |  |  | N/A |  | N/A |  |  | $ | 1.00 |
Contracts on forecasted sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2023 settlements |  |  | — |  |  |  | — |  |  |  | 441 |  |  |  | 7,992 |  |  | N/A |  |  | N/A |  | $ | 1.51 |  |  | $ | 0.99 |
2024 settlements |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 74,902 |  |  | N/A |  |  | N/A |  | N/A |  |  | $ | 0.97 |
2025 settlements |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 44,754 |  |  | N/A |  |  | N/A |  | N/A |  |  | $ | 0.97 |
December 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 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2023 settlements |  |  | 3,124 |  |  |  | 8 |  |  |  | 18,629 |  |  |  | 11,960 |  |  | $ | 21.55 |  |  | $ | 1,795 |  |  | $ | 1.38 |  |  | $ | 0.98 |
Contracts on forecasted sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2023 settlements |  |  | — |  |  |  | — |  |  |  | 37,533 |  |  |  | 75,618 |  |  | N/A |  |  | N/A |  |  | $ | 1.34 |  |  | $ | 1.00 |
2024 settlements |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 45,856 |  |  | N/A |  |  | N/A |  |  | N/A |  |  | $ | 0.99 |
We recorded the following balances for the fair value of the forward metals contracts as of September 30, 2023 and December 31, 2022 (in millions):
|  | September 30, 2023 |  |  | December 31, 2022 |
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 |  | $ | 1.2 |  |  | $ | — |  |  | $ | 1.2 |  |  | $ | 1.2 |  |  | $ | — |  |  | $ | 1.2 |
Other non-current assets |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 0.1 |  |  | $ | — |  |  | $ | 0.1 |
Other current liabilities |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (12.1 | ) |  | $ | (12.1 | )
Other non-current liabilities |  | $ | — |  |  | $ | 1.1 |  |  | $ | 1.1 |  |  | $ | — |  |  | $ | (2.5 | ) |  | $ | (2.5 | )
Net realized and unrealized gains of $15.1 million related to the effective portion of the forward metals contracts designated as hedges were included in accumulated other comprehensive income (loss) as of September 30, 2023. Unrealized gains and losses will be transferred from accumulated other comprehensive income (loss) to current earnings as the underlying forecasted sales are recognized. We estimate $11.7 million in net realized and unrealized gains included in accumulated other comprehensive income (loss) as of September 30, 2023 would be reclassified to current earnings in the next twelve months. The realized gains arose due to cash settlement of zinc contracts prior to maturity in 2022 and during the second quarter of 2023 for net proceeds of $17.4 million and $7.6 million, respectively. We recognized a net gain of $4.0 million, including a $6.7 million gain transferred from accumulated other comprehensive income (loss), and a net gain of $1.6 million, during the three months ended September 30, 2023 and 2022, respectively. We recognized a net gain of $13.1 million, including a $13.0 million gain transferred from accumulated other comprehensive income (loss), and a net gain of $8.1 million, during the nine months ended September 30, 2023 and 2022, respectively. These gains and losses were recognized on the contracts utilized to manage exposure to prices of metals in our concentrate shipments, which are included in sales. 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. Credit-risk-related Contingent Features Certain of our derivative contracts contain cross default provisions which provide that a default under our Credit Agreement would cause a default under the derivative contract. As of September 30, 2023, 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 $7.1 million as of September 30, 2023, which includes accrued interest but excludes any adjustment for nonperformance risk. If we were in breach of any of these provisions at September 30, 2023, we could have been required to settle our obligations under the agreements at their termination value of $7.1 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://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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