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Derivatives

9 Months Ended

Sep. 30, 2021

13. Derivatives

Embedded Derivatives

Concentrate sales contracts contain embedded derivatives due to the provisional pricing terms for unsettled shipments. At the end of each reporting period, the Company records an adjustment to accounts receivable and revenue to reflect the mark-to-market adjustments for outstanding provisional invoices based on forward metal prices. Please see Note 18 for additional information.

The following table summarizes the Company’s unsettled sales contracts at September 30, 2021 with the quantities of metals under contract subject to final pricing occurring through October 2021:


	Gold		Silver		Copper		Lead		Zinc			Total
	(ounces)		(ounces)		(tonnes)		(tonnes)		(tonnes)
Under contract		2,579		118,576		146		740		3,148
Average forward price (per ounce or tonne)	$	1,770	$	23.07	$	9,324	$	2,261	$	2,988
Unsettled sales contracts value (in thousands)	$	4,565	$	2,736	$	1,361	$	1,673	$	9,406	$	19,741

Other Derivatives

Derivative instruments that are not designated as hedging instruments are required to be recorded on the balance sheet at fair value. Changes in fair value will impact the Company’s earnings through mark-to-market adjustments until the physical commodity is delivered or the financial instrument is settled. The fair value does not reflect the realized or cash value of the instrument.

As of September 30, 2021, the Company’s derivatives not designated as hedges consist of zinc zero cost collars used to manage its near-term exposure to cash flow variability from zinc price risks in 2021. A zero cost collar is a combination of two options: a sold call option and a purchased put option. The Company sold call options to establish the ceiling price of $2,992 per tonne of zinc that the Company will receive for the contracted zinc volume of 5,500 tonnes for June through

December 2021. The purchased put establishes the floor price of $2,860 per tonne of zinc that we will receive for the same contracted tonnes and period of time.

Derivatives are carried at fair value and on a net basis when a legal right of offset exists with the same counterparty. Otherwise, any fair value gains or losses are recognized in earnings in the current period. The fair value does not reflect the realized or cash value of the instrument. Mark-to-market adjustments are made until the physical commodity is delivered or the financial instrument is settled. The September 2021 London Metal Exchange (“LME”) average zinc price of $3,042 exceeded the call option ceiling of $2,992, resulting in a realized loss of $40 thousand. The mark-to-market adjustment on the remaining 2,550 tonnes resulted in an unrealized loss of $0.1 million, recorded in Accrued expenses and other current liabilities.

Subsequent to quarter end, on October 11, 2021, the Company executed additional derivatives of zero cost collars to manage its near-term exposure to cash flow variability from zinc price risks through March 2022. The Company sold call options to establish the ceiling price of $3,200 per tonne of zinc that the Company will receive for the contracted zinc volume of 4,000 tonnes for October 2021 through March 2022. The purchased put establishes the floor price of $2,910 per tonne of zinc that we will receive for the same contracted tonnes and period of time.

The Company manages credit risk by selecting counterparties that it believes to be financially strong, by entering into netting arrangements with counterparties and by requiring other credit risk mitigants, as appropriate. The Company actively evaluates the creditworthiness of its counterparties, assigns appropriate credit limits, and monitors credit exposures against those assigned limits.