Derivatives

6 Months Ended

Jun. 30, 2022

Derivatives

Derivatives

14. 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 - 20 Fair Value Measurement for additional information on the realized and unrealized gain (loss) recorded to adjust accounts receivable and revenue.

The following table summarizes the Company’s unsettled sales contracts at June 30, 2022 with the quantities of metals under contract subject to final pricing occurring through May 2022:

	Gold		Silver		Copper		Lead		Zinc			Total
	(ounces)		(ounces)		(tonnes)		(tonnes)		(tonnes)
Under contract		5,029		158,039		163		1,711		3,553
Average forward price (per ounce or tonne)	$	1,845	$	21.87	$	9,092	$	2,157	$	3,984
Unsettled sales contracts value (in thousands)	$	9,279	$	3,456	$	1,482	$	3,691	$	14,155	$	32,063

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 June 30, 2022, 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. 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 $3,500 per tonne of zinc that the Company will receive for the contracted zinc volume of 3,900 tonnes for July through December 2022. The purchased put establishes the floor price of $3,200 per tonne of zinc that the Company 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 London Metal Exchange (“LME”) average zinc price during the first half of 2022 exceeded the call option ceiling of $3,318, resulting in a realized loss of $2.5 million for the six months ended June 30, 2022. The zinc price forward curve as of June 30, 2022 is below the call option ceiling, resulting in a $0.3 million asset on the remaining 3,900 tonnes. The asset recognized resulted in an unrealized gain of $2.1 million for the six months ended June 30, 2022 due to the reversal of the prior period liability.

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.