Fair Value Measurement

6 Months Ended

Jun. 30, 2022

Fair Value Measurement

Fair Value Measurement

20. Fair Value Measurement

Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

As required by accounting guidance, assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth certain of the Company’s assets measured at fair value by level within the fair value hierarchy as of June 30, 2022 and December 31, 2021:

	As of		As of
	June 30,		December 31,		Input Hierarchy Level
	2022		2021
	(in thousands)
Cash and cash equivalents	$	33,335	$	33,712	Level 1
Accounts receivable, net	$	6,277	$	8,672	Level 2
Derivative asset - zinc zero cost collar	$	275	$	-	Level 2
Derivative liability - zinc zero cost collar	$	-	$	(1,844)	Level 2

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Cash and cash equivalents: Cash and cash equivalents consist primarily of cash deposits and are valued at cost, which approximates fair value.

Accounts receivable, net: Accounts receivable, net includes amounts due to the Company for deliveries of concentrates and doré sold to customers, net of embedded derivatives mark-to-market value of $1.9 million as of June 30, 2022, and nil as of December 31, 2021. Concentrate sales contracts provide for provisional pricing as specified in such contracts. These sales contain an embedded derivative related to the provisional pricing mechanism and are accounted for as a derivative. At the end of each reporting period, the Company records an adjustment to sales to reflect the mark-to-market of outstanding provisional invoices based on the forward price curve. Because these provisionally priced sales have not yet settled as of the reporting date, the mark-to-market adjustment related to these invoices is included in accounts receivable as of each reporting date and included in its accounts receivable on the accompanying Condensed Consolidated Interim Balance Sheets related to mark-to-market adjustments. Please see Note 14 - Derivatives for additional information.

Derivative liability - zinc zero cost collar: Derivatives are carried at fair value and on a net basis as a legal right of offset exists with the same counterparty. The valuation is using the Black Scholes model as applied to zinc call options and considers interest rate forecast, market volatility, and the zinc forward price curve for each respective hedge period. 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. At each reporting period Management evaluates the unrealized gain (loss) on the derivatives instruments based on average London Metal Exchange forward underlying price over a period from the trade date to the payment date.

For the zinc zero cost collar, when the prior month LME average zinc price is greater than the call price, positions settling in the period are recorded as a realized gain or loss, and unsettled positions are recorded as an unrealized gain or loss.

Gains and losses related to changes in the fair value of these financial instruments were included in the Company’s Condensed Consolidated Interim Statements of Operations as shown in the following table:

		For the three months ended June 30,				For the six months ended June 30,				Statements of Operations Classification
		2022		2021		2022		2021
	Note	(in thousands)
Realized and unrealized derivative gain (loss), net	14	$	(2,164)	$	669	$	(130)	$	634	Sales, net
Realized loss on zinc zero cost collar	17	$	(829)	$	-	$	(2,457)	$	-	Realized and unrealized loss on zinc zero cost collar
Unrealized loss on zinc zero cost collar	17	$	4,628	$	-	$	2,119	$	-	Realized and unrealized loss on zinc zero cost collar

Realized/Unrealized Derivatives

The following tables summarize the Company’s realized/unrealized derivatives for the periods presented (in thousands):

	Gold		Silver		Copper		Lead		Zinc		Total
For the three months ended June 30, 2022
Realized gain (loss)	$	56	$	(95)	$	(58)	$	37	$	1,220	$	1,160
Unrealized loss		(243)		(164)		(121)		(246)		(2,550)		(3,324)
Total realized/unrealized derivatives, net	$	(187)	$	(259)	$	(179)	$	(209)	$	(1,330)	$	(2,164)

	Gold		Silver		Copper		Lead		Zinc		Total
For the three months ended June 30, 2021
Realized gain	$	21	$	87	$	62	$	30	$	159	$	359
Unrealized gain (loss)		130		103		(47)		87		37		310
Total realized/unrealized derivatives, net	$	151	$	190	$	15	$	117	$	196	$	669

	Gold		Silver		Copper		Lead		Zinc		Total
For the six months ended June 30, 2022
Realized gain	$	182	$	154	$	(15)	$	56	$	1,649	$	2,026
Unrealized gain		(1)		111		(105)		(199)		(1,962)		(2,156)
Total realized/unrealized derivatives, net	$	181	$	265	$	(120)	$	(143)	$	(313)	$	(130)

	Gold		Silver		Copper		Lead		Zinc		Total
For the six months ended June 30, 2021
Realized (loss) gain	$	(23)	$	172	$	67	$	74	$	160	$	450
Unrealized gain (loss)		30		21		(8)		21		120		184
Total realized/unrealized derivatives, net	$	7	$	193	$	59	$	95	$	280	$	634