Fair Value Measurements

6 Months Ended

Jun. 30, 2017



	Three months ended June 30,					Six months ended June 30,
In thousands	2017		2016			2017			2016
Rochester royalty obligation	$	336	$	(878	)	$	(864	)	$	(5,756	)
Palmarejo royalty obligation embedded derivative	—		$	(2,687	)	$	—		(4,936		)
Silver and gold options	—		(14		)	—			(1,582		)
Fair value adjustments, net	$	336	$	(3,579	)	$	(864	)	$	(12,274	)

Accounting standards establish 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), secondary priority to quoted prices in inactive markets or observable inputs (Level 2), and the lowest priority to unobservable inputs (Level 3).

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:



	Fair Value at June 30, 2017
In thousands	Total		Level 1		Level 2		Level 3
Assets:
Equity securities	$	11,872	$	11,614	$	—	$	258
Other derivative instruments, net	4		—		4		—
	$	11,876	$	11,614	$	4	$	258
Liabilities:
Other derivative instruments, net	$	169	$	—	$	169	$	—



	Fair Value at December 31, 2016
In thousands	Total		Level 1		Level 2		Level 3
Assets:
Equity securities	$	4,488	$	4,209	$	—	$	279
	$	4,488	$	4,209	$	—	$	279
Liabilities:
Rochester royalty obligation	9,287		—		—		9,287
Other derivative instruments, net	762		—		762		—
	$	10,049	$	—	$	762	$	9,287

The Company’s investments in equity securities are recorded at fair market value in the financial statements based primarily on quoted market prices. Such instruments are classified within Level 1 of the fair value hierarchy. Quoted market prices are not available for certain equity securities; these securities are valued using pricing models, which require the use of observable and unobservable inputs, and are classified within Level 3 of the fair value hierarchy.

The Company’s other derivative instruments, net, relate to concentrate and certain doré sales contracts valued using pricing models, which require inputs that are derived from observable market data, including contractual terms, forward market prices, yield curves, credit spreads, and other unobservable inputs. The model inputs can generally be verified and do not involve significant management judgment. Such instruments are classified within Level 2 of the fair value hierarchy.

In May 2017, the Company repurchased the Rochester royalty obligation for $5.0 million in cash. The Company recorded a pre-tax gain of $2.3 million on this repurchase which is included in Other, net. The fair value of the Rochester royalty obligation was estimated based on observable market data including contractual terms, forward silver and gold prices, yield curves, and credit spreads, as well as the Company’s current mine plan which is considered a significant unobservable input. Therefore, the Company classified this obligation as a Level 3 financial liability.

No assets or liabilities were transferred between fair value levels in the six months ended June 30, 2017.

The following tables present the changes in the fair value of the Company's Level 3 financial assets and liabilities for the six months ended June 30, 2017:



	Three Months Ended June 30, 2017
In thousands	Balance at the beginning of the period		Revaluation			Settlements			Gain on settlement			Balance at the end of the period
Assets:
Equity securities	$	279	$	(21	)	$	—		$	—		$	258
Liabilities:
Rochester royalty obligation	$	9,277	$	(336	)	$	(6,609	)	(2,332		)	$	—



	Six Months Ended June 30, 2017
In thousands	Balance at the beginning of the period		Revaluation			Settlements			Gain on settlement			Balance at the end of the period
Assets:
Equity securities	$	279	$	(21	)	$	—		$	—		$	258
Liabilities:
Rochester royalty obligation	$	9,287	$	864		$	(7,819	)	(2,332		)	$	—

The fair value of financial assets and liabilities carried at book value in the financial statements at June 30, 2017 and December 31, 2016 is presented in the following table:



	June 30, 2017
In thousands	Book Value		Fair Value		Level 1		Level 2		Level 3
Liabilities:
5.875% Senior Notes due 2024⁽¹⁾	$	244,827	$	238,497	$	—	$	238,497	$	—


(1)	Net of unamortized debt issuance costs of $5.2 million.



	December 31, 2016
In thousands	Book Value		Fair Value		Level 1	Level 2		Level 3
Liabilities:
7.875% Senior Notes due 2021⁽¹⁾	$	175,991	$	184,373	—	$	184,373	—


(1)	Net of unamortized debt issuance costs and premium received of $2.0 million.

The fair value of the 5.875% Senior Notes due 2024 (the “2024 Senior Notes”) and the 7.875% Senior Notes due 2021 (the “2021 Senior Notes”) were estimated using quoted market prices.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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