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Fair Value Measurements
 12 Months Ended
Dec. 31, 2017
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS
 
Year ended December 31,
In thousands
2017
 
2016
 
2015
Rochester royalty obligation
$
(864
)
 
$
(4,133
)
 
$
818

Palmarejo royalty obligation embedded derivative
—

 
(5,866
)
 
3,101

Silver and gold options
—

 
(1,582
)
 
1,283

Fair value adjustments, net
$
(864
)
 
$
(11,581
)
 
$
5,202


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 December 31, 2017
In thousands
Total
 
Level 1
 
Level 2
 
Level 3  
Assets:
 
 
 
 
 
 
 
Equity and debt securities
$
34,837

 
$
27,946

 
$
—

 
$
6,891

Other derivative instruments, net
251

 
—

 
251

 
—

 
$
35,088

 
$
27,946

 
$
251

 
$
6,891

Liabilities:
 
 
 
 
 
 
 
Silvertip contingent consideration
$
47,965

 
$
—

 
$
—

 
$
47,965

Other derivative instruments, net
222

 
—

 
222

 
—

 
$
48,187

 
$
—

 
$
222

 
$
47,965


 
 
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 debt and 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, resulting in a pre-tax gain of $2.3 million, 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 historically classified this obligation as a Level 3 financial liability.
In July 2017, the Company sold the Endeavor Silver Stream and remaining non-core royalties to Metalla Royalty & Streaming Ltd. (“Metalla”) for total consideration of $13.0 million, including a $6.7 million convertible debenture. The convertible debenture matures June 30, 2027, bears interest at a rate of 5% payable semi-annually, and is convertible into Metalla shares in connection with future equity financings or asset acquisitions by Metalla at the then-current price to maintain the Company’s approximate 19.9% ownership. The fair value of the convertible debenture is estimated based on observable market data including yield curves and credit spreads. Therefore, the Company classifies the convertible debenture in Level 3 of the fair value hierarchy.
In October 2017 the Company acquired the Silvertip mine from JDS Silver. The consideration for the Silvertip mine includes two $25.0 million contingent payments, which are payable in cash and common stock upon reaching a future resource declaration milestone in 2019 and a future permitting milestone, respectively. The fair value of the Silvertip contingent consideration is estimated based on an estimated discount rate of 2.5% for the contingent permitting payment and 2.9% for the contingent resource declaration payment and is classified within Level 3 of the fair value hierarchy.
No assets or liabilities were transferred between fair value levels in the year ended December 31, 2017.
The following tables present the changes in the fair value of the Company's Level 3 financial assets and liabilities for the years ended December 31, 2017 and 2016:
 
Year Ended December 31, 2017
In thousands
Balance at the beginning of the period
 
Additions
 
Revaluation
 
Settlements
 
Gain on settlement
 
Balance at the
end of the
period
Assets:
 
 
 
 
 
 
 
 
 
 
 
Equity and debt securities
$
279

 
$
6,677

 
$
(65
)
 
$
—

 
$
—

 
$
6,891

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Rochester royalty obligation
$
9,287

 
$
—

 
$
864

 
$
(7,819
)
 
$
(2,332
)
 
$
—

Silvertip contingent consideration
$
—

 
$
47,705

 
$
260

 
$
—

 
$
—

 
$
47,965


 
Year Ended December 31, 2016
In thousands
Balance at the beginning of the period
 
Additions
 
Revaluation
 
Settlements
 
Gain on settlement
 
Balance at the
end of the
period
Assets:
 
 
 
 
 
 
 
 
 
 
 
Equity and debt securities
$
10

 
$
—

 
$
272

 
$
(3
)
 
$
—

 
$
279

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Palmarejo royalty obligation embedded derivative
$
4,957

 
$
—

 
$
5,866

 
$
(10,823
)
 
$
—

 
$
—

Rochester royalty obligation
$
9,593

 
$
—

 
$
4,133

 
$
(4,439
)
 
$
—

 
$
9,287

The fair value of financial assets and liabilities carried at book value in the financial statements at December 31, 2017 and December 31, 2016 is presented in the following table:
 
December 31, 2017
In thousands
Book Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3  
Liabilities:
 
 

 
 
 
 
 
 
5.875% Senior Notes due 2024(1)
$
245,088

 
$
243,913

 
$
—

 
$
243,913

 
$
—

Revolving Credit Facility(2)
$
100,000

 
$
100,000

 
$
—

 
$
100,000

 
$
—


(1)
Net of unamortized debt issuance costs of $4.9 million.
(2)
Unamortized debt issuance costs of $1.9 million at December 31, 2017 included in Other Non-Current Assets.
 
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. The fair value of the Revolving Credit Facility approximates book value as the liability is secured, has a variable interest rate, and lacks significant credit concerns.