FAIR VALUE MEASUREMENTS



	Three months ended September 30,					Nine months ended September 30,
In thousands	2018			2017		2018			2017
Rochester royalty obligation	$	—		$	—	$	—		$	(864	)
Interest rate swap	206			—		18			—
Unrealized gain (loss) on equity securities	286			—		(2,898		)	—
Realized gain (loss) on equity securities	(3		)	—		5,199			—
Zinc options	226			—		588			—
Fair value adjustments, net	$	715		$	—	$	2,907		$	(864	)

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 September 30, 2018
In thousands	Total		Level 1		Level 2		Level 3
Assets:
Equity and debt securities	$	24,232	$	19,665	$	—	$	4,567
Other derivative instruments, net	507		—		507		—
	$	24,739	$	19,665	$	507	$	4,567
Liabilities:
Silvertip contingent consideration	$	48,945	$	—	$	—	$	48,945
Other derivative instruments, net	267		—		267		—
	$	49,212	$	—	$	267	$	48,945



	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

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 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, include concentrate and certain doré sales contracts, zinc hedges, and an interest rate swap which are valued using pricing models with inputs 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 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 of Metalla. In July 2018, Metalla completed an asset acquisition through the issuance of additional common stock, triggering the top-up clause in the convertible debenture, resulting in the conversion of $1.9 million of debt into Metalla common stock. The fair value of the convertible debenture is estimated based on observable and unobservable 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 shareholders of JDS Silver Holdings Ltd. 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 permitting milestone and resource declaration 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 nine months ended September 30, 2018.

The following tables present the changes in the fair value of the Company's Level 3 financial assets and liabilities for the three and nine months ended September 30, 2018:



	Three Months Ended September 30, 2018
In thousands	Balance at the beginning of the period		Revaluation		Settlements			Accretion		Balance at the end of the period
Assets:
Equity and debt securities	$	6,227	$	193	$	(1,853	)	$	—	$	4,567
Liabilities:
Silvertip contingent consideration	$	48,616	$	—	$	—		$	329	$	48,945



	Nine Months Ended September 30, 2018
In thousands	Balance at the beginning of the period		Revaluation			Settlements			Accretion		Balance at the end of the period
Assets:
Equity and debt securities	$	6,891	$	(172	)	$	(2,152	)	$	—	$	4,567
Liabilities:
Silvertip contingent consideration	$	47,965	$	—		$	—		$	980	$	48,945

The fair value of financial assets and liabilities carried at book value in the financial statements at September 30, 2018 and December 31, 2017 is presented in the following table:



	September 30, 2018
In thousands	Book Value		Fair Value		Level 1		Level 2		Level 3
Assets:
Manquiri Notes Receivable	$	9,207	$	9,207	$	—	$	—	$	9,207
Liabilities:
5.875% Senior Notes due 2024⁽¹⁾	$	245,662	$	235,725	$	—	$	235,725	$	—
Revolving Credit Facility⁽²⁾	$	120,000	$	120,000	$	—	$	120,000	$	—

⁽¹⁾Net of unamortized debt issuance costs of $4.3 million.

⁽²⁾Unamortized debt issuance costs of $1.5 million included in Other Non-Current Assets.



	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 included in Other Non-Current Assets.

In September 2018, the Company entered into a Letter Agreement with the Buyer, pursuant to which the total aggregate principal amount of the Manquiri Notes Receivable received as partial consideration in the Manquiri Divestiture was reduced from $28.5 million to $25.0 million, and the Buyer made a concurrent cash payment of $15.0 million to the Company in respect of the Manquiri Notes Receivable. In addition, the Company also agreed to suspend the quarterly payments in respect of the NSR on all metals processed through the San Bartolomé mine’s processing facility received as partial consideration in the Manquiri Divestiture until October 15, 2019 and to forgo any rights the Company retained in the transaction to any VAT refunds collected or received by Manquiri. Based on the Company’s evaluation of the terms of the Letter Agreement, the Company recorded an $18.6 million write-down that is made up of $13.1 million on the VAT refunds, $3.6 million on the Manquiri Notes Receivable and $1.9 million on the NSR, which is included in Other, net.. The fair value of the Manquiri Notes Receivable was determined using a discounted cash flow model using a 12% discount rate which takes into consideration the increased credit risk and short duration of the Manquiri Notes Receivable.

The fair value is estimated based on observable and unobservable data including yield curves and credit spreads, therefore, the Company classifies the Manquiri Notes Receivable in Level 3 of the fair value hierarchy; see Note 21 -- Discontinued Operations for additional detail.

The fair value of the 5.875% Senior Notes due 2024 (the “2024 Senior Notes”) was 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.