DERIVATIVE FINANCIAL INSTRUMENTS

Provisional Metal Sales

The Company enters into sales contracts with third-party smelters and refiners which, in some cases, provide for a provisional payment based upon preliminary assays and quoted metal prices. The provisionally priced sales contracts contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable recorded at the forward price at the time of sale. The embedded derivatives do not qualify for hedge accounting and are marked to market through earnings each period until final settlement.

Zinc Options

At September 30, 2018, the Company has outstanding Asian (or average value) put and call option contracts in net-zero-cost collar arrangements on a volume of 300 metric tons of zinc per month commencing in April 2018 and ending in December 2018. The weighted average strike prices on the put and call contracts are $3,000 and $4,050 per metric ton, respectively. The contracts are generally net cash settled and, if the price of zinc at the time of the expiration is between the put and call prices, would expire at no cost to the Company.

Interest Rate Swap

The Company is a party to an interest rate swap contract in which it will receive variable-rate interest and pay fixed-rate interest. The Company uses this instrument to manage its exposure to changes in interest rates related to its Revolving Credit Facility (see Note 18 -- Debt). The interest rate swap derivative instrument is not designated as a hedge from an accounting standpoint and hedge accounting is not applied. The notional amount is used to measure interest to be paid or received. The interest rate swap derivative instrument became effective June 2018 with a contractual term of twelve months and net settles monthly.

At September 30, 2018, the Company had the following derivative instruments that settle as follows:



In thousands except average prices and notional ounces	2018			Thereafter
Provisional silver sales contracts	$	1,444		$	—
Average silver price per ounce	$	14.61		$	—
Notional ounces	98,832			—

Provisional gold sales contracts	$	14,802		$	—
Average gold price per ounce	$	1,224		$	—
Notional ounces	12,089			—

Provisional zinc sales contracts	$	2,123		$	—
Average zinc price per pound	$	1.20		$	—
Notional pounds	1,772,075			—

Provisional lead sales contracts	$	1,130		$	—
Average lead price per pound	$	0.92		$	—
Notional pound	1,230,193			—

Zinc put options purchased	$	2,700		$	—
Average zinc strike price per metric ton	$	3,000		$	—
Notional metric tons	900			—

Zinc call options sold	$	(3,645	)	$	—
Average zinc strike price per metric ton	$	4,050		$	—
Notional metric tons	900			—

Fixed interest rate swap payable	$	960		$	—
Fixed Interest rate	2.46		%	—
Notional dollars	$	50,000		$	—

Variable interest rate swap receivable	$	979		$	—
Average variable interest rate	2.51		%	$	—
Notional dollars	$	50,000		$	—

The following summarizes the classification of the fair value of the derivative instruments:



	September 30, 2018
In thousands	Prepaid expenses and other		Accrued liabilities and other
Provisional metal sales contracts	$	310	$	267
Zinc options	339		—
Interest rate swaps	68		—
	$	717	$	267



	December 31, 2017
In thousands	Prepaid expenses and other		Accrued liabilities and other
Provisional metal sales contracts	$	251	$	222

The following represent mark-to-market gains (losses) on derivative instruments for the three and nine months ended September 30, 2018 and 2017, respectively (in thousands):



		Three months ended September 30,				Nine months ended September 30,
Financial statement line	Derivative	2018		2017		2018		2017
Revenue	Provisional metal sales contracts	$	34	$	147	$	15	$	596
Fair value adjustments, net	Zinc options	225		—		588		—
Fair value adjustments, net	Interest rate swaps	206		—		18		—
		$	465	$	147	$	621	$	596

Credit Risk

The credit risk exposure related to any derivative instrument is limited to the unrealized gains, if any, on outstanding contracts based on current market prices. To reduce counter-party credit exposure, the Company enters into contracts with institutions management deems credit-worthy and limits credit exposure to each institution. The Company does not anticipate non-performance by any of its counterparties.