DERIVATIVE FINANCIAL INSTRUMENTS

Provisional Metal Sales

The Company enters into sales contracts with third-party smelters, refiners and off-take customers 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.

Interest Rate Swap

The Company is a party to two interest rate swap contracts in which it will receive variable-rate interest and pay fixed-rate interest. The Company uses these instruments to manage its exposure to changes in interest rates related to its RCF (see Note 8-- Debt). The interest rate swap derivative instruments are not designated as hedges from an accounting standpoint and hedge accounting is not applied. The notional amount is used to measure interest to be paid or received. The first interest rate swap derivative instrument, with a notional amount of $50.0 million, became effective June 2018 and covers a contractual term of twelve months and net settles monthly. The second interest rate swap derivative instrument, with a notional amount of $75.0 million, will become effective June 2019 and covers a contractual term of six months and net settles monthly.

At March 31, 2019, the Company had the following derivative instruments that settle as follows:



In thousands except average prices and notional ounces	2019			Thereafter
Provisional silver sales contracts	$	5,712		$	—
Average silver price per ounce	$	15.11		$	—
Notional ounces	378,139			—

Provisional gold sales contracts	$	10,657		$	—
Average gold price per ounce	$	1,303		$	—
Notional ounces	8,178			—

Provisional zinc sales contracts	$	11,581		$	—
Average zinc price per pound	$	1.27		$	—
Notional pounds	9,099,116			—

Provisional lead sales contracts	$	4,234		$	—
Average lead price per pound	$	0.91		$	—
Notional pounds	4,648,252			—

Fixed interest rate swap payable	$	323		$	—
Fixed Interest rate	2.46		%	—
Notional dollars	$	50,000		$	—

Variable interest rate swap receivable	$	326		$	—
Average variable interest rate	2.49		%	$	—
Notional dollars	$	50,000		$	—

Fixed interest rate swap payable	$	960		$	—
Fixed Interest rate	2.50		%	—
Notional dollars	$	75,000		$	—

Variable interest rate swap receivable	$	911		$	—
Average variable interest rate	2.49		%	$	—
Notional dollars	$	75,000		$	—

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



	March 31, 2019
In thousands	Prepaid expenses and other		Accrued liabilities and other
Provisional metal sales contracts	$	550	$	161
Interest rate swaps	3		(49		)
	$	553	$	112



	December 31, 2018
In thousands	Prepaid expenses and other		Accrued liabilities and other
Provisional metal sales contracts	$	784	$	644
Zinc options	113		—
Interest rate swaps	17		—
	$	914	$	644

The following represent mark-to-market gains (losses) on derivative instruments for the three months ended March 31, 2019 and 2018, respectively (in thousands):



		Three Months Ended March 31,
Financial statement line	Derivative	2019			2018
Revenue	Provisional metal sales contracts	$	250		$	253
Fair value adjustments, net	Zinc options	—			145
Fair value adjustments, net	Interest rate swaps	(46		)	—
		$	204		$	398

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.