Note 11. Derivative Instruments

6 Months Ended

Jun. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note 11.    Derivative Instruments

At times, we use commodity forward sales commitments and commodity swap contracts to manage our exposure to fluctuation in the prices of certain metals which we produce. Contract positions are designed to ensure that we will receive a defined minimum price for certain quantities of our production, thereby partially offsetting our exposure to fluctuations in the market. These instruments do, however, expose us to other risks, including the amount by which the contract price exceeds the spot price of a commodity, and nonperformance by the counterparties to these agreements.

We use financially-settled forward contracts to sell lead and zinc at fixed prices for settlement at approximately the same time that our unsettled concentrate sales contracts will settle.  The settlement of each concentrate contract is based on the average spot price of the metal during the month of settlement, which may differ from the prices used to record the sale when the sale takes place.  The objective of the contracts is to manage the exposure to changes in prices of zinc and lead contained in our concentrate shipments between the time of sale and final settlement.  These contracts do not qualify for hedge accounting and are marked-to-market through earnings each period.  At June 30, 2012, we recorded a current asset of $0.2 million, which is included in other current assets, for the fair value of the contracts.  The current asset balance is net of approximately $0.3 million for contracts that were in a fair value liability position at June 30, 2012.  We recognized a $0.1 million net loss on the contracts during the first six months of 2012, which is included in sales of products.  The net loss recognized on the contracts offsets price adjustments on our provisional concentrate sales related to changes to lead and zinc prices between the time of sale and final settlement.

In addition, we use financially-settled forward contracts to manage the exposure of changes in prices of zinc and lead contained in our forecasted future concentrate shipments.  These contracts also do not qualify for hedge accounting and are marked-to-market through earnings each period.  At June 30, 2012, we recorded a current asset of $17.5 million, which is included in other current assets, and a non-current asset of $5.7 million, which is included in other non-current assets, for the fair value of the contracts.  The current asset balance is net of approximately $19,000 for contracts that were in a fair value liability position at June 30, 2012. We recognized a $0.9 million net gain on the contracts during the first six months of 2012, which included $10.2 million in gains realized on settled contracts and $9.3 million in unrealized losses for mark-to-market adjustments on unsettled contracts. The net gain on these contracts is included as a separate line item under other income (expense), as they relate to forecasted future shipments, as opposed to sales that have already taken place but are subject to final pricing.  The gains recognized during the first six months of 2012 are the result of declining lead and zinc prices during the end of June 2012.  This program is designed to mitigate the impact of potential future declines in lead and zinc prices from the price levels established in the contracts (see average price information below).

As further discussed in Note 6, production at the Lucky Friday mine is temporarily suspended due to the requirement to remove material from the Silver Shaft.  As a result, during the first quarter of 2012, we liquidated forward contracts related to previously forecasted Lucky Friday base metal sales for total net proceeds of $3.1 million.

The following tables summarize the quantities of base metals committed under forward sales contracts at June 30, 2012 and December 31, 2011:

June 30, 2012	Metric tonnes under contract				Average price per pound
	Zinc		Lead		Zinc		Lead
Contracts on provisional sales
2012 settlements		9,000		2,300	$	0.86	$	0.84
Contracts on forecasted sales
2012 settlements		5,925		2,500	$	1.11	$	1.12
2013 settlements		10,375		13,850	$	1.10	$	1.14

December 31, 2011	Metric tonnes under contract				Average price per pound
	Zinc		Lead		Zinc		Lead
Contracts on provisional sales
2012 settlements		9,600		2,600	$	0.86	$	0.89
Contracts on forecasted sales
2012 settlements		20,500		15,900	$	1.12	$	1.12
2013 settlements		8,275		11,150	$	1.14	$	1.17

Our concentrate sales are based on a provisional sales price containing an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of the concentrates at the forward price at the time of the sale. The embedded derivative, which does not qualify for hedge accounting, is adjusted to market through earnings each period prior to final settlement.