Note 11 - Derivative Instruments

9 Months Ended

Sep. 30, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note 11.    Derivative Instruments

At times, we use financially-settled forward contracts, and we may also use commodity swap contracts, to manage our exposure to fluctuation in the prices of certain metals that 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 price fluctuations. These instruments do, however, expose us to (i) credit risk in the event of non-performance by counterparties for contracts in which the contract price exceeds the spot price of a commodity and (ii) price risk to the extent that the spot price exceeds the contract price for quantities of our production covered by contract positions.

We use financially-settled forward contracts to sell silver, gold, 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 metal prices of silver, gold, zinc and lead contained in our doré and 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 September 30, 2013 we recorded a current asset of approximately $1.4 million, which is included in other current assets, for the fair value of the contracts.  The current asset balance is net of approximately $0.1 million for contracts that were in a fair value liability position at September 30, 2013. We recognized a $0.3 million net gain on the contracts during the first nine months of 2013, which is included in sales of products.  The net gain recognized on the contracts offsets price adjustments on our provisional concentrate sales related to changes to silver, gold, lead and zinc prices between the time of sale and final settlement.

In addition, we use financially-settled forward contracts to manage the exposure to changes in prices of zinc and lead (but not silver and gold) 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 September 30, 2013 we recorded a current asset of $8.0 million, which is included in other current assets, and a non-current asset of $9.3 million, which is included in other non-current assets, for the fair value of the contracts.  The current asset and non-current asset balances are net of approximately $0.2 million and $0.2 million, respectively, for contracts that were in a fair value liability position at September 30, 2013. We recognized a $23.5 million net gain on the contracts during the first nine months of 2013, which included $9.7 million in gains realized on settled 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.  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).

The following tables summarize the quantities of metals committed under forward sales contracts at September 30, 2013 and December 31, 2012:

September 30, 2013	Ounces/pounds under contract (in 000's)								Average price per ounce/pound
	Silver (ounces)		Gold (ounces)		Zinc (pounds)		Lead (pounds)		Silver (ounces)		Gold (ounces)		Zinc (pounds)		Lead (pounds)
Contracts on provisional sales
2013 settlements		1,384		5		16,975		8,047	$	22.40	$	1,354	$	0.87	$	0.97
Contracts on forecasted sales
2013 settlements		—		—		3,527		4,079		—		—	$	0.95	$	1.07
2014 settlements		—		—		60,516		47,619		—		—	$	0.99	$	1.05
2015 settlements		—		—		42,769		39,628		—		—	$	0.96	$	1.07
2016 settlements		—		—		661		9,755		—		—	$	0.97	$	1.04

December 31, 2012	Ounces/pounds under contract (in 000's)								Average price per ounce/pound
	Silver (ounces)		Gold (ounces)		Zinc (pounds)		Lead (pounds)		Silver (ounces)		Gold (ounces)		Zinc (pounds)		Lead (pounds)
Contracts on provisional sales
2013 settlements		—		—		14,991		6,945		—		—	$	0.95	$	1.00
Contracts on forecasted sales
2013 settlements		—		—		35,935		32,794		—		—	$	0.96	$	1.11
2014 settlements		—		—		30,203		33,069		—		—	$	0.98	$	1.03
2015 settlements		—		—		3,307		23,534		—		—	$	1.01	$	1.06

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.