Note 11 - Derivative Instruments

9 Months Ended

Sep. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note 11.    Derivative Instruments

At times, we may use commodity forward sales commitments, commodity swap contracts and commodity put and call option 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 prices. 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 subject to contract positions.

We are currently using financially-settled forward contracts to manage the exposure to changes in prices of silver, gold, zinc and lead contained in our concentrate shipments between the time of shipment 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 do not qualify for hedge accounting and are marked-to-market through earnings each period.  At September 30, 2015, we recorded a current asset of $1.8 million for these contracts, which is included in other current assets and is net of $0.5 million for contracts in a liability position.

We recognized a $6.1 million net gain during the first nine months of 2015 on the contracts utilized to manage exposure to prices of metals in our concentrate shipments, which is included in sales of products.  The net gain recognized on the contracts offsets losses related to price adjustments on our provisional concentrate sales due to changes to silver, gold, lead and zinc prices between the time of sale and final settlement.

We recognized an $8.3 million net gain during the first nine months of 2015 on the contracts utilized to manage exposure to prices for forecasted future concentrate shipments, which includes $18.8 million in gains realized on settled contracts. During the first nine months of 2015, we monetized a number of favorable base metal contracts for proceeds of $16.5 million because of the sustained weakened price environment, and all contracts under this program were closed as of September 30, 2015. 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 as discussed in the preceding paragraph.  The net gain during the first nine months of 2015 is the result of decreasing zinc and lead prices. This program, when utilized, 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, 2015 and December 31, 2014:

September 30, 2015

Ounces/pounds under contract (in 000's)

Average price per ounce/pound

Silver

Gold

Zinc

Lead

Silver

Gold

Zinc

Lead

(ounces)

(ounces)

(pounds)

(pounds)

(ounces)

(ounces)

(pounds)

(pounds)

Contracts on provisional sales

2015 settlements

1,271

5

18,684

6,283

$

14.74

$

1,135

$

0.85

$

0.76

December 31, 2014	Ounces/pounds under contract (in 000's)								Average price per ounce/pound
	Silver		Gold		Zinc		Lead		Silver		Gold		Zinc		Lead
	(ounces)		(ounces)		(pounds)		(pounds)		(ounces)		(ounces)		(pounds)		(pounds)
Contracts on provisional sales
2015 settlements		1,607		6		19,456		8,378	$	16.06	$	1,195	$	1.01	$	0.87
Contracts on forecasted sales
2015 settlements		—		—		46,738		29,652	N/A		N/A		$	0.96	$	1.07
2016 settlements		—		—		44,699		34,337	N/A		N/A		$	0.99	$	1.03
2017 settlements		—		—		1,984		—	N/A		N/A		$	1.04	N/A

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.