Note 11 - Derivative Instruments

3 Months Ended

Mar. 31, 2016

Notes to Financial Statements

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. 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 under 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, at times 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; however, there were no open contracts related to this latter program as of March 31, 2016 or December 31, 2015.  These contracts do not qualify for hedge accounting and are marked-to-market through earnings each period.  At March 31, 2016, we recorded a current liability of $0.5 million on the contracts utilized to manage exposure to prices of metals in our concentrate shipments, which is included in other current liabilities.

We recognized a $6.1 million net loss during the first three months of 2016 on the contracts utilized to manage exposure to prices of metals in our concentrate shipments, which is included in sales of products.  The net loss recognized on the contracts offsets gains 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.

The following tables summarize the quantities of metals committed under forward sales contracts at March 31, 2016 and December 31, 2015:

March 31, 2016

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

2016 settlements

1,196

4

15,818

9,700

$

15.29

$

1,225

$

0.80

$

0.77

December 31, 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

2016 settlements

1,368

5

23,755

8,433

$

14.12

$

1,076

$

0.71

$

0.77

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 results from changes to silver, gold, lead and zinc prices between the time of sale and final settlement, does not qualify for hedge accounting and is marked-to-market through earnings each period prior to final settlement.