Note 6 - Business Segments and Sales of Products

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note 6.    Business Segments and Sales of Products

We discover, acquire and develop mines and other mineral interests and produce and market concentrates, carbon material and doré containing silver, gold, lead and zinc. We are currently organized and managed in five segments, which represent our operating units: the Greens Creek unit, the Lucky Friday unit, the Casa Berardi unit, the San Sebastian unit, and the Nevada Operations unit.

General corporate activities not associated with operating units and their various exploration activities, as well as discontinued operations and idle properties, are presented as “other.”  Interest expense, interest income and income taxes are considered general corporate items, and are not allocated to our segments.

The following tables present information about our reportable segments for the three and six months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net sales to unaffiliated customers:
Greens Creek	$	84,890		$	55,398		$	138,724		$	135,527
Lucky Friday		11,455			4,951			14,285			7,133
Casa Berardi		50,005			45,500			96,177			85,562
San Sebastian		4,934			10,993			14,860			23,593
Nevada Operations		15,071			17,330			39,234			34,974
	$	166,355		$	134,172		$	303,280		$	286,789
Income (loss) from operations:
Greens Creek	$	26,751		$	9,141		$	30,867		$	34,574
Lucky Friday		(5,218	)		(2,271	)		(13,338	)		(5,052	)
Casa Berardi		3,204			(15,363	)		(676	)		(25,882	)
San Sebastian		(859	)		(1,923	)		(180	)		(3,435	)
Nevada Operations		(2,266	)		(21,475	)		623			(35,466	)
Other		(11,738	)		(11,586	)		(22,382	)		(24,340	)
	$	9,874		$	(43,477	)	$	(5,086	)	$	(59,601	)

The following table presents identifiable assets by reportable segment as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020		December 31, 2019
Identifiable assets:
Greens Creek	$	618,726	$	639,047
Lucky Friday		501,690		440,615
Casa Berardi		693,259		703,511
San Sebastian		32,915		48,294
Nevada Operations		522,822		528,466
Other		233,996		277,375
	$	2,603,408	$	2,637,308

Our products consist of metal concentrates and carbon material which we sell to custom smelters, brokers and third-party processors and unrefined bullion bars (doré), which may be sold as doré or further refined before sale to precious metals traders. Revenue is recognized upon the completion of the performance obligations and transfer of control of the product to the customer.

For sales of metals from refined doré, which we currently have at our Casa Berardi, San Sebastian and Nevada Operations units, the performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of control of the agreed-upon metal quantities to the customer by the refiner. For sales of unrefined doré, the performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of title and control of the doré containing the agreed-upon metal quantities to the customer. Refining, selling and shipping costs related to sales of doré and metals from doré are recorded to cost of sales as incurred.

For sales of carbon material, the performance obligation is met, the transaction price is known, and revenue is recognized generally at the time of arrival at the customer's facility.

For concentrate sales, which we currently have at our Greens Creek and Lucky Friday units, the performance obligation is met, the transaction price can be reasonably estimated, and revenue is recognized generally at the time of shipment. Concentrates sold at our Lucky Friday unit typically leave the mine and are received by the customer within the same day. However, there is a period of time between shipment of concentrates from our Greens Creek unit and their physical receipt by the customer, and judgment is required in determining when control has been transferred to the customer for those shipments. We have determined the performance obligation is met upon shipment of concentrate parcels from Greens Creek because, at that time, 1) legal title is transferred to the customer, 2) the customer has accepted the parcel and obtained the ability to realize all of the benefits from the product, 3) the concentrate content specifications are known, have been communicated to the customer, and the customer has the significant risks and rewards of ownership of it, 4) it is very unlikely a concentrate parcel from Greens Creek will be rejected by a customer upon physical receipt, and 5) we have the right to payment for the parcel.

Judgment is also required in identifying what the performance obligations for our concentrate sales are. Most of our concentrate sales involve “frame contracts” with smelters that can cover multiple years and specify certain terms under which individual parcels of concentrates are sold. However, some terms are not specified in the frame contracts and/or can be renegotiated as part of annual amendments to the frame contract. We have determined parcel shipments represent individual performance obligations satisfied at a point in time when control of the shipment is transferred to the customer.

The consideration we receive for our concentrate sales fluctuates due to changes in metals prices between the time of shipment and final settlement with the customer. However, we are able to reasonably estimate the transaction price for the concentrate sales at the time of shipment using forward prices for the month of settlement, and previously recorded sales and accounts receivable are adjusted to estimated settlement metals prices until final settlement with the customer. Also, it is unlikely a significant reversal of revenue for any one concentrate parcel will occur. As such, we use the expected value method to price the parcels until the final settlement date occurs, at which time the final transaction price is known. At June 30, 2020, metals contained in concentrate sales and exposed to future price changes totaled 2.6 million ounces of silver, 7,969 ounces of gold, 9,983 tons of zinc, and 7,405 tons of lead.  However, as discussed in Note 11, we seek to mitigate the risk of price adjustments by using financially-settled forward contracts for some of our sales.

Sales and accounts receivable for concentrate shipments are recorded net of charges for treatment, refining, smelting losses, and other charges negotiated by us with the customers, which represent components of the transaction price. Charges are estimated by us upon shipment of concentrates based on contractual terms, and actual charges typically do not vary materially from our estimates. Costs charged by customers include fixed treatment and refining costs per ton of concentrate and may include price escalators which allow the customers to participate in the increase of lead and zinc prices above a negotiated baseline. Costs for shipping concentrates to customers are recorded to cost of sales as incurred.

Sales of metal concentrates and metal products are made principally to custom smelters, brokers, third-party processors and metals traders. The percentage of sales contributed by each segment is reflected in the following table:

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Greens Creek		51	%		41	%		45	%		48	%
Lucky Friday		7	%		4	%		5	%		2	%
Casa Berardi		30	%		34	%		32	%		30	%
San Sebastian		3	%		8	%		5	%		8	%
Nevada Operations		9	%		13	%		13	%		12	%
		100	%		100	%		100	%		100	%

Sales of products by metal for the three- and six-month periods ended June 30, 2020 and 2019 were as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Silver	$	61,756		$	36,298		$	99,328		$	81,804
Gold		89,212			78,166			179,906			157,845
Lead		12,454			6,670			18,874			15,695
Zinc		21,455			22,948			38,762			47,703
Less: Smelter and refining charges		(18,522	)		(9,910	)		(33,590	)		(16,258	)
	$	166,355		$	134,172		$	303,280		$	286,789

The following is sales information by geographic area based on the location of smelters and brokers (for concentrate shipments) and location of parent companies (for doré sales to metals traders) for the three- and six-month periods ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
Canada	$	80,311		$	78,158	$	62,152		$	171,030
Korea		25,180			26,202		51,787			75,501
Japan		11,613			9,236		17,734			17,585
Netherlands		(2	)		16,055		(923	)		16,055
China		25,087			—		39,008			—
United States		29,048			3,228		136,785			7,801
Other		116			—		55			—
Total, excluding gains/losses on forward contracts	$	171,353		$	132,879	$	306,598		$	287,972

Sales by significant product type for the three- and six-month periods ended June 30, 2020 and 2019 were as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Doré and metals from doré	$	59,445	$	73,312	$	143,780	$	144,167
Carbon		16,903		4,284		19,264		9,330
Lead concentrate		72,514		35,742		106,667		85,042
Zinc concentrate		16,585		15,738		27,405		39,530
Bulk concentrate		5,906		3,803		9,482		9,903
Total, excluding gains/losses on forward contracts	$	171,353	$	132,879	$	306,598	$	287,972

Sales of products included net losses of $5.0 million and $3.3 million, respectively, for the second quarter and first half of 2020 on financially-settled forward contracts for silver, gold, lead and zinc contained in our sales. Sales of products included net gains of $1.3 million for the second quarter of 2019 and net losses of $1.2 million for the first half of 2019 on forward contracts. See Note 11 for more information.

Sales of products to significant customers as a percentage of total sales were as follows for the three- and six-month periods ended June 30, 2020 and 2019:

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
CIBC		31	%		24	%		31	%		19	%
Teck Metals Ltd.		20	%		3	%		12	%		9	%
Korea Zinc		15	%		20	%		17	%		20	%
Ocean Partners		13	%		12	%		7	%		6	%
SIPI		10	%		3	%		5	%		3	%
Scotia		—	%		28	%		7	%		28	%

Our trade accounts receivable balance related to contracts with customers was $26.0 million at June 30, 2020 and $12.0 million at December 31, 2019, and included no allowance for doubtful accounts.

We have determined our contracts do not include a significant financing component. For doré sales and sales of metal from doré, payment is received at the time the performance obligation is satisfied. Payment for carbon sales is received within a relatively short period of time after the performance obligation is satisfied. The amount of consideration for concentrate sales is variable, and we receive payment for a significant portion of the estimated value of concentrate parcels within a relatively short period of time after the performance obligation is satisfied.

We do not incur significant costs to obtain contracts, nor costs to fulfill contracts which are not addressed by other accounting standards. Therefore, we have not recognized an asset for such costs as of June 30, 2020 or December 31, 2019.