Note 12 - Business Segments, Sales of Products and Significant Customers

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note 12: Business Segments, Sales of Products and Significant Customers

We discover, acquire and develop mines and other mineral interests and produce and market concentrates, containing silver, gold (in the case of Greens Creek), lead and zinc, (ii) carbon material containing silver and gold, and (iii) doré containing silver and gold.  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 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 tables below present information about our reportable segments as of and for the years ended December 31, 2020, 2019 and 2018 (in thousands).

	2020				2019			2018
Net sales to unaffiliated customers:
Greens Creek	$	327,820			$	299,722		$	265,650
Lucky Friday		63,025				16,621			9,750
Casa Berardi		209,224				192,944			210,339
San Sebastian		32,906				56,210			50,224
Nevada Operations		58,898				107,769			31,174
Total sales to unaffiliated customers	$	691,873			$	673,266		$	567,137
Income (loss) from operations:
Greens Creek	$	108,230			$	84,868		$	70,293
Lucky Friday		(1,711	)			(12,520	)		(20,199	)
Casa Berardi		1,359				(33,499	)		881
San Sebastian		2,793				569			(14	)
Nevada Operations		(6,674	)			(49,224	)		(26,715	)
Other		(52,416	)			(47,303	)		(63,372	)
Total (loss) income from operations	$	51,581			$	(57,109	)	$	(39,126	)
Capital additions (including non-cash additions):
Greens Creek	$	23,665			$	35,829		$	43,631
Lucky Friday		27,284				7,861			14,236
Casa Berardi		47,576				33,906			39,816
San Sebastian		(47	)	—		3,906			8,492
Nevada Operations		4,003				42,154			35,721
Other		38				73			4,555
Total capital additions	$	102,519			$	123,729		$	146,451

Depreciation, depletion and amortization:
Greens Creek	$	49,692		$	47,587		$	46,511
Lucky Friday		11,473			1,175			1,012
Casa Berardi		69,572			73,960			71,302
San Sebastian		3,548			9,772			4,602
Nevada Operations		22,845			67,024			10,617
Total depreciation, depletion and amortization	$	157,130		$	199,518		$	134,044
Other significant non-cash items:
Greens Creek	$	3,103		$	2,868		$	3,325
Lucky Friday		881			996			618
Casa Berardi		(1,741	)		5,203			696
San Sebastian		456			492			419
Nevada Operations		2,039			2,911			8,758
Other		6,426			(6,595	)		(23,358	)
Total other significant non-cash items	$	11,164		$	5,875		$	(9,542	)
Identifiable assets:
Greens Creek	$	610,360		$	639,047		$	637,386
Lucky Friday		520,463			440,615			437,499
Casa Berardi		694,522			703,511			754,248
San Sebastian		42,617			48,294			44,152
Nevada Operations		513,309			528,466			581,194
Other		286,453			277,375			249,465
Total identifiable assets	$	2,667,724		$	2,637,308		$	2,703,944

The following are our long-lived assets by geographic area as of December 31, 2020 and 2019 (in thousands):

	2020		2019
United States	$	1,701,307	$	1,748,406
Canada		635,788		660,859
Mexico		8,124		14,433
Total long-lived assets	$	2,345,219	$	2,423,698

Our products consist of metal concentrates and carbon material, which we sell to custom smelters, metal traders and third-party processors, and unrefined bullion bars (doré), which may be sold as doré or further refined before sale to precious metal 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 and San Sebastian 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 materials, which we have at our Nevada Operations unit commencing in 2020 (with sales of unrefined doré there in previous periods), transfer of control takes place, 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 and the performance obligation has been met for those shipments. We have determined control is met, title is transferred and 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 our 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 December 31, 2020, metals contained in concentrate sales and exposed to future price changes totaled 1.7 million ounces of silver, 4,516 ounces of gold, 26.4 million pounds of zinc, and 9.1 million pounds 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, third-party processors and metal traders. The percentage of sales contributed by each segment is reflected in the following table:

	Year Ended December 31,
	2020			2019			2018
Greens Creek		47.4	%		44.5	%		46.7	%
Lucky Friday		9.1	%		2.5	%		1.8	%
Casa Berardi		30.2	%		28.7	%		37.1	%
San Sebastian		4.8	%		8.3	%		8.9	%
Nevada Operations		8.5	%		16.0	%		5.5	%
		100	%		100	%		100	%

Sales of products by metal for the years ended December 31, 2020, 2019 and 2018 were as follows (in thousands):

	Year Ended December 31,
	2020			2019			2018
Silver	$	260,227		$	192,235		$	144,609
Gold		356,166			388,602			313,076
Lead		48,776			35,777			33,829
Zinc		95,065			89,656			99,800
Less: Smelter and refining charges		(68,361	)		(33,004	)		(24,177	)
Sales of products	$	691,873		$	673,266		$	567,137

The following is sales information by geographic area based on the location of smelters and metal traders (for concentrate shipments) and the location of parent companies (for doré sales to metal traders) for the years ended December 31, 2020, 2019 and 2018 (in thousands):

	2020			2019		2018
United States	$	292,704		$	53,612	$	48,437
Canada		145,670			379,095		322,402
Japan		39,418			48,841		42,885
Netherlands		(923	)		38,420		—
Korea		165,302			154,581		145,263
China		66,082			—		66
Total, excluding gains/losses on forward contracts	$	708,253		$	674,549	$	559,053

Sales by significant product type for the years ended December 31, 2020, 2019 and 2018 were as follows (in thousands):

	Year Ended December 31,
	2020		2019		2018
Doré and metals from doré	$	266,536	$	340,912	$	306,328
Carbon		60,302		37,645		5,239
Lead concentrate		281,050		200,456		148,880
Zinc concentrate		76,481		74,160		80,938
Bulk concentrate		23,884		21,376		17,668
Total, excluding gains/losses on forward contracts	$	708,253	$	674,549	$	559,053

Sales of products for 2020, 2019 and 2018, included a net loss of $16.4 million, a net loss of $1.3 million, and a net gain of $8.1 million, respectively, on derivative contracts for silver, gold, lead and zinc contained in our sales.  See Note 11 for more information. 

Sales from continuing operations to significant metals customers as a percentage of total sales were as follows for the years ended December 31, 2020, 2019 and 2018:

	Year Ended December 31,
	2020			2019			2018
CIBC		32.7	%		23.1	%		29.7	%
Teck Metals Ltd.		16.1	%		8.2	%		8.4	%
Ocean Partners		13.9	%		5.7	%		2.5	%
Korea Zinc		13.3	%		17.4	%		17.8	%
Scotia		2.9	%		24.0	%		15.3	%

Our trade accounts receivable balance related to contracts with customers was $27.9 million at December 31, 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 December 31, 2020 or December 31, 2019.