Note 4 - Business Segments, Sales of Products and Significant Customers

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note 4: 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 four reportable segments being: Greens Creek, Lucky Friday, Casa Berardi and the Nevada Operations.

General corporate activities not associated with operating mines and their various exploration activities, as well as idle properties and San Sebastian, a former operating mine and reportable segment, 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, 2021, 2020 and 2019 (in thousands).

	2021			2020			2019
Net sales to unaffiliated customers:
Greens Creek	$	384,843		$	327,820		$	299,722
Lucky Friday		131,488			63,025			16,621
Casa Berardi		245,152			209,224			192,944
Nevada Operations		45,814			58,898			107,769
Other		176			32,906			56,210
Total sales to unaffiliated customers	$	807,473		$	691,873		$	673,266
Income (loss) from operations:
Greens Creek (1)	$	164,666		$	114,607		$	87,232
Lucky Friday		31,683			(1,711	)		(12,520	)
Casa Berardi (1)		5,807			10,379			(25,432	)
Nevada Operations		(46,115	)		(6,674	)		(49,224	)
Other		(72,621	)		(49,623	)		(46,734	)
Total income (loss) from operations (1)	$	83,420		$	66,978		$	(46,678	)
Capital additions (excluding non-cash items):
Greens Creek	$	23,883		$	19,685		$	29,570
Lucky Friday		29,885			25,776			8,989
Casa Berardi		49,617			40,840			36,059
Nevada Operations		5,470			4,003			42,953
Other		193			712			3,850
Total capital additions	$	109,048		$	91,016		$	121,421

Depreciation, depletion and amortization:
Greens Creek	$	48,710			49,692		$	47,587
Lucky Friday		26,846			11,473			1,175
Casa Berardi (1)		80,744			60,552			65,893
Nevada Operations		15,341			22,845			67,024
Other		152			3,548			9,772
Total depreciation, depletion and amortization (1)	$	171,793		$	148,110		$	191,451
Other significant non-cash items:
Greens Creek	$	3,653		$	3,103		$	2,868
Lucky Friday		1,048			881			996
Casa Berardi		1,284			(1,741	)		5,203
Nevada Operations		7,740			2,039			2,911
Other (1)		(20,030	)		8,569			(2,684	)
Total other significant non-cash items	$	(6,305	)	$	12,851		$	9,294
Identifiable assets:
Greens Creek	$	589,944		$	610,360		$	639,047
Lucky Friday		516,545			520,463			440,615
Casa Berardi (1)		701,868			727,008			726,977
Nevada Operations		468,985			513,309			528,466
Other		451,466			329,070			325,669
Total identifiable assets (1)	$	2,728,808		$	2,700,210		$	2,660,774

The following are our long-lived assets by geographic area as of December 31, 2021 and 2020 (in thousands):

	2021		2020
United States	$	1,662,689	$	1,701,307
Canada (1)		640,367		668,643
Mexico		7,754		8,124
Total long-lived assets (1)	$	2,310,810	$	2,378,074

⁽¹⁾ Amounts reported as of and for the years ended December 31, 2020 and 2019 have been revised. See Note 3 for more information.

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 Casa Berardi, 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 in 2019 at our Nevada Operations, the performance obligation was met, the transaction price was known, and revenue was 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 had at our Nevada Operations commencing in 2020, 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 Greens Creek and Lucky Friday, 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 Lucky Friday 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 Greens Creek 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 our concentrate sales performance obligations. 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 the 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, 2021, metals contained in concentrate sales and exposed to future price changes totaled 2.1 million ounces of silver, 6,224 ounces of gold, 27.5 million pounds of zinc, and 12.7 million pounds of lead.  However, as discussed in Note 10, 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,
	2021			2020			2019
Greens Creek		47.6	%		47.4	%		44.5	%
Lucky Friday		16.3	%		9.1	%		2.5	%
Casa Berardi		30.4	%		30.2	%		28.7	%
Nevada Operations		5.7	%		8.5	%		16.0	%
Other		—	%		4.8	%		8.3	%
		100	%		100	%		100	%

Sales of products by metal for the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands):

	Year Ended December 31,
	2021			2020			2019
Silver	$	293,646		$	260,227		$	192,235
Gold		362,037			356,166			388,602
Lead		75,431			48,776			35,777
Zinc		125,292			95,065			89,656
Less: Smelter and refining charges		(48,933	)		(68,361	)		(33,004	)
Sales of products	$	807,473		$	691,873		$	673,266

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, 2021, 2020 and 2019 (in thousands):

	2021		2020			2019
United States	$	71,278	$	115,378		$	53,612
Canada		419,090		321,896			379,095
Japan		63,588		39,418			48,841
Netherlands		—		(923	)		38,420
Korea		203,115		166,402			154,581
China		50,945		66,082			—
Total, excluding gains/losses on forward contracts	$	808,016	$	708,253		$	674,549

Sales by significant product type for the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands):

	Year Ended December 31,
	2021		2020		2019
Doré and metals from doré	$	313,337	$	266,536	$	340,912
Carbon		4,117		60,302		37,645
Silver concentrate		345,732		281,050		200,456
Zinc concentrate		112,448		76,481		74,160
Precious metals concentrate		32,382		23,884		21,376
Total, excluding gains/losses on forward contracts	$	808,016	$	708,253	$	674,549

Sales of products for 2021, 2020 and 2019 included net losses of $0.5 million, $16.4 million, and $1.3 million, respectively, on derivative contracts for silver, gold, lead and zinc contained in our sales.  See Note 10 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, 2021, 2020 and 2019:

	Year Ended December 31,
	2021			2020			2019
CIBC		37.2	%		32.7	%		23.1	%
Teck Metals Ltd.		21.5	%		16.1	%		8.2	%
Ocean Partners		6.2	%		13.9	%		5.7	%
Korea Zinc		21.6	%		13.3	%		17.4	%
Scotia		—	%		2.9	%		24.0	%

Our trade accounts receivable balance related to contracts with customers was $36.4 million at December 31, 2021 and $27.9 million at December 31, 2020, 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, 2021 or December 31, 2020.