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DERIVATIVE INSTRUMENTS
10301 - Disclosure - DERIVATIVE INSTRUMENTS
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<div>
<div style="font-family: 'Times New Roman',Times,serif;">
<div style="margin-top: 18pt; font-size: 10pt;" align="center"><b>NOTE 3<br />DERIVATIVE INSTRUMENTS</b> </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> The Company uses various derivative instruments to manage its exposure to changes in interest rates and PGM market commodity prices. Some of these derivatives are designated as hedges. Because the Company hedges only with instruments that have a high correlation with the value of the underlying exposures, changes in the derivatives' fair value are expected to be offset by changes in the value of the hedged transaction.</div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><i>Commodity Derivatives</i> </div></div>
<div style="font-family: 'Times New Roman',Times,serif;">
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> The Company regularly enters into fixed forward contracts and financially settled forward contracts to offset the price risk in its PGM recycling activity. From time to time, it also enters into these types of contracts on portions of its mine production. In fixed forward transactions, the Company agrees to deliver a stated quantity of metal on a specific future date at a price stipulated in advance. The Company uses fixed forward transactions primarily to price in advance the metals acquired for processing in its recycling segment. Under financially settled forward transactions, at each settlement date the Company receives the difference between the forward price and the market price if the market price is below the forward price and the Company pays the difference between the forward price and the market price if the market price is above the forward price. These financially settled forward contracts are settled in cash at maturity and do not require physical delivery of metal at settlement. The Company normally uses financially settled forward contracts with third parties to reduce its exposure to price risk on metal it is obligated to deliver under long-term sales agreements. </div>
<div style="margin-top: 12pt; font-size: 10pt;" align="left"><i>Mine Production</i> </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> At present the Company has not entered into derivative instruments to hedge its mined production. </div>
<div style="margin-top: 12pt; font-size: 10pt;" align="left"><i>PGM Recycling</i> </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> The Company enters into fixed forward sales relating to PGM recycling of catalyst materials. The metals from PGM recycled materials are sold forward at the time of purchase and delivered against the fixed forward contracts when the ounces are recovered. All of these fixed forward sales contracts open at June 30, 2010, will settle at various periods through November 2010. The Company has credit agreements with its major trading partners that provide for margin deposits in the event that forward prices for metals exceed the Company's hedged prices by a predetermined margin limit. As of June 30, 2010, no such margin deposits were outstanding or due. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> From time to time, the Company also enters into financially settled forward contracts on recycled materials for which it hasn't entered into a fixed forward sale. Such contracts are utilized when the Company wishes to establish a firm forward price for recycled metal on a specific future date. No financially settled forward contracts were entered into during the second quarter of 2010. The Company generally has not designated these contracts as cash flow hedges, so they are marked to market at the end of each accounting period. The change in the fair value of the derivatives is reflected in the income statement. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> The following is a summary of the Company's commodity derivatives as of June 30, 2010: </div>
<div style="margin-top: 12pt; font-size: 10pt;" align="left"><b>PGM Recycling:</b><br /><b>Fixed Forwards</b> </div>
<div align="center">
<table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%">
<tr valign="bottom"><td width="28%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td nowrap="nowrap" align="left"> </td>
<td> </td>
<td style="border-bottom: #000000 0px solid;" colspan="7" nowrap="nowrap" align="center">Platinum</td>
<td> </td>
<td style="border-bottom: #000000 0px solid;" colspan="7" nowrap="nowrap" align="center">Palladium</td>
<td> </td>
<td style="border-bottom: #000000 0px solid;" colspan="7" nowrap="nowrap" align="center">Rhodium</td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;" nowrap="nowrap" align="left">Settlement Period</td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="3" nowrap="nowrap" align="center">Ounces</td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="3" nowrap="nowrap" align="center">Avg. Price</td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="3" nowrap="nowrap" align="center">Ounces</td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="3" nowrap="nowrap" align="center">Avg. Price</td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="3" nowrap="nowrap" align="center">Ounces</td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="3" nowrap="nowrap" align="center">Avg. Price</td></tr>
<tr valign="bottom"><td>
<div style="text-indent: -15px; margin-left: 15px;">Third Quarter 2010</div></td>
<td> </td>
<td> </td>
<td align="right">18,838</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">1,627</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,931</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">493</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,260</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">2,702</td>
<td> </td></tr>
<tr valign="bottom"><td>
<div style="text-indent: -15px; margin-left: 15px;">Fourth Quarter 2010</div></td>
<td> </td>
<td> </td>
<td align="right">257</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">1,564</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">267</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">474</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">838</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">2,430</td>
<td> </td></tr></table></div>
<p style="font-size: 10pt;" align="center"><b>The following is the Effect of Derivative Instruments on the Statements of Operations and<br />Comprehensive Income (Loss) for the Three- and Six- month periods Ended June 30, 2010 and 2009:</b> </p></div>
<div style="font-family: 'Times New Roman',Times,serif;">
<div style="margin-top: 12pt; font-size: 10pt;" align="left"><b>(in thousands)</b></div>
<div align="center">
<table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%">
<tr valign="bottom"><td width="40%"> </td>
<td width="5%"> </td>
<td width="6%"> </td>
<td width="5%"> </td>
<td width="2%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="2%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="2%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="2%"> </td>
<td width="1%"> </td>
<td width="3%"> </td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td nowrap="nowrap" align="left"> </td>
<td> </td>
<td nowrap="nowrap" align="center"> </td>
<td> </td>
<td colspan="11" nowrap="nowrap" align="center"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td nowrap="nowrap" align="left"><b>Derivatives Not</b></td>
<td> </td>
<td nowrap="nowrap" align="center"> </td>
<td> </td>
<td colspan="11" nowrap="nowrap" align="center"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td nowrap="nowrap" align="left"><b>Designated as Cash</b></td>
<td> </td>
<td nowrap="nowrap" align="center"><b>Location of Gain/(Loss)</b></td>
<td> </td>
<td colspan="11" nowrap="nowrap" align="center"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;" nowrap="nowrap" align="left"><b>Flow Hedges</b></td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" nowrap="nowrap" align="center"><b>Recognized in Income</b></td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="15" nowrap="nowrap" align="center"><b>Amount of Gain or (Loss) Recognized in Income</b></td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="7" nowrap="nowrap" align="center"><b>Three months ended</b></td>
<td> </td>
<td colspan="7" nowrap="nowrap" align="center"><b>Six months ended</b></td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="7" nowrap="nowrap" align="center"><b>June 30,</b></td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="7" nowrap="nowrap" align="center"><b>June 30,</b></td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="3" nowrap="nowrap" align="center"><b>2010</b></td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="3" nowrap="nowrap" align="center"><b>2009</b></td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="3" nowrap="nowrap" align="center"><b>2010</b></td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="3" nowrap="nowrap" align="center"><b>2009</b></td></tr>
<tr style="background: #cceeff;" valign="bottom"><td>
<div style="text-indent: -15px; margin-left: 15px;">Fixed forward contracts</div></td>
<td> </td>
<td valign="bottom" align="left">Other revenue</td>
<td> </td>
<td align="right">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">5</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">5</td>
<td> </td></tr>
<tr valign="bottom"><td>
<div style="text-indent: -15px; margin-left: 15px;">Fixed forward contracts</div></td>
<td> </td>
<td valign="bottom" align="left">Other revenue</td>
<td> </td>
<td align="right">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">$</td>
<td align="right">(2</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="right">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">$</td>
<td align="right">(2</td>
<td nowrap="nowrap">)</td></tr>
<tr style="background: #cceeff;" valign="bottom"><td>
<div style="text-indent: -15px; margin-left: 15px;">Fixed forward contracts</div></td>
<td> </td>
<td valign="bottom" align="left">PGM recycling revenue</td>
<td> </td>
<td align="right">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">243</td>
<td> </td></tr>
<tr valign="bottom"><td>
<div style="text-indent: -15px; margin-left: 15px;">Fixed forward contracts</div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left">PGM recycling revenue</td>
<td> </td>
<td align="right">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">$</td>
<td align="right">(47</td>
<td nowrap="nowrap">)</td></tr></table></div>
<div style="margin-top: 18pt; font-size: 10pt;" align="center"><b>Fair Value of Derivative Instruments</b> </div>
<div style="margin-top: 12pt; font-size: 10pt;" align="left"><b>(in thousands)</b></div>
<div align="center">
<table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%">
<tr valign="bottom"><td width="28%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td nowrap="nowrap" align="left"> </td>
<td> </td>
<td colspan="7" nowrap="nowrap" align="center"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="7" nowrap="nowrap" align="center"> </td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center"> </td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 0px solid;" nowrap="nowrap" align="left"><b>As of June 30,</b></td>
<td> </td>
<td colspan="7" nowrap="nowrap" align="center"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="7" nowrap="nowrap" align="center"> </td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center"> </td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="7" nowrap="nowrap" align="center"><b>Asset Derivatives</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="7" nowrap="nowrap" align="center"><b>Liability Derivatives</b></td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center"> </td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td nowrap="nowrap" align="left"><b>Derivatives Not</b></td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center"> </td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center"> </td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center"> </td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center"> </td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td nowrap="nowrap" align="left"><b>Designated as Cash</b></td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center"> </td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center"> </td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center"> </td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center"> </td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td style="border-bottom: #000000 1px solid;" nowrap="nowrap" align="left"><b>Flow Hedges</b></td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="3" nowrap="nowrap" align="center"><b>Balance Sheet Location</b></td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="7" nowrap="nowrap" align="center"><b>Fair Value</b></td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="3" nowrap="nowrap" align="center"><b>Balance Sheet Location</b></td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="6" nowrap="nowrap" align="center"><b>Fair Value</b></td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="3" nowrap="nowrap" align="center"><b>2010</b></td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="3" nowrap="nowrap" align="center"><b>2009</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="3" nowrap="nowrap" align="center"><b>2010</b></td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" colspan="3" nowrap="nowrap" align="center"><b>2009</b></td></tr>
<tr valign="bottom"><td>
<div style="text-indent: -15px; margin-left: 15px;">Fixed forward contracts</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td colspan="3" align="center">Other current liabilities</td>
<td> </td>
<td align="right">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">$</td>
<td align="right">(3</td>
<td nowrap="nowrap">)</td></tr></table></div></div> </div>
NOTE 3DERIVATIVE INSTRUMENTS
The Company uses various derivative instruments to manage its exposure to changes in interest rates
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This element can be used to disclose the entity's entire derivative instruments and hedging activities disclosure as a single block of text. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising there from, and the amounts of and methodologies and assumptions used in determining the amounts of such items.
Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 133
-Paragraph 45
Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 133
-Paragraph 44
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