Fair Value Measurement

12 Months Ended

Dec. 31, 2022

Fair Value Measurement

Fair Value Measurement

20. Fair Value Measurement

Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity.)

As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. These assets and liabilities are remeasured for each reporting period. The following tables set forth certain of the Company’s assets and liabilities measured at fair value by level within the fair value hierarchy as of December 31, 2022 and 2021:

	As of		As of
	December 31,		December 31,		Input Hierarchy Level
	2022		2021
	(in thousands)
Cash and cash equivalents	$	23,675	$	33,712	Level 1
Accounts receivable, net	$	5,085	$	8,672	Level 2
Investment in equity securities-Maritime	$	1,559	$	-	Level 1
Investment in equity securities-Green Light Metals	$	3,611	$	-	Level 3
Derivative liability - zinc zero cost collar	$	-	$	(1,844)	Level 2

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Cash and cash equivalents: Cash and cash equivalents consist primarily of cash deposits and are valued at cost, which approximates fair value.

Accounts receivable, net: Accounts receivable, net include amounts due to the Company for deliveries of concentrates and doré sold to customers. Concentrate sales contracts provide for provisional pricing as specified in such contracts. These sales contain an embedded derivative related to the provisional pricing mechanism which is bifurcated

and accounted for as a derivative. At the end of each reporting period, the Company records an adjustment to sales to reflect the mark-to-market of outstanding provisional invoices based on the forward price curve. Because these provisionally priced sales have not yet settled as of the reporting date, the mark-to-market adjustment related to these invoices is included in accounts receivable as of each reporting date. At December 31, 2022 and 2021, the Company had an unrealized gain of $0.6 million and $0.2 million, respectively, included in its accounts receivable on the accompanying Consolidated Balance Sheets related to mark-to-market adjustments. Please see Note 14—Derivatives in Item 8—Financial Statements and Supplementary Data for additional information.

Investment in equity securities—Maritime: On September 22, 2022, Gold Resource Corporation invested C$2.4 million (or $1.7 million) in the common shares of Maritime Resources Corp., ticker symbol MAE.V on TSX-V, in a private placement. The 47 million shares purchased represent less than 10% of the issued and outstanding shares of Maritime. As of December 31, 2022, the share price of Maritime was C$0.045; and therefore, $0.2 million was recorded as an unrealized loss.

Investment in equity securities—Green Light Metals: Upon maturity on December 28, 2022, the Company received 12,250,000 private shares of Green Light Metals, which settled the promissory note receivable from Green Light Metals. The shares received represent approximately 28.5% ownership. Management chose to account for this investment using the fair value option; therefore, these securities are carried at fair value. As of December 31, 2022, the value of this equity investment was C$4.9 million ($3.6 million). The value of the issued shares was determined to be C$0.40 per share, which was based on the significant unobservable input of recent Green Light Metals recent equity transactions. Through December 31, 2022, there have been no gains or losses on the value of the shares the Company received.

Derivative liability - zinc zero cost collar: Derivatives are carried at fair value and on a net basis as a legal right of offset exists with the same counterparty. The valuation is using the Black Scholes model as applied to zinc call options and considers interest rate forecast, market volatility, and the zinc forward price curve for each respective hedge period. Any fair value gains or losses are recognized in earnings in the current period. The fair value does not reflect the realized or cash value of the instrument. Mark-to-market adjustments are made until the physical commodity is delivered or the financial instrument is settled. At each reporting period Management evaluates the unrealized gain (loss) on the derivatives instruments based on the average London Metal Exchange forward underlying price over a period from the trade date to the payment date.

Gains and losses related to changes in the fair value of these financial instruments were included in the Company’s Consolidated Statements of Operations as shown in the following:

		For the year ended December 31,				Statements of Operations Classification
		2022		2021
	Note
Realized and unrealized derivative (loss) gain, net	14	$	(363)	$	1,002	Sales, net
Realized loss on zinc zero cost collar	17	$	(2,014)	$	(1,156)	Realized and unrealized loss on zinc zero cost collar
Unrealized gain (loss) on zinc zero cost collar	17	$	1,844	$	(1,844)	Realized and unrealized loss on zinc zero cost collar

Realized/Unrealized Derivatives, net

The following tables summarize the Company’s realized/unrealized derivatives, net (in thousands):

	Gold		Silver		Copper		Lead		Zinc		Total
For the year ended December 31, 2022
Realized loss	$	(79)	$	-	$	(127)	$	(150)	$	(364)	$	(720)
Unrealized gain (loss)		136		433		7		153		(372)		357
Total realized/unrealized derivatives, net	$	57	$	433	$	(120)	$	3	$	(736)	$	(363)

	Gold		Silver		Copper		Lead		Zinc		Total
For the year ended December 31, 2021
Realized (loss) gain	$	(47)	$	(44)	$	73	$	163	$	632	$	777
Unrealized (loss) gain		-		(159)		6		(2)		380		225
Total realized/unrealized derivatives, net	$	(47)	$	(203)	$	79	$	161	$	1,012	$	1,002

For the zinc zero cost collar, when the prior month LME average zinc price is greater than the call price, positions settling in the period are recorded as a realized gain or loss, and unsettled positions are recorded as an unrealized gain or loss.