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Fair Value Measurements
 9 Months Ended
Sep. 30, 2014
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS
The following table presents the components of Fair value adjustments, net:
 
 
Three months ended September 30,
 
Nine months ended September 30,
In thousands
 
2014
 
2013
 
2014
 
2013
Palmarejo royalty obligation embedded derivative
 
$
8,736

 
$
(15,279
)
 
$
(6,560
)
 
$
60,216

Rochester net smelter royalty obligation
 
4,345

 
(2,363
)
 
1,835

 
(2,363
)
Silver and gold options
 
3,081

 
(3,104
)
 
213

 
7,474

Foreign exchange contracts
 
(57
)
 
100

 
901

 
(1,422
)
Fair value adjustments, net
 
$
16,105

 
$
(20,646
)
 
$
(3,611
)
 
$
63,905


Accounting standards establish 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 market 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).
The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
 
Fair Value at September 30, 2014
In thousands
Total
 
Level 1
 
Level 2
 
Level 3  
Assets:
 
 
 
 
 
 
 
Short-term investments
$
49,520

 
$
49,520

 
$
—

 
$
—

Marketable equity securities
9,162

 
9,162

 
—

 
—

Silver and gold options
4,939

 
—

 
4,939

 
—

 
$
63,621

 
$
58,682

 
$
4,939

 
$
—

Liabilities:
 
 
 
 
 
 
 
Palmarejo royalty obligation embedded derivative
$
30,261

 
$
—

 
$
—

 
$
30,261

Rochester net smelter royalty obligation
18,268

 
—

 
—

 
18,268

Silver and gold options
1,331

 
—

 
1,331

 
—

Other derivative instruments, net
501

 
—

 
501

 
—

 
$
50,361

 
$
—

 
$
1,832

 
$
48,529


 
 
Fair Value at December 31, 2013
In thousands
Total
 
Level 1
 
Level 2
 
Level 3  
Assets:
 
 
 
 
 
 
 
Marketable equity securities
$
14,521

 
$
14,521

 
$
—

 
$
—

Silver and gold options
135

 
—

 
135

 
—

 
$
14,656

 
$
14,521

 
$
135

 
$
—

Liabilities:
 
 
 
 
 
 
 
Palmarejo royalty obligation embedded derivative
$
40,338

 
$
—

 
$
—

 
$
40,338

Rochester net smelter royalty obligation
21,630

 
—

 
—

 
21,630

Other derivative instruments, net
1,591

 
—

 
1,591

 
—

 
$
63,559

 
$
—

 
$
1,591

 
$
61,968


The Company’s short-term investments are readily convertible to cash. The Company’s investments in marketable equity securities are recorded at fair market value in the financial statements based on quoted market prices, which are accessible at the measurement date for identical assets. Such instruments are classified within Level 1 of the fair value hierarchy.
The Company’s silver and gold options and other derivative instruments, net, which relate to concentrate sales contracts and foreign exchange contracts, are valued using pricing models, which require inputs that are derived from observable market data, including contractual terms, forward market prices, yield curves, and credit spreads. The model inputs can generally be verified and do not involve significant management judgment. Such instruments are classified within Level 2 of the fair value hierarchy.
The estimated fair value of the Palmarejo royalty obligation embedded derivative and Rochester net smelter royalty obligation was estimated based on observable market data including contractual terms, forward silver and gold prices, yield curves and credit spreads.  The Company’s current mine plans are a significant input used in the estimated fair value of the Palmarejo royalty obligation embedded derivative and Rochester net smelter royalty obligation and is considered company specific and unobservable.  Therefore, the Company has classified the Palmarejo royalty obligation embedded derivative and Rochester net smelter royalty obligation as Level 3 financial liabilities. Based on the current mine plans, expected royalty durations of 1.7 years and 4.3 years were used to estimate the fair value of the Palmarejo royalty obligation embedded derivative and Rochester net smelter royalty obligation, respectively, at September 30, 2014.
No assets or liabilities were transferred between fair value levels in the three and nine months ended September 30, 2014.
The following tables present the changes in the fair value of the Company's Level 3 financial liabilities for the three and nine months ended September 30, 2014:
 
Three months ended September 30, 2014
In thousands
Balance at the beginning of the period
 
Revaluation
 
Settlements
 
Balance at the
end of the
period
Palmarejo royalty obligation embedded derivative
$
43,960

 
$
(8,736
)
 
$
(4,963
)
 
$
30,261

Rochester net smelter royalty obligation
23,656

 
(4,345
)
 
(1,043
)
 
18,268


 
Nine months ended September 30, 2014
In thousands
Balance at the beginning of the period
 
Revaluation
 
Settlements
 
Balance at the
end of the
period
Palmarejo royalty obligation embedded derivative
$
40,338

 
$
6,560

 
$
(16,637
)
 
$
30,261

Rochester net smelter royalty obligation
21,630

 
(1,835
)
 
(1,527
)
 
18,268



The fair value of financial assets and liabilities carried at book value in the financial statements at September 30, 2014 and December 31, 2013 is presented in the following table:
 
September 30, 2014
In thousands
Book Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3  
Liabilities:
 
 

 
 
 
 
 
 
3.25% Convertible Senior Notes due 2028
$
5,334

 
$
5,187

 
$
—

 
$
5,187

 
$
—

7.875% Senior Notes due 2021
440,075

 
408,156

 
—

 
408,156

 
—

Palmarejo gold production royalty obligation
38,137

 
44,931

 
—

 
—

 
44,931


 
December 31, 2013
In thousands
Book Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3  
Liabilities:
 
 
 
 
 
 
 
 
 
3.25% Convertible Senior Notes due 2028
$
5,334

 
$
5,067

 
$
5,067

 
$
—

 
$
—

7.875% Senior Notes due 2021
300,000

 
307,314

 
307,314

 
—

 
—

Palmarejo gold production royalty obligation
51,193

 
65,212

 
—

 
—

 
65,212


The fair value at September 30, 2014 and December 31, 2013 of the 3.25% Convertible Senior Notes and 7.875% Senior Notes outstanding were estimated using quoted market prices. The fair value of debt was transferred to Level 2 from Level 1 of the fair value hierarchy at March 31, 2014 due to observability of quoted market prices.
The fair value of the Palmarejo gold production royalty obligation is estimated based on observable market data including contractual terms, forward silver and gold prices, yield curves, and credit spreads.  The Company’s current mine plan is a significant input used in the estimated fair value of the Palmarejo gold production royalty obligation and is considered company specific and unobservable.  Therefore, the Company has classified the Palmarejo gold production royalty obligation as a Level 3 financial liability. Based on the current mine plan, an expected royalty duration of 1.7 years was used to estimate the fair value of the Palmarejo gold production royalty obligation as of September 30, 2014.