Derivative Financial Instruments

6 Months Ended

Jun. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

Palmarejo Gold Production Royalty

On January 21, 2009, the Company's subsidiary, Coeur Mexicana S.A. de C.V. ("Coeur Mexicana"), entered into a gold production royalty agreement with a subsidiary of Franco-Nevada Corporation. The royalty covers 50% of the life of mine production from the Palmarejo mine and legacy adjacent properties, excluding production from the recently acquired Paramount Gold and Silver Corp. ("Paramount") properties. The royalty transaction includes a minimum obligation of 4,167 gold ounces per month and terminates when payments on 400,000 gold ounces have been made. At June 30, 2016, a total of 8,493 gold ounces remain outstanding under the obligation.

The price volatility associated with the minimum royalty obligation is considered an embedded derivative. The Company is required to recognize the change in fair value of the remaining minimum obligation due to changing gold prices. Unrealized gains are recognized in periods when the gold price has decreased from the previous period and unrealized losses are recognized in periods when the gold price increases. The fair value of the embedded derivative is reflected net of the Company's current credit adjusted risk free rate, which was 8.3% and 19.9% at June 30, 2016 and December 31, 2015, respectively. The fair value of the embedded derivative at June 30, 2016 and December 31, 2015 was a liability of $3.3 million and $5.0 million, respectively. For the three and six months ended June 30, 2016 and 2015, the mark-to-market adjustments were losses of $0.9 million and gains of $0.4 million and losses of $5.8 million and $1.2 million, respectively.

Payments on the royalty obligation decrease the carrying amount of the minimum obligation and the derivative liability. Each monthly payment is an amount equal to the greater of the minimum of 4,167 ounces of gold or 50% of actual gold production multiplied by the excess of the monthly average market price of gold above $416 per ounce, subject to a 1% annual inflation adjustment. For the three and six months ended June 30, 2016 and 2015, realized losses on settlement of the liabilities were $4.3 million and $3.6 million and $7.3 million and $11.7 million, respectively. The mark-to-market adjustments and realized losses are included in Fair value adjustments, net.

Provisional Silver and Gold Sales

The Company enters into sales contracts with third-party smelters and refiners which, in some cases, provide for a provisional payment based upon preliminary assays and quoted metal prices. The provisionally priced sales contracts contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable recorded at the forward price at the time of sale. The embedded derivatives do not qualify for hedge accounting and are marked to market through earnings each period until final settlement. Changes in silver and gold prices resulted in provisional pricing mark-to-market gains of $0.6 million and losses of $0.6 million and gains of $1.2 million and $0.3 million in the three and six months ended June 30, 2016 and 2015, respectively. At June 30, 2016, the Company had outstanding provisionally priced sales of 0.5 million ounces of silver and 34,876 ounces of gold at prices of $18.28 and $1,257, respectively.

Silver and Gold Options

During the three and six months ended June 30, 2016, the Company had no unrealized gains or losses and during 2015, the Company recorded unrealized gains of $1.2 million and $1.0 million, respectively, related to outstanding options which were included in Fair value adjustments, net. The Company recognized realized losses of $51 thousand and no realized losses or gains during the three months ended June 30, 2016 and 2015, respectively, and realized losses of $1.6 million and realized gains of $0.8 million during the six months ended June 30, 2016 and 2015, respectively, from settled contracts. At June 30, 2016, the Company had no outstanding gold and silver options contracts.

At June 30, 2016, the Company had the following derivative instruments that settle as follows:

In thousands except average prices and notional ounces	2016		Thereafter
Palmarejo gold production royalty	$	7,487	$	—
Average gold price in excess of minimum contractual deduction	$	882	$	—
Notional ounces	8,493		—
Provisional silver sales	$	10,016	$	—
Average silver price	$	18.28	$	—
Notional ounces	547,940		—
Provisional gold sales	$	43,839	$	—
Average gold price	$	1,257	$	—
Notional ounces	34,876		—

The following summarizes the classification of the fair value of the derivative instruments:

	June 30, 2016
In thousands	Prepaid expenses and other		Accrued liabilities and other		Current portion of royalty obligation		Non-current portion of royalty obligation
Palmarejo gold production royalty	—		—		3,317		—
Provisional silver and gold sales contracts	841		186		—		—
	$	841	$	186	$	3,317	$	—

	December 31, 2015
In thousands	Prepaid expenses and other		Accrued liabilities and other		Current portion of royalty obligation		Non-current portion of royalty obligation
Palmarejo gold production royalty	—		—		4,957		—
Provisional silver and gold sales contracts	28		536		—		—
	$	28	$	536	$	4,957	$	—

The following represent mark-to-market gains (losses) on derivative instruments for the three and six months ended June 30, 2016 and 2015 (in thousands):

		Three months ended June 30,						Six months ended June 30, 2016
Financial statement line	Derivative	2016			2015			2016			2015
Revenue	Provisional silver and gold sales contracts	$	597		$	(623	)	$	1,163		$	291
Fair value adjustments, net	Palmarejo gold royalty	(878		)	385			(5,756		)	(1,160		)
Fair value adjustments, net	Silver and gold options	(14		)	1,232			(1,582		)	185
		$	(295	)	$	994		$	(6,175	)	$	(684	)

Credit Risk

The credit risk exposure related to any derivative instrument is limited to the unrealized gains, if any, on outstanding contracts based on current market prices. To reduce counter-party credit exposure, the Company enters into contracts with institutions management deems credit worthy and limits credit exposure to each institution. The Company does not anticipate non-performance by any of its counterparties.