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Fair Value Measurements

9 Months Ended

Sep. 30, 2019



	Three months ended September 30,					Nine months ended September 30,
In thousands	2019		2018			2019			2018
Unrealized gain (loss) on equity securities	$	3,877	$	286		$	7,515		$	(2,898	)
Realized gain (loss) on equity securities	485		(3		)	859			5,199
Zinc options	—		226			—			588
Interest rate swap, net	15		206			(173		)	18
Fair value adjustments, net	$	4,377	$	715		$	8,201		$	2,907

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), secondary priority to quoted prices in inactive markets or observable inputs (Level 2), and the lowest priority to unobservable inputs (Level 3).

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, 2019
In thousands	Total		Level 1		Level 2		Level 3
Assets:
Equity securities	$	22,812	$	22,812	$	—	$	—
Other derivative instruments, net	785		—		785		—
	$	23,597	$	22,812	$	785	$	—
Liabilities:
Silvertip contingent consideration	$	49,817	$	—	$	—	$	49,817
Other derivative instruments, net	2,162		—		2,162		—
	$	51,979	$	—	$	2,162	$	49,817



	Fair Value at December 31, 2018
In thousands	Total		Level 1		Level 2		Level 3
Assets:
Equity and debt securities	$	17,806	$	15,589	$	—	$	2,217
Other derivative instruments, net	914		—		914		—
	$	18,720	$	15,589	$	914	$	2,217
Liabilities:
Silvertip contingent consideration	$	49,276	$	—	$	—	$	49,276
Other derivative instruments, net	644		—		644		—
	$	49,920	$	—	$	644	$	49,276

The Company’s investments in equity securities are recorded at fair market value in the financial statements based primarily on quoted market prices. Such instruments are classified within Level 1 of the fair value hierarchy. Quoted market prices are not available for certain debt securities; these securities are valued using pricing models, which require the use of observable and unobservable inputs, and are classified within Level 3 of the fair value hierarchy.

The Company’s other derivative instruments, net, include concentrate and certain doré sales contracts, gold and zinc hedges, and an interest rate swap which are valued using pricing models with inputs derived from observable market data, including contractual terms, forward market prices, yield curves, credit spreads, and other unobservable inputs. 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.

In July 2017, the Company sold the Endeavor Silver Stream and remaining non-core royalties to Metalla Royalty & Streaming Ltd. (“Metalla”) for total consideration of $13.0 million, including a $6.7 million convertible debenture. The convertible debenture was due to mature in June 30, 2027, however, through a combination of principal repayments and conversions into Metalla shares, the convertible debenture was extinguished in February 2019.

In October 2017, the Company acquired the Silvertip mine from shareholders of JDS Silver Holdings Ltd (the “Silvertip Acquisition”). The consideration for the Silvertip Acquisition includes two $25.0 million contingent payments, which are payable in cash and common stock upon reaching a future permitting milestone and resource declaration milestone, respectively. The fair value of the Silvertip contingent consideration is estimated based on an estimated discount rate of 2.5% for the contingent permitting payment and 2.9% for the contingent resource declaration payment and is classified within Level 3 of the fair value hierarchy.

No assets or liabilities were transferred between fair value levels in the nine months ended September 30, 2019.

The following tables present the changes in the fair value of the Company's Level 3 financial assets and liabilities for the three and nine months ended September 30, 2019:



	Three Months Ended September 30, 2019
In thousands	Balance at the beginning of the period		Revaluation		Settlements		Accretion		Balance at the end of the period
Liabilities:
Silvertip contingent consideration	$	49,635	$	—	$	—	$	182	$	49,817



	Nine Months Ended September 30, 2019
In thousands	Balance at the beginning of the period		Revaluation		Settlements		Accretion		Balance at the end of the period
Liabilities:
Silvertip contingent consideration	$	49,276	$	—	$	—	$	541	$	49,817

The fair value of financial assets and liabilities carried at book value in the financial statements at September 30, 2019 and December 31, 2018 is presented in the following table:



	September 30, 2019
In thousands	Book Value		Fair Value		Level 1		Level 2		Level 3
Liabilities:
2024 Senior Notes⁽¹⁾	$	226,709	$	226,843	$	—	$	226,843	$	—
Revolving Credit Facility⁽²⁾	$	—	$	—	$	—	$	—	$	—

⁽¹⁾Net of unamortized debt issuance costs of $3.3 million.

⁽²⁾Unamortized debt issuance costs of $2.5 million included in Other Non-Current Assets.



	December 31, 2018
In thousands	Book Value		Fair Value		Level 1		Level 2		Level 3
Assets:
Manquiri Notes Receivable	$	5,487	$	5,487	$	—	$	—	$	5,487
Liabilities:
2024 Senior Notes⁽¹⁾	$	245,854	$	220,446	$	—	$	220,446	$	—
Revolving Credit Facility⁽²⁾	$	135,000	$	135,000	$	—	$	135,000	$	—

⁽¹⁾Net of unamortized debt issuance costs of $4.1 million.

⁽²⁾Unamortized debt issuance costs of $2.2 million included in Other Non-Current Assets.

The fair value of the Manquiri Notes Receivable (as defined below) was determined using a discounted cash flow model using a 12% discount rate which takes into consideration the increased credit risk and short duration of the Manquiri Notes Receivable. The fair value is estimated based on observable and unobservable data including yield curves and credit spreads, therefore, the Company classifies the Manquiri Notes Receivable in Level 3 of the fair value hierarchy; see Note 18 -- Discontinued Operations for additional detail.

The fair value of the 2024 Senior Notes was estimated using quoted market prices. The fair value of the RCF approximates book value as the liability is secured, has a variable interest rate, and lacks significant credit concerns.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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