14. Derivatives

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Embedded Derivatives

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Concentrate Sales

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Concentrate sales contracts contain embedded derivatives due to the provisional pricing terms for shipments pending final settlement. At the end of each reporting period, the Company records an adjustment to accounts receivable and revenue to reflect the mark-to-market adjustments for outstanding provisional invoices based on forward metal prices. Please see Note 20 for additional information.

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The following table summarizes the Company’s unsettled sales contracts at December 31, 2021, with the quantities of metals under contract subject to final pricing occurring through February 2022:

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Other Derivatives

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Zinc zero cost collar

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Derivative instruments that are not designated as hedging instruments are required to be recorded on the balance sheet at fair value. Changes in fair value will impact the Company’s earnings through mark-to-market adjustments until the physical commodity is delivered or the financial instrument is settled. The fair value does not reflect the realized or cash value of the instrument.

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Effective May 18, 2021, GRC entered into Trading Agreement with Auramet International LLC that govern nonexchange traded, over-the-counter, spot, forward and option transactions on both a deliverable and non-deliverable basis involving various metals and currencies. In 2021, the Company had a realized loss of $1.2 million and an unrealized loss of $1.8 million related to the program. The agreement allows for the trader to require cash collateral should market value of contracts be above uncommitted trading line. As of December 31, 2021, our remaining hedge program was in an acceptable position to the trading line, thus there was no collateral required.

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As of December 31, 2021, the Company’s derivatives not designated as hedges consist of zinc zero cost collars used to manage its near-term exposure to cash flow variability from zinc price risks. A zero cost collar is a combination of two options: a sold call option and a purchased put option. As of December 31, 2021, the Company maintained an outstanding derivative position of 5,700 tonnes for January 2022 through December 2022 with an average ceiling price of $3,342 per tonne of zinc and a floor price of $3,047 per tonne of zinc.

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Derivatives are carried at fair value and on a net basis as a legal right of offset exists with the same counterparty. Otherwise, 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. The December 2021 London Metal Exchange (“LME”) average zinc price of $3,408 exceeded the call option ceiling of $3,066, resulting in a realized loss of $478 thousand. The mark-to-market

adjustment on the remaining 5,700 tonnes resulted in an unrealized loss of $1.8 million recorded in the Consolidates Statements of Operations and in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

Subsequent to year end, on January 4, 2022, the Company executed additional derivatives of zero cost collars to manage its near-term exposure to cash flow variability from zinc price risks through December 2022. The Company sold call options to establish the ceiling price of $3,500 per tonne of zinc that the Company will receive for the contracted zinc volume of 3,150 tonnes for April 2022 through December 2022. The purchased put establishes the floor price of $3,200 per tonne of zinc that we will receive for the same contracted tonnes and period of time.

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The Company manages credit risk by selecting counterparties that it believes to be financially strong, by entering into netting arrangements with counterparties and by requiring other credit risk mitigants, as appropriate. The Company actively evaluates the creditworthiness of its counterparties, assigns appropriate credit limits, and monitors credit exposures against those assigned limits.