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BUSINESS ACQUISITION
 12 Months Ended
Dec. 31, 2012
BUSINESS ACQUISITION  
BUSINESS ACQUISITION

NOTE 3 BUSINESS ACQUISITION

        On January 24, 2012, the Company completed the acquisition of Minera Andes through a court-approved plan of arrangement under Alberta, Canada law (the "Arrangement"), under which Minera Andes, a Canadian company, became an indirect wholly-owned subsidiary of the Company.

        The Company's management and Board of Directors believes that the combination with Minera Andes is in the best interests of the Company and its shareholders because the combined company is expected to have a stronger combined cash position and balance sheet, sources of revenue, active mining operations, enhanced trading liquidity, a significant growth profile, an expanded exploration program and additional technical expertise.

        On the closing date of the Arrangement, holders of Minera Andes' common stock received a number of exchangeable shares of McEwen Mining—Minera Andes Acquisition Corp. ("Exchangeable Shares"), an indirect wholly-owned Canadian subsidiary of the Company, equal to the number of Minera Andes shares, multiplied by the exchange ratio of 0.45. In the aggregate, former Minera Andes shareholders received 127,331,498 Exchangeable Shares. After closing of the Arrangement, the name of the Company was changed to McEwen Mining Inc. The Company's common stock began trading on the NYSE and TSX under the symbol "MUX" and the Exchangeable Shares began trading on the TSX under the symbol "MAQ" on January 27, 2012.

        As a result of the Arrangement and on the date of closing, the combined company was held approximately 52% by then-existing McEwen Mining shareholders and 48% by former Minera Andes shareholders. On a diluted basis, the combined company was held approximately 53% by then-existing McEwen Mining shareholders and 47% by former Minera Andes shareholders.

        In June 2011, Robert R. McEwen, the Company's Chairman, President, Chief Executive Officer and largest shareholder and then also the Chairman, President, Chief Executive Officer and largest shareholder of Minera Andes, proposed the Arrangement. In connection with the Arrangement, Mr. McEwen received approximately 38.7 million Exchangeable Shares. Mr. McEwen owns approximately 25% of the shares of the combined Company.

        The Exchangeable Shares are exchangeable for the Company's common stock on a one-for-one basis. Option holders of Minera Andes received replacement options entitling them to receive, upon exercise, shares of the Company's common stock, reflecting the exchange ratio of 0.45 with the appropriate adjustment of the exercise price per share. The option life and vesting period of the replacement options has not changed from the option life granted under the Minera Andes option plan.

        The estimated fair value of the vested portion of the replacement options of $3.2 million has been included as part of the purchase price consideration at their fair values based on the Black-Scholes pricing model as illustrated below.

        The principal assumptions used in applying the Black-Scholes option pricing model were as follows:

 
   January 24, 2012

Risk-free interest rate

   0.02% to 0.39%

Dividend yield

   n/a

Volatility factor of the expected market price of common stock

   46% to 77%

Weighted-average expected life of option

   1.4 years

        The acquisition has been accounted for using the acquisition method in accordance with ASC Topic 805, Business Combinations, with the Company being identified as the acquirer. The measurement of the purchase consideration was based on the market price of the Company's common stock on January 24, 2012, which was $5.22 per share. The total purchase price, including the fair value of the options, amounted to $667.8 million. The total transaction costs incurred through December 31, 2012 by the Company was $5.4 million, of which $3.9 million was reported in the year ended December 31, 2011 in general and administrative expenses, and $1.5 million for the year ended December 31, 2012 in acquisition costs in the consolidated statements of operations and comprehensive loss.

        The allocation of the purchase price, based on the estimated fair value of assets acquired and liabilities assumed on January 24, 2012, is summarized in the following table (in thousands).

 
   Fair Value  

Purchase price:

        

Exchangeable shares of McEwen Mining—Minera Andes Acquisition Corp. 

   $ 664,671  

Stock options to be exchanged for options of McEwen Mining Inc. 

     3,175  
       

 

   $ 667,846  
       

Net assets acquired:

        

Cash and cash equivalents

   $ 31,385  

Short-term investments

     4,952  

Other current assets

     9,828  

Inventories

     1,362  

Mineral property interests

     539,092  

Investment in Minera Santa Cruz S.A. 

     262,883  

Equipment

     1,647  

Accounts payable

     (5,323 )

Deferred income tax liability

     (177,980 )
       

 

   $ 667,846  
       

        The fair value of mineral property interests exceeded the carrying value of the underlying assets for tax purposes by approximately $508.5 million. The resulting estimated deferred income tax liability originally associated with this temporary difference was approximately $178.0 million, which is included in the allocation of purchase price above. For the year ended December 31, 2012, the Company recorded a deferred income tax recovery of $21.1 million, as a result of fluctuations in the foreign exchange rates between the Argentine pesos and U.S. dollar from January 24, 2012 to December 31, 2012. As a result of the fluctuations in foreign exchange rates since acquisition, the deferred income tax liability on these assets was reduced to $156.9 million, which is included in the deferred income tax liability balance of $229.5 million on the consolidated balance sheet as at December 31, 2012.

        For the purposes of the Company's financial statements, the purchase consideration has been allocated to the fair value of assets acquired and liabilities assumed, based on an independent valuation report and management's best estimates and taking into account all available information at the time these consolidated financial statements were prepared.

Unaudited Pro Forma Results

        ASC Topic 805 requires supplemental information on a pro forma basis to disclose the results of operations as though the business combination had been completed as of the beginning of the periods being reported.

        The following table sets forth on a pro forma basis, the results of operations for McEwen Mining, had the acquisition of Minera Andes been completed on January 1, 2012 and 2011 (in thousands):

Year ended December 31, 2012
  McEwen Mining   Minera Andes(a)   Combined  

Revenue

   $ 26,801   $ 4,979   $ 31,780  

Net (loss) income for the year

     (66,654 )   3,498     (63,156 )

 

Year ended December 31, 2011
  McEwen Mining   Minera Andes   Combined  

Revenue

   $ —   $ 44,982   $ 44,982  

Net (loss) income for the year

     (61,872 )   26,542     (35,330 )
(a)
Year ended December 31, 2012 represents the results of Minera Andes' operations from January 1, 2012 through January 24, 2012, closing date of the acquisition. Beginning January 25, 2012, the results of Minera Andes' operations are included in McEwen Mining's consolidated financial statements.