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INVESTMENT IN MINERA SANTA CRUZ S.A. ("MSC") - SAN JOSE MINE | 3 Months Ended
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Mar. 31, 2014
INVESTMENT IN MINERA SANTA CRUZ S.A. ("MSC") - SAN JOSE MINE |
INVESTMENT IN MINERA SANTA CRUZ S.A. ("MSC") - SAN JOSE MINE | NOTE 4 INVESTMENT IN MINERA SANTA CRUZ S.A. (“MSC”) — SAN JOSÉ MINE The Company’s share of earnings from its investment in MSC is included in the Consolidated Statement of Operations and Comprehensive Income (Loss), and amounted to $3.0 million for the three months ended March 31, 2014, or 49% of MSC’s reported net income of $6.2 million. The amortization of the fair value increments arising from the purchase price allocation of $1.8 million, net of a recovery of income taxes of $5.8 million due to the impact of the devaluation of the Argentine peso relative to the U.S. dollar on the deferred tax liability associated with MSC as part of the Minera Andes acquisition, increased the Company’s share of the reported net income from MSC by $4.0 million, resulting in net income of $7.0 million. This compares to $1.2 million for the three months ended March 31, 2013, or 49% of MSC’s reported net income of $2.4 million, which was reduced by the amortization of the fair value increments of $1.4 million, net of tax, for a net loss of $0.2 million. During the first quarter of 2013, it was determined that the cost of sales reported by MSC under U.S. GAAP for the year and quarter ended December 31, 2012 was understated, resulting in an overstatement of MSC’s after-tax net income of $3.9 million. As the error was not material to previously-reported consolidated financial statements, the correction was recorded in the quarter ended March 31, 2013. As a result, the income from the Company’s equity investment of 49% in MSC for the three months ended March 31, 2013 was understated by $1.9 million. Changes in the Company’s investment in MSC for the three months ended March 31, 2014 and year ended December 31, 2013 are as follows:
|  | Three months ended |  | Year ended |
|  | March 31, 2014 |  | December 31, 2013 |
|  | (in thousands) |
Investment in MSC, beginning balance |  | $ | 212,947 |  | $ | 273,948 |
Income from equity investment |  | 3,029 |  | 2,126 |
Amortization of fair value increments, net of tax |  | 4,000 |  | (1,280 | )
Dividend distribution |  | (3,945 | ) | (1,826 | )
Impairment of investment in MSC |  | — |  | (95,878 | )
Contribution of Santa Cruz exploration properties, net of tax |  | — |  | 35,857 |
Investment in MSC, ending balance |  | $ | 216,031 |  | $ | 212,947 |
A summary of the operating results from MSC for the three months ended March 31, 2014 and 2013 is as follows:
|  | Three months ended March 31, |
|  | 2014 |  | 2013 |
|  | (in thousands) |
Minera Santa Cruz S.A. (100%) |  |  |  |  |
Net sales |  | $ | 56,889 |  | $ | 43,813 |
Production costs applicable to sales |  | (39,637 | ) | (36,803 | )
Income from operations before extraordinary items |  | 6,182 |  | 2,440 |
Net income |  | 6,182 |  | 2,440 |
Portion attributable to McEwen Mining Inc. (49%) |  |  |  |  |
Net income on investment in MSC |  | $ | 3,029 |  | $ | 1,196 |
Amortization of fair value increments, net of tax |  | 4,000 |  | (1,433 | )
Income (loss) on investment in MSC, net of amortization |  | $ | 7,029 |  | $ | (237 | )
As at March 31, 2014, MSC had current assets of $106.2 million, total assets of $544.4 million, current liabilities of $42.6 million and total liabilities of $138.7 million on an unaudited basis. These balances include the increase in fair value and amortization of the fair value increments arising from the purchase price allocation and are net of the impairment charge of $95.9 million recorded in the second quarter of 2013. During the the three months ended March 31, 2014, the Company received $3.9 million in dividends from MSC, compared to $nil during the same period in 2013.

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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.12) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6382943&loc=d3e33918-111571 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -SubTopic 10 -Section 35 -Paragraph 35 -URI http://asc.fasb.org/extlink&oid=7658923&loc=d3e32847-111569 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -SubTopic 10 -Section 35 -Paragraph 32 -URI http://asc.fasb.org/extlink&oid=7658923&loc=d3e32787-111569 + Details
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