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INVESTMENT IN MINERA SANTA CRUZ S.A. ("MSC") - SAN JOSE MINE
 3 Months Ended
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.