NOTE 7 INVESTMENT IN MINERA SANTA CRUZ S.A. ("MSC")—SAN JOSÉ MINE

As noted in Note 2, Summary of Significant Accounting Policies—Investments, the Company accounts for investments over which it exerts significant influence but does not control through majority ownership using the equity method of accounting. In applying the equity method of accounting to the Company's Investment in MSC, MSC's financial statements, which are originally prepared by MSC in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, have been adjusted to conform with U.S. GAAP. As such, the summarized financial data presented under this heading is in accordance with U.S. GAAP.

The Company's 49% attributable share of operations from its investment in MSC was a loss of $5.3 million for the year ended December 31, 2014, compared to income of $0.8 million for the year ended December 31, 2013 and $20.8 million for the period between January 25, 2012 (after the closing of the acquisition of Minera Andes) and December 31, 2012. These amounts are net of the amortization of the fair value increments arising from the purchase price allocation and related income tax recovery. Included in the income tax recovery is the impact of fluctuations in the exchange rate between the Argentine peso and the U.S. dollar on the peso-denominated deferred tax liability associated with the investment in MSC recorded as part of the acquisition of Minera Andes. As a devaluation of the Argentine peso relative to the U.S. dollar results in a recovery of deferred income taxes, the impact has been a decrease to the Company's loss, or an increase to the Company's income, from its investment in MSC periods presented.

In addition to the Company's attributable loss of $5.3 million, the Company recorded an impairment charge of $21.2 million, primarily as a result of an unexpected and significant decline in silver market prices, as well as in the observed market value of comparable transactions in South America, which indicated a potential significant decrease in the market price of the exploration properties owned by MSC. To estimate the fair value of the Company's investment in MSC, the Company used a combined approach, which uses a discounted cash flow model for the operating mine and a market approach for the fair value assessment of exploration properties, and determined that the carrying value of the investment in MSC exceeded its estimated fair value. As the loss in value of the investment was considered other than temporary, an impairment of $21.2 million was recorded in the Company's Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2014.

Refer to Note 17, Fair Value Accounting, for further detail on the valuation of MSC. In comparison, the impairment charge recorded in the year ended December 31, 2013 was $95.9 million. The impairment charge in 2013 was primarily a result of an unexpected and significant decline in gold and silver market prices, continued inflationary pressures during the year, and amendments to the Santa Cruz Provincial Tax Code and Provincial Tax Law, which imposed a new tax on mining reserves in the Province of Santa Cruz.

During the fourth quarter of 2013, the Company entered into a vend-in agreement with MSC and subsidiaries of Hochschild pursuant to which both parties agreed to contribute to MSC the mining rights of certain Santa Cruz exploration properties. The carrying value of the Company's properties of $35.9 million, net of the related deferred tax liability of $17.3 million, was transferred to the Company's investment in MSC, with no gain or loss recognized upon transfer, and is reflected in the Investment in MSC balance as at December 31, 2013.

During the year ended December 31, 2014, the Company received $9.5 million in dividends from MSC, compared to $1.8 million in 2013.

Changes in the Company's investment in MSC for the year ended December 31, 2014 and 2013 are as follows:

	2014			2013
	(in thousands)
Investment in MSC, beginning balance	$	212,947		$	273,948
Attributable net (loss) income from MSC		(2,597	)		2,126
Amortization of fair value increments		(13,190	)		(18,425	)
Income tax recovery		10,503			17,145
Dividend distribution received		(9,483	)		(1,826	)
Impairment of investment in MSC		(21,162	)		(95,878	)
Contribution of Santa Cruz exploration properties, net of tax		—			35,857

Investment in MSC, ending balance	$	177,018		$	212,947

A summary of the operating results from MSC for the year ended December 31, 2014 and 2013, and the period from January 25, 2012 (after the closing of the acquisition of Minera Andes) to December 31, 2012 is as follows:

	For the year ended December 31,
	For the year ended December 31,						For the period ended December 31, 2012
	2014			2013			For the period ended December 31, 2012
	(in thousands)
Minera Santa Cruz S.A. (100%)
Net sales	$	213,013		$	240,723		$	290,848
Production costs applicable to sales		(173,274	)		(190,281	)		(155,915	)
(Loss) income from operations before extraordinary items		(5,300	)		4,338			51,634
Net (loss) income		(5,300	)		4,338			51,634
Portion attributable to McEwen Mining Inc. (49%)
Net (loss) income	$	(2,597	)	$	2,126		$	25,301
Amortization of fair value increments		(13,190	)		(18,425	)		(22,682	)
Income tax recovery		10,503			17,145			18,217

(Loss) income from investment in MSC, net of amortization	$	(5,284	)	$	846		$	20,835

As at December 31, 2014, MSC had current assets of $113.3 million, total assets of $540.6 million, current liabilities of $67.0 million and total liabilities of $179.4 million. 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 charges. Excluding the fair value increments from the purchase price allocation and impairment charges, MSC had current assets of $111.5 million, total assets of $311.5 million, current liabilities of $67.0 million, and total liabilities of $102.7 million as at December 31, 2014.