NOTE 5 INVESTMENT IN MINERA SANTA CRUZ S.A. (“MSC”) – SAN JOSÉ MINE

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, are translated into U.S. GAAP by MSC’s management. As such, the summarized financial data under this heading is presented in accordance with U.S. GAAP.

The Company’s 49% attributable share of results of operations from its investment in MSC was a loss of $0.2 million for the three months ended March 31, 2018 (March 31, 2017 – income of $0.2 million). These amounts include 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 Argentina peso and the U.S. dollar on the peso-denominated mineral property interest fair value increment and deferred tax liability associated with the investment in MSC recorded as part of the acquisition of Minera Andes.

During the period ended March 31, 2018, the Company did not identify any potential triggering events for impairment in relation to its investment in MSC, and consequently the Company did not record any impairment during the period.

During the three months ended March 31, 2018, the Company received $4.9 million in dividends from MSC, compared to $2.5 million during the same period in 2017.

Changes in the Company’s investment in MSC for the three months ended March 31, 2018 and year ended December 31, 2017 are as follows:


	March 31, 2018		December 31, 2017
Investment in MSC, beginning of the period	$	150,064	$	162,320
Attributable net income (loss) from MSC		430		(2,328)
Amortization of fair value increments		(2,115)		(9,632)
Income tax recovery		1,473		11,916
Dividend distribution received		(4,851)		(12,212)
Investment in MSC, end of the period	$	145,001	$	150,064

A summary of the operating results from MSC for the three months ended March 31, 2018 and 2017 is as follows:


	Three months ended March 31,
	2018		2017
Minera Santa Cruz S.A. (100%)
Net Sales	$	50,662	$	48,343
Production costs applicable to sales		(43,468)		(36,699)
Net income		878		4,381

Portion attributable to McEwen Mining Inc. (49%)
Net income	$	430	$	2,147
Amortization of fair value increments		(2,115)		(2,069)
Income tax recovery		1,473		112
(Loss) income from investment in MSC, net of amortization	$	(212)	$	190

As of March 31, 2018, MSC had current assets of $89.7 million, total assets of $387.6 million, current liabilities of $38.4 million and total liabilities of $91.7 million on an unaudited basis. These balances include the adjustments to fair value and amortization of the fair value increments arising from the purchase price allocation, net of impairment charges. Excluding the fair value increments from the purchase price allocation, net of impairment charges, MSC had current assets of $89.1 million, total assets of $233.6 million, current liabilities of $38.4 million, and total liabilities of $66.6 million as at March 31, 2018.