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

6 Months Ended

Jun. 30, 2019

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

NOTE 8 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, 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.

A summary of the operating results from MSC for the three and six months ended June 30, 2019 and 2018 is as follows:


		Three months ended June 30,						Six months ended June 30,
		2019			2018			2019			2018
Minera Santa Cruz S.A. (100%)
Revenue from gold and silver sales		$	62,597		$	52,272		$	108,800		$	102,934
Production costs applicable to sales			(52,896)			(43,346)			(89,236)			(86,814)
Other operating expenses			(9,440)			(3,553)			(18,843)			(7,612)
Other expenses			(855)			(6,136)			(3,298)			(8,254)
Net (loss) income before tax		$	(594)		$	(763)		$	(2,577)		$	254
Current and deferred tax expense			(3,049)			(6,937)			(3,838)			(7,076)
Net loss		$	(3,643)		$	(7,700)		$	(6,415)		$	(6,822)

Portion attributable to McEwen Mining Inc. (49%)
Net loss		$	(1,784)		$	(3,773)		$	(3,142)		$	(3,343)
Amortization of fair value increments			(2,459)			(2,482)			(4,372)			(4,597)
Income tax recovery			106			3,990			1,067			5,463
Loss from investment in MSC, net of amortization		$	(4,137)		$	(2,265)		$	(6,447)		$	(2,477)

The loss from investment in MSC includes 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 deferred tax liability associated with the investment in MSC recorded as part of the acquisition of Minera Andes.

Changes in the Company’s investment in MSC for the six months ended June 30, 2019 and year ended December 31, 2018 are as follows:


		June 30, 2019			December 31, 2018
Investment in MSC, beginning of period		$	127,814		$	150,064
Attributable net loss from MSC			(3,142)			(10,065)
Amortization of fair value increments			(4,372)			(9,730)
Income tax recovery			1,067			7,930
Dividend distribution received			(2,020)			(10,385)
Investment in MSC, end of period		$	119,347		$	127,814

During the three and six months ended June 30, 2019, the Company received $nil and $2.0 million, respectively, in dividends from MSC (three and six months ended June 30, 2018 – $2.4 million and $7.2 million, respectively).

A summary of the key MSC’s assets and liabilities as at June 30, 2019, before and after adjustments to fair value on acquisition and amortization of the fair value increments arising from the purchase price allocation, are as follows:


As at June 30, 2019		Balance excluding FV increments			Adjustments			Balance including FV increments
Current assets		$	71,226		$	341		$	71,567
Total assets			190,935			129,493			320,428

Current liabilities		$	(38,675)		$	—		$	(38,675)
Total liabilities			(67,110)			(9,754)			(76,864)