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

9 Months Ended

Sep. 30, 2021

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

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

NOTE 9 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 presented in accordance with U.S. GAAP.

A summary of the operating results for MSC for the three and nine months ended September 30, 2021 and 2020 is as follows:


		Three months ended September 30,						Nine months ended September 30,
		2021			2020			2021			2020
Minera Santa Cruz S.A. (100%)
Revenue from gold and silver sales		$	72,098		$	70,195		$	195,797		$	154,666
Production costs applicable to sales			(47,911)			(41,512)			(125,167)			(100,230)
Depreciation and depletion			(11,690)			(7,107)			(28,422)			(22,084)
Gross profit			12,498			21,576			42,209			32,352
Exploration			(2,710)			(2,814)			(7,887)			(7,855)
Other expenses⁽¹⁾			(8,010)			(6,509)			(28,231)			(17,651)
Net income before tax		$	1,777		$	12,253		$	6,091		$	6,846
Current and deferred tax expense			(2,336)			(4,922)			(5,902)			(2,989)
Net income (loss)		$	(559)		$	7,331		$	189		$	3,857

Portion attributable to McEwen Mining Inc. (49%)
Net income (loss)		$	(273)		$	3,592		$	93		$	1,890
Amortization of fair value increments			(2,481)			(1,255)			(5,571)			(3,891)
Income tax recovery			104			245			401			862
(Loss) income from investment in MSC, net of amortization		$	(2,650)		$	2,582		$	(5,077)		$	(1,139)

(1) Other expenses include foreign exchange, accretion of asset retirement obligations, other finance-related expenses, and COVID-19 related expenses of $5.2 million and $17.1 million for the three and nine months ended September 30, 2021.

The income or loss from investment in MSC attributable to the Company includes amortization of the fair value increments arising from the initial purchase price allocation and related income tax recovery. The income tax recovery reflects the impact of the devaluation of the Argentine peso against the U.S. dollar on the peso-denominated deferred tax liability recognized at the time of acquisition, as well as income tax rate changes over the periods.

Changes in the Company’s investment in MSC for the nine months ended September 30, 2021 and year ended December 31, 2020 are as follows:


	September 30, 2021			December 31, 2020
Investment in MSC, beginning of period	$	108,326		$	110,183
Attributable net income from MSC		93			2,745
Amortization of fair value increments		(5,571)			(5,390)
Income tax recovery		401			1,128
Dividend distribution received		(7,561)			(340)
Investment in MSC, end of period	$	95,688		$	108,326

During the three and nine months ended September 30, 2021, the Company received $Nil million and $7.6 million, respectively, in dividends from MSC (three and nine months ended September 30, 2020 – $Nil and $0.3 million, respectively).

A summary of the key assets and liabilities of MSC on a 100% basis as at September 30, 2021, 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 September 30, 2021		Balance excluding FV increments			Adjustments			Balance including FV increments
Current assets		$	83,723		$	435		$	84,158
Total assets		$	177,357		$	95,607		$	272,964

Current liabilities		$	(44,463)		$	—		$	(44,463)
Total liabilities		$	(74,576)		$	(3,117)		$	(77,693)