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

12 Months Ended

Dec. 31, 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 in accordance with U.S. GAAP.

A summary of the operating results of MSC for the year ended December 31, 2021, 2020, and 2019, is as follows:


	Year ended December 31,
	2021		2020			2019
Minera Santa Cruz S.A. (100%)
Revenue from gold and silver sales	$	271,863	$	219,020	$	263,887
Production costs applicable to sales		(196,033)		(138,182)		(159,915)
Depreciation and depletion		(39,948)		(29,809)		(69,995)
Gross profit		35,882		51,029		33,977
Exploration		(10,602)		(10,446)		(10,635)
Other expenses⁽¹⁾		(17,077)		(30,515)		(13,065)
Net income before tax	$	8,203	$	10,068	$	10,277
Current and deferred tax expense		(7,934)		(4,466)		(14,556)
Net income (loss)	$	269	$	5,602	$	(4,279)

Portion attributable to McEwen Mining Inc. (49%)
Net income (loss)	$	132	$	2,745	$	(2,097)
Amortization of fair value increments		(8,331)		(5,390)		(9,448)
Income tax recovery		666		1,128		2,791
(Loss) income from investment in MSC, net of amortization	$	(7,533)	$	(1,517)	$	(8,754)

(1)	Other expenses include foreign exchange, accretion of asset retirement obligations and other finance related expenses.

Costs related to the COVID-19 pandemic for MSC were recognized in cost of sales and totaled $19.3 million for the year ended December 31, 2021. During the year ended December 31, 2020, shutdown costs related to COVID-19 totaled $11.4 million and were recognized in other expenses.

The 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 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 year ended December 31, 2021 and 2020 are as follows:


	December 31, 2021		December 31, 2020
Investment in MSC, beginning of period	$	108,326	$	110,183
Attributable net income from MSC		132		2,745
Amortization of fair value increments		(8,331)		(5,390)
Income tax recovery		666		1,128
Dividend distribution received		(9,832)		(340)
Investment in MSC, end of period	$	90,961	$	108,326

A summary of the key assets and liabilities of MSC as at December 31, 2021 and 2020, before and after adjustments for fair value increments arising from the purchase price allocation, are as follows:


As at December 31, 2021	Balance excluding FV increments		Adjustments		Balance including FV increments
Current assets	$	89,876	$	469	$	90,345
Total assets	$	180,302	$	89,975	$	270,277

Current liabilities	$	(51,244)	$	—	$	(51,244)
Total liabilities	$	(82,075)	$	(2,577)	$	(84,652)


As at December 31, 2020	Balance excluding FV increments		Adjustments		Balance including FV increments
Current assets	$	94,965	$	362	$	95,327
Total assets	$	186,438	$	107,821	$	294,259

Current liabilities	$	(40,396)	$	—	$	(40,396)
Total liabilities	$	(69,255)	$	(3,936)	$	(73,191)