INVESTMENT IN MSC - SAN JOSE MINE

12 Months Ended

Dec. 31, 2022

NOTE 9 INVESTMENT IN 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 US GAAP. As such, the summarized financial data presented under this heading is in accordance with US GAAP.

A summary of the operating results of MSC for the years ended December 31, 2022, 2021, and 2020, is as follows:


	Year ended December 31,
	2022		2021			2020
Minera Santa Cruz S.A. (100%)
Revenue from gold and silver sales	$	254,698	$	271,863	$	219,020
Production costs applicable to sales		(182,195)		(196,033)		(138,182)
Depreciation and depletion		(32,200)		(39,948)		(29,809)
Gross profit		40,303		35,882		51,029
Exploration		(8,946)		(10,602)		(10,446)
Other expenses⁽¹⁾		(19,715)		(17,077)		(30,515)
Net income before tax	$	11,642	$	8,203	$	10,068
Current and deferred tax recovery (expense)		1,221		(7,934)		(4,466)
Net income	$	12,863	$	269	$	5,602

Portion attributable to McEwen Mining Inc. (49%)
Net income	$	6,303	$	132	$	2,745
Amortization of fair value increments		(4,155)		(8,331)		(5,390)
Income tax recovery		628		666		1,128
Income (loss) from investment in MSC, net of amortization	$	2,776	$	(7,533)	$	(1,517)

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

The income (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, 2022 and 2021 is as follows:


	December 31, 2022		December 31, 2021
Investment in MSC, beginning of period	$	90,961	$	108,326
Attributable net income from MSC		6,303		132
Amortization of fair value increments		(4,155)		(8,331)
Income tax recovery		628		666
Dividend distribution received		(286)		(9,832)
Investment in MSC, end of period	$	93,451	$	90,961

A summary of the key assets and liabilities of MSC as at December 31, 2022 and 2021, before and after adjustments for fair value increments arising from the purchase price allocation, are as follows:


As at December 31, 2022	Balance excluding FV increments		Adjustments		Balance including FV increments
Current assets	$	98,956	$	1,103	$	100,059
Total assets	$	204,671	$	81,434	$	286,105
Current liabilities	$	(60,584)	$	—	$	(60,584)
Total liabilities	$	(82,185)	$	(1,295)	$	(83,480)


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)