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

9 Months Ended

Sep. 30, 2023

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. MSC is operated by the Company’s joint venture partner, Hochschild Mining PLC. MSC’s financial statements, which are 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, 2023, and 2022 is as follows:


		Three months ended September 30,						Nine months ended September 30,
		2023			2022			2023			2022
Minera Santa Cruz S.A. (100%)
Revenue from gold and silver sales		$	64,495		$	65,278		$	177,947		$	176,808
Production costs applicable to sales			(43,380)			(48,930)			(131,434)			(130,231)
Depreciation and depletion			(15,190)			(9,376)			(37,783)			(21,629)
Gross profit			5,925			6,972			8,730			24,948
Exploration			(2,538)			(1,960)			(7,336)			(6,788)
Other expenses⁽¹⁾			(2,652)			(5,648)			(13,797)			(16,000)
Net income (loss) before tax		$	735		$	(636)		$	(12,403)		$	2,160
Current and deferred tax recovery (expense)			(3,953)			4,318			4,190			7,247
Net income (loss)		$	(3,218)		$	3,682		$	(8,213)		$	9,407

Portion attributable to McEwen Mining Inc. (49%)
Net income		$	(1,577)		$	1,804		$	(4,025)		$	4,610
Amortization of fair value increments			(1,217)			(1,228)			(3,370)			(2,929)
Income tax recovery			122			182			348			468
Income (loss) from investment in MSC, net of amortization		$	(2,672)		$	758		$	(7,047)		$	2,149

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

The income or loss from the 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, 2023, and for the year ended December 31, 2022, are as follows:


	September 30, 2023			December 31, 2022
Investment in MSC, beginning of period	$	93,451		$	90,961
Attributable net income from MSC		(4,025)			6,303
Amortization of fair value increments		(3,370)			(4,155)
Income tax recovery		348			628
Dividend distribution received		(295)			(286)
Investment in MSC, end of period	$	86,109		$	93,451

A summary of the key assets and liabilities of MSC as at September 30, 2023 before and after adjustments for fair value increments arising from the purchase price allocation, are as follows:


As at September 30, 2023		Balance excluding FV increments			Adjustments			Balance including FV increments
Current assets		$	86,887		$	636		$	87,523
Total assets		$	189,181		$	74,460		$	263,641

Current liabilities		$	(53,460)		$	—		$	(53,460)
Total liabilities		$	(87,400)		$	(585)		$	(87,985)