NOTE 6 INVESTMENT IN MINERA SANTA CRUZ S.A. (“MSC”) — SAN JOSÉ MINE

As discussed above in Note 1, the Company acquired a 49% interest in MSC, owner and operator of the San José Silver-Gold Mine in Santa Cruz, Argentina. The Company’s share of earnings and losses from its investment in MSC is included in the consolidated statement of operations and comprehensive loss and includes 49% of MSC’s net income of $1.3 million for the six months ended June 30, 2013. For the six months ended June 30, 2012, MSC reported to the Company only its net income from January 25, 2012 to June 30, 2012 since the acquisition closed on January 24, 2012.

As at June 30, 2012, based on the preliminary purchase price allocation, the investment in MSC was originally allocated an estimated fair value of $225.0 million. During the fourth quarter of 2012, the purchase price allocation was finalized and the estimated fair value of the investment in MSC was increased to $262.9 million. The adjustment affected the composition of the fair value allocation to MSC’s assets, resulting in a reduction in the amortization previously reported for the second quarter of 2012. Below is a reconciliation of the adjustment for the second quarter of 2012.

	Three Months Ended			Six Months Ended
	June 30, 2012			June 30, 2012
	(in thousands)

Amortization of fair value increments, as reported	$	1,803		$	4,607
Adjustment	(887		)	(2,738		)
Amortization of fair value increments, as adjusted	$	916		$	1,869

Net loss, as reported	$	(21,251	)	$	(40,453	)
Adjustment	887			2,738
Net loss, as adjusted	$	(20,364	)	$	(37,715	)

During the first quarter of 2013, it was identified that the cost of sales reported by MSC under U.S. GAAP for the year and quarter ended December 31, 2012 was understated resulting in an overstatement of MSC’s after-tax net income of $3.9 million. As a result, the prior year income from the Company’s equity investment of 49% in MSC was overstated by $1.9 million. As the error is not material to the current or previously reported consolidated financial statements, the correction was recorded in the quarter ended March 31, 2013.

During the second quarter of 2013, as a result of the new tax on mining real estate property in the Province of Santa Cruz (discussed in Note 5), coupled with a significant decline in gold and silver market prices and rising operating costs, the Company concluded that there were indicators that there was a loss in value in its investment in MSC that was other than temporary. The Company engaged a third party valuator to test the recoverability and determine the fair value of its investment in MSC. The valuator used a discounted cash flow approach and determined that the carrying value of the Company’s investment in MSC exceeded its estimated fair value. As the loss in value of the investment was considered other than temporary, an impairment of $95.9 million was recorded in the second quarter of 2013. Refer to Note 11, Fair Value Accounting, for assumptions used in the determination of the fair value of this asset. The investment in MSC is part of the “Argentina” segment as shown in Note 10.

Changes in the Company’s investment in MSC for the six months ended June 30, 2013 and year ended December 31, 2012 are as follows:

	Six Months Ended			Year Ended
	June 30, 2013			December 31, 2012
	(in thousands)
Investment in MSC, beginning of period	$	273,948		$	—
Fair value of investment in MSC from acquisition of Minera Andes	—			262,883
Income from equity investment	1,256			25,301
Amortization of fair value increments	(3,044		)	(4,466		)
Dividend distribution	—			(9,770		)
Impairment of investment in MSC	(95,878		)	—
Investment in MSC, end of period	$	176,282		$	273,948

A summary of the results from MSC for the three and six months ended June 30, 2013 and the period from January 25, 2012 (after the closing of the acquisition of Minera Andes) to June 30, 2012 is as follows:

	Three Months Ended			Three Months Ended			Six Months Ended			Period ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
	(in thousands)
Sales - MSC 100%	$	68,556		$	56,375		$	112,369		$	96,603
Net income - MSC 100%	124			3,255			2,564			11,422
McEwen Mining’s portion - 49%	61			1,595			1,256			5,597
Net income on investment in MSC	$	61		$	1,595		$	1,256		$	5,597
Amortization of fair value increments	(1,612		)	(916		)	(3,044		)	(1,869		)
(Loss) income on investment in MSC, net of amortization	$	(1,551	)	$	679		$	(1,788	)	$	3,728

As at June 30, 2013, MSC had current assets of $124.3 million, total assets of $532.4 million, current liabilities of $61.6 million and total liabilities of $172.6 million on an unaudited basis. These balances include the increase in fair value and amortization of the fair value increments arising from the purchase price allocation and the impairment charge of $95.9 million recorded in the second quarter of 2013.