BUSINESS ACQUISITION

6 Months Ended

Jun. 30, 2013

BUSINESS ACQUISITION

BUSINESS ACQUISITION

NOTE 2   BUSINESS ACQUISITION

On January 24, 2012, the Company completed the acquisition of Minera Andes (“the Arrangement”) through a court-approved plan of arrangement under Alberta, Canada law pursuant to which Minera Andes, an Alberta (Canada) company, became an indirect wholly-owned subsidiary of the Company.

On the closing date of the Arrangement, holders of Minera Andes’ common stock received a number of exchangeable shares of McEwen Mining - Minera Andes Acquisition Corporation, an indirect wholly-owned Canadian subsidiary of the Company, equal to the number of Minera Andes shares owned by the holder, multiplied by the exchange ratio of 0.45.  In the aggregate, former Minera Andes shareholders received 127,331,498 exchangeable shares.

The exchangeable shares are exchangeable for the Company’s common stock on a one-for-one basis.  Option holders of Minera Andes received replacement options entitling them to receive, upon exercise, shares of the Company’s common stock, reflecting the exchange ratio of 0.45 with the appropriate adjustment of the exercise price per share.  The option life and vesting period of the replacement options has not changed from the option life granted under the Minera Andes option plan.

The estimated fair value of the vested portion of the replacement options of $3.2 million has been included as part of the purchase price consideration at their fair values based on the Black-Scholes pricing model.

The acquisition has been accounted for using the acquisition method in accordance with ASC Topic 805, Business Combinations, with the Company being identified as the acquirer.  The measurement of the purchase consideration was based on the market price of the Company’s common stock on January 24, 2012, which was $5.22 per share.  The total purchase price, including the fair value of the options, amounted to $667.8 million.

The fair value of mineral property interests exceeded the carrying value of the underlying assets for tax purposes by approximately $508.5 million.  The resulting estimated deferred income tax liability originally associated with this temporary difference was approximately $178.0 million, which was included in the allocation of the purchase price above.  At the end of 2012, the Company reduced the deferred income tax liability from $178.0 million to $156.9 million, as a result of further fluctuations in the foreign exchange rates between the Argentine pesos and U.S. dollar from January 24, 2012 to December 31, 2012.  As at June 30, 2013, the Company recorded an additional income tax recovery of $13.7 million as a result of the fluctuations in foreign exchange rates since December 31, 2012.  The Company also recorded a $2.3 million recovery on impairment charges pertaining to its Santa Cruz mineral property interests.  This resulted in a reduction in the deferred income tax liability on these assets to $140.9 million, which is included in the deferred income tax liability balance of $210.7 million on the unaudited consolidated balance sheet as at June 30, 2013.