BUSINESS ACQUISITION

9 Months Ended

Sep. 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.  The 127,331,498 exchangeable shares issued are exchangeable for the Company’s common stock on a one-for-one basis.

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.  For the nine months ended September 30, 2013, the Company recorded an additional income tax recovery of $23.6 million as a result of the fluctuations in foreign exchange rates since December 31, 2012. Furthermore, in the second quarter of 2013, the Company also recorded an impairment of $27.7 million on certain of its Santa Cruz mineral property interests, as discussed in Note 5, along with an associated $2.3 million of income tax recovery. These resulted in a deferred income tax liability on these assets of $131.0 million, which is included in the deferred income tax liability balance of $198.5 million on the unaudited consolidated balance sheet as at September 30, 2013.