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

As noted in Note 2, Summary of Significant Accounting Policies - Investments, 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 U.S. GAAP. As such, the summarized financial data presented under this heading is in accordance with U.S. GAAP.

The Company’s 49% attributable share of operations from its investment in MSC was income of $2.4 million for the year ended December 31, 2015, compared to a loss of $5.3 million for the year ended December 31, 2014 and income of $0.8 million for the year ended December 31, 2013. These amounts are net of the amortization of the fair value increments arising from the purchase price allocation and related income tax recovery. Included in the income tax recovery is the impact of fluctuations in the exchange rate between the Argentine peso and the U.S. dollar on the peso-denominated deferred tax liability associated with the investment in MSC recorded as part of the acquisition of Minera Andes. As a devaluation of the Argentine peso relative to the U.S. dollar results in a recovery of deferred income taxes, the impact has been a decrease to the Company’s loss, or an increase to the Company’s income, from its investment in MSC.

On October 22, 2015 the Company and Hochschild, both entered into vend-in agreements with MSC pursuant to which the Company agreed to vend-in its remaining Santa Cruz exploration properties, which did not have any assigned carrying value. The properties transferred, total approximately 100,600 hectares, and are located in the province of Santa Cruz. The agreement also provides for 2% net smelter return royalty payable to the Company or Hochschild based on any of MSC’s production from the respective mineral properties contributed by each party.

During the year ended December 31, 2015, the Company recorded an impairment charge of $11.8 million on its investment in MSC (2014 - $21.2 million), primarily as a result of the significant decline in long-term estimated silver market prices, as well as in the observed market value of comparable transactions in South America, which indicated a likely significant decrease in the value of the exploration properties owned by MSC. These factors caused the Company to assess that there was a decline in fair value of its investment in MSC that was other than temporary. To estimate the fair value of the Company’s investment in MSC and measure the impairment, the Company used a combined approach, which uses a discounted cash flow model for the operating mine and a market approach for the fair value assessment of exploration properties, and determined that the carrying value of the investment in MSC exceeded its estimated fair value. As the loss in value of the investment was considered other than temporary, an impairment of $11.8 million was recorded in the Company’s Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2015 (2014 - $21.2 million). Refer to Note 17, Fair Value Accounting, for further detail of the valuation of MSC.

During the fourth quarter of 2013, the Company entered into a vend-in agreement with MSC and subsidiaries of Hochschild pursuant to which both parties agreed to contribute to MSC the mining rights of certain exploration properties located in Santa Cruz Province. The carrying value of the Company’s properties at the time of the transfer of $35.9 million, net of the related deferred tax liability of $17.3 million, was recorded as an increase in the Company’s investment in MSC, with no gain or loss recognized upon transfer.

During the year ended December 31, 2015, the Company received $0.5 million in dividends from MSC, compared to $9.5 million in 2014.

Changes in the Company’s investment in MSC for the year ended December 31, 2015 and 2014 are as follows:


	Year ended December 31, 2015		Year ended December 31, 2014
Investment in MSC, beginning of the year	$	177,018	$	212,947
Attributable net loss from MSC		(2,859)		(2,597)
Amortization of fair value increments		(10,669)		(13,190)
Income tax recovery		15,942		10,503
Dividend distribution received		(548)		(9,483)
Impairment of investment in MSC		(11,777)		(21,162)
Investment in MSC, end of the year	$	167,107	$	177,018

A summary of the operating results from MSC for the year ended December 31, 2015, 2014, and 2013 is as follows:


	Year ended December 31,
	2015		2014		2013
Minera Santa Cruz S.A. (100%)
Net Sales	$	186,095	$	213,013	$	240,723
Production costs applicable to sales		(158,615)		(173,274)		(190,281)
Net (loss) income		(5,835)		(5,300)		4,338

Portion attributable to McEwen Mining Inc. (49%)
Net (loss) income	$	(2,859)	$	(2,597)	$	2,126
Amortization of fair value increments		(10,669)		(13,190)		(18,425)
Income tax recovery		15,942		10,503		17,145
Income (loss) from investment in MSC, net of amortization	$	2,414	$	(5,284)	$	846

As at December 31, 2015, MSC had current assets of $95.3 million, total assets of $486.3 million, current liabilities of $38.8 million and total liabilities of $145.3 million. These balances include the increase in fair value and amortization of the fair value increments arising from the purchase price allocation and are net of the impairment charges. Excluding the fair value increments from the purchase price allocation and impairment charges, MSC had current assets of $91.1 million, total assets of $282.5 million, current liabilities of $44.4 million, and total liabilities of $79.5 million as at December 31, 2015.