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

9 Months Ended

Sep. 30, 2016

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

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

NOTE 5   INVESTMENT IN MINERA SANTA CRUZ S.A. (“MSC”) – SAN JOSÉ MINE

The Company’s 49% attributable share of results of operations from its investment in MSC was income of $4.7 million and $13.8 million for the three and nine months ended September 30, 2016, respectively (September 30, 2015 – losses of $1.6 million and $4.0 million, respectively). These amounts include the amortization of the fair value increments arising from 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 in 2012. 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 an increase in the income from the Company’s investment in MSC for the three and nine months ended September 30, 2016.

During the three and nine months ended September 30, 2016, the Company received $7.9 million and $13.3 million in dividends from MSC, respectively.  This compares to $nil and $0.5 million received during the three and nine months ended September 30, 2015, respectively.

Changes in the Company’s investment in MSC for the nine months ended September 30, 2016 and year ended December 31, 2015 are as follows:

	Nine months ended September 30, 2016		Year ended December 31, 2015
Investment in MSC, beginning of the period	$	167,107	$	177,018
Attributable net income (loss) from MSC		15,334		(2,859)
Amortization of fair value increments		(9,370)		(10,669)
Income tax recovery		7,825		15,942
Dividend distribution received		(13,270)		(548)
Impairment of investment in MSC		—		(11,777)
Investment in MSC, end of the period	$	167,626	$	167,107

A summary of the operating results from MSC for the three and nine months ended September 30, 2016 and 2015 is as follows:

	Three months ended  September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Minera Santa Cruz S.A. (100%)
Net Sales	$	72,116	$	45,357	$	182,769	$	141,106
Production costs applicable to sales		(49,345)		(41,767)		(125,904)		(119,940)
Net income (loss)		12,072		(3,375)		31,293		(5,185)
Portion attributable to McEwen Mining Inc. (49%)
Net income (loss)	$	5,916	$	(1,654)	$	15,334	$	(2,541)
Amortization of fair value increments		(2,914)		(1,617)		(9,370)		(7,705)
Income tax recovery		1,691		1,630		7,825		6,282
Income (loss) from investment in MSC, net of amortization	$	4,693	$	(1,641)	$	13,789	$	(3,964)

As of September 30, 2016, MSC had current assets of $112.4 million, total assets of $481.2 million, current liabilities of $54.2 million and total liabilities of $138.9 million on an unaudited basis. These balances include the adjustments to fair value and amortization of the fair value increments arising from the purchase price allocation, net of impairment charges recorded in the fourth quarter of 2015. Excluding the fair value increments from the purchase price allocation, MSC had current assets of $111.6 million, total assets of $296.5 million, current liabilities of $58.2 million, and total liabilities of $87.6 million as at September 30, 2016.