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 $13.0 million for the year ended December 31, 2016, compared to an income of $2.4 million for the year ended December 31, 2015 and loss of $5.3 million for the year ended December 31, 2014. These amounts are net of the amortization of the fair value increments arising from the Company’s purchase price allocation, net of impairment charges, 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.

During the year ended December 31, 2016, the Company did not identify any potential triggering events for impairment in relation to its investment in MSC, and consequently the Company did not record any impairment during the year.

In 2015, the Company recorded an impairment charge of $11.8 million on its investment in MSC ($21.2 million in 2014), 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. 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 Income (Loss) for the year ended December 31, 2015 ($21.2 million in 2014).

During the year ended December 31, 2016, the Company received $17.7 million in dividends from MSC, compared to $0.5 million in 2015.

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


	Year ended December 31, 2016		Year ended December 31, 2015
Investment in MSC, beginning of the period	$	167,107	$	177,018
Attributable net income (loss) from MSC		15,961		(2,859)
Amortization of fair value increments		(12,274)		(10,669)
Income tax benefit		9,264		15,942
Dividend distribution received		(17,738)		(548)
Impairment of investment in MSC		—		(11,777)
Investment in MSC, end of the period	$	162,320	$	167,107

A summary of the operating results from MSC for the year ended December 31, 2016, 2015, and 2014 is as follows:


	Year ended December 31,
	2016		2015		2014
Minera Santa Cruz S.A. (100% basis)
Net Sales	$	235,961	$	186,095	$	213,013
Production costs applicable to sales		(173,679)		(158,615)		(173,274)
Net income (loss)		31,976		(5,835)		(5,300)

Portion attributable to McEwen Mining Inc. (49% basis)
Net income (loss)	$	15,961	$	(2,859)	$	(2,597)
Amortization of fair value increments		(12,274)		(10,669)		(13,190)
Income tax benefit		9,264		15,942		10,503
Income (loss) from investment in MSC, net of amortization	$	12,951	$	2,414	$	(5,284)

As at December 31, 2016, MSC had current assets of $108.9 million, total assets of $468.3 million, current liabilities of $59.5 million and total liabilities of $137.0 million. These balances include the increase in fair value and amortization of the fair value increments arising from the Company’s 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 $107.9 million, total assets of $288.9 million, current liabilities of $63.6 million, and total liabilities of $88.6 million as at December 31, 2016.