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

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, are translated into U.S. GAAP by MSC’s management. As such, the summarized financial data presented under this heading is in accordance with U.S. GAAP.

The Company’s 49% attributable share of results of operations from its investment in MSC was income of $0.2 million for the three months ended March 31, 2017 (March 31, 2016 - $5.0 million). These amounts include 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 Argentina peso and the U.S. dollar on the peso-denominated mineral property interest fair value increment and deferred tax liability associated with the investment in MSC recorded as part of the acquisition of Minera Andes.

For the three months ended March 31, 2017, income tax recovery from the depreciation of the fair value increment was almost completely offset by the impact of the appreciation of the Argentina peso relative to the U.S. dollar on the deferred tax liability. In the comparative period in 2016, the impact of the devaluation of the Argentina peso relative to the U.S. dollar resulted in higher recovery of deferred income taxes.

During the period ended March 31, 2017, 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 period.

During the three months ended March 31, 2017, the Company received $2.5 million in dividends from MSC, compared to $2.6 million during the same period in 2016.

Changes in the Company’s investment in MSC for the three months ended March 31, 2017 and year ended December 31, 2016 are as follows:


	March 31, 2017		December 31, 2016
Investment in MSC, beginning of the period	$	162,320	$	167,107
Attributable net income (loss) from MSC		2,147		15,961
Amortization of fair value increments		(2,069)		(12,274)
Income tax recovery		112		9,264
Dividend distribution received		(2,525)		(17,738)
Investment in MSC, end of the period	$	159,985	$	162,320

A summary of the operating results from MSC for the three months ended March 31, 2017 and 2016 is as follows:


	Three months ended March 31,
	2017		2016
Minera Santa Cruz S.A. (100%)
Net Sales	$	48,343	$	52,072
Production costs applicable to sales		(36,699)		(37,727)
Net income		4,381		8,728

Portion attributable to McEwen Mining Inc. (49%)
Net income	$	2,147	$	4,042
Amortization of fair value increments		(2,069)		(3,682)
Income tax recovery		112		4,603
Income from investment in MSC, net of amortization	$	190	$	4,963

As of March 31, 2017, MSC had current assets of $104.1 million, total assets of $461.9 million, current liabilities of $58.3 million and total liabilities of $135.3 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. Excluding the fair value increments from the purchase price allocation, net of impairment charges, MSC had current assets of $103.3 million, total assets of $286.6 million, current liabilities of $62.4 million, and total liabilities of $87.2 million as at March 31, 2017.