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 a loss of $0.3 million and $0.1 million for the three and six months ended June 30, 2017, respectively (June 30, 2016 – income of $4.1 million and $9.1 million, respectively). These amounts include the amortization of the fair value increments arising from the purchase price allocation and related income tax recovery associated with the investment in MSC recorded as part of the acquisition of Minera Andes.

During the three and six months ended June 30, 2017, the Company received $2.4 million and $4.9 million in dividends from MSC, respectively. This compares to $2.8 million and $5.4 million received during the three and six months ended June 30, 2016, respectively.

Changes in the Company’s investment in MSC for the six months ended June 30, 2017 and year ended December 31, 2016 are as follows:


	June 30, 2017		December 31, 2016
Investment in MSC, beginning of the period	$	162,320	$	167,107
Attributable net income from MSC		1,594		15,961
Amortization of fair value increments		(4,497)		(12,274)
Income tax recovery		2,830		9,264
Dividend distribution received		(4,927)		(17,738)
Investment in MSC, end of the period	$	157,320	$	162,320

A summary of the operating results from MSC for the three and six months ended June 30, 2017 and 2016 is as follows:


	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Minera Santa Cruz S.A. (100%)
Net Sales	$	60,835	$	58,581	$	109,178	$	110,653
Production costs applicable to sales		(52,415)		(38,832)		(89,114)		(76,559)
Net (loss) income		(1,126)		10,973		3,255		19,221

Portion attributable to McEwen Mining Inc. (49%)
Net (loss) income	$	(553)	$	5,377	$	1,594	$	9,418
Amortization of fair value increments		(2,428)		(2,774)		(4,497)		(6,456)
Income tax recovery		2,718		1,530		2,830		6,134
(Loss) income from investment in MSC, net of amortization	$	(263)	$	4,133	$	(73)	$	9,096

As of June 30, 2017, MSC had current assets of $101.4 million, total assets of $430.1 million, current liabilities of $37.1 million and total liabilities of $109.1 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 and other adjustments, MSC had current assets of $100.7 million, total assets of $261.3 million, current liabilities of $47.1 million, and total liabilities of $72.5 million as at June 30, 2017.