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 under this heading is presented 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 $0.5 million for the three and nine months ended September 30, 2017 (September 30, 2016 – income of $4.7 million and $13.8 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 nine months ended September 30, 2017, the Company received $2.3 million and $7.2 million in dividends from MSC, respectively. This compares to $7.9 million and $13.3 million received during the three and nine months ended September 30, 2016, respectively.

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


	September 30, 2017		December 31, 2016
Investment in MSC, beginning of the period	$	162,320	$	167,107
Attributable net income from MSC		1,941		15,961
Amortization of fair value increments		(6,967)		(12,274)
Income tax recovery		4,491		9,264
Dividend distribution received		(7,195)		(17,738)
Investment in MSC, end of the period	$	154,590	$	162,320

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


	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016
Minera Santa Cruz S.A. (100%)
Net Sales	$	52,722	$	72,116	$	161,900	$	182,769
Production costs applicable to sales		(43,596)		(49,345)		(132,710)		(125,904)
Net income		707		12,072		3,962		31,293

Portion attributable to McEwen Mining Inc. (49%)
Net (loss) income	$	346	$	5,916	$	1,941	$	15,334
Amortization of fair value increments		(2,469)		(2,914)		(6,967)		(9,370)
Income tax recovery		1,661		1,691		4,491		7,825
(Loss) income from investment in MSC, net of amortization	$	(462)	$	4,693	$	(535)	$	13,789

As of September 30, 2017, MSC had current assets of $99.1 million, total assets of $419.1 million, current liabilities of $35.0 million and total liabilities of $103.7 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 $98.5 million, total assets of $255.3 million, current liabilities of $40.2 million, and total liabilities of $65.6 million as at September 30, 2017.