NOTE 1 NATURE OF OPERATIONS AND RECENT ACCOUNTING PRONOUNCEMENTS

Nature of Operations and Basis of Presentation

McEwen Mining Inc. (the “Company”) was organized under the laws of the State of Colorado on July 24, 1979. The Company is engaged in the exploration for, development of, production and sale of gold, silver, and copper.

The Company operates in Argentina, Mexico, Canada and the United States. It owns a 49% interest in Minera Santa Cruz S.A. (“MSC”), owner of the producing San José silver-gold mine in Santa Cruz, Argentina, which is operated by the joint venture majority owner, Hochschild Mining plc. The Company also owns a 100% interest in the Black Fox gold mine in Timmins, Ontario, Canada, the El Gallo Project in Sinaloa, Mexico, the Gold Bar gold project in Nevada, the Los Azules copper deposit in San Juan, Argentina, the Fenix silver-gold project in Sinaloa Mexico, and a portfolio of exploration properties in Argentina, Mexico, Nevada, and Timmins, Ontario, Canada.

The interim consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures included are adequate to make the information presented not misleading.

In management’s opinion, the unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income (“Statement of Operations”) for the three and nine months ended September 30, 2018 and 2017, the Consolidated Balance Sheets as at September 30, 2018 (unaudited) and December 31, 2017, the unaudited Consolidated Statement of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2018 and 2017, and the unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017, contained herein, reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of the Company’s financial position, results of operations and cash flows on a basis consistent with that of the Company’s prior audited consolidated financial statements. However, the results of operations for the interim periods may not be indicative of results to be expected for the full fiscal year. Therefore, these financial statements should be read in conjunction with the audited financial statements and notes thereto and summary of significant accounting policies included in the Company’s annual report on Form 10-K for the year ended December 31, 2017. Except as noted below, there have been no material changes in the footnotes from those accompanying the audited consolidated financial statements contained in the Company’s Form 10-K for the year ended December 31, 2017. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Inter-company accounts and transactions have been eliminated.

Recently Adopted Accounting Pronouncements

Statement of Cash Flows – Restricted Cash: In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flow - Restricted Cash (ASU 2016-18). ASU 2016-18 requires that an entity's statement of cash flows explain the change during the period in that entity's total cash and cash equivalents, including amounts generally described as restricted cash or restricted cash equivalents. Therefore, changes in restricted cash and restricted cash equivalents will no longer be shown as specific line items within the statement of cash flows. Additionally, an entity is required to reconcile the cash and cash equivalents on its balance sheet to the cash and cash equivalent balances presented in its statement of cash flows. ASU 2016-18 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 with early adoption permitted. The Company early adopted the guidance within ASU 2016-18 as of December 31, 2017. The impact of ASU 2016-18 on its financial statements was as follows: (1) changes in restricted cash balances are no longer shown in the statements of cash flows, as these balances are included in the beginning and ending cash balances in the statements of cash flows; and (2) included within Note 16 is a reconciliation between cash balances presented on the balance sheets with the amounts presented in the statements of cash flows. The flow-through share issuance (Note 8) gave rise to restricted cash as these funds could only be used to fund exploration activity in the Timmins region of Canada. During the third quarter ended September 30, 2018 the Company fulfilled its obligations as part of the flow-through share issuance and as a result does not hold any restricted cash as at September 30, 2018.

Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments: In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies how entities should classify certain cash receipts and cash payments in the statement of cash flows and amends certain disclosure requirements of ASC 230. The guidance will generally be applied retrospectively and is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those years. The Company has elected to utilize the Cumulative Earnings Approach to classify distributions from equity method investees. Based on the Cumulative Earnings Approach, if the inception-to-date distributions are greater than the inception to date earnings then, the cash flows from the equity method investee would be recognized as a return of investment within cash inflows from investing activities. In respect of the Company’s analysis of its equity accounted for investment in Minera Santa Cruz, the inception-to-date distributions are greater than the inception-to-date earnings for 2017 (including all interim periods) and for the nine months ended September 30, 2018. Therefore, distributions from Minera Santa Cruz have been recognized as a return of investment within cash flows from investing activities for the nine months ended September 30, 2018 and September 30, 2017.

Revenue from Contracts with Customers: In 2016, the FASB issued four separate accounting standard updates regarding Topic 606: ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2017-13. These ASUs outline amendments to Topic 606, including reporting revenue gross versus net, identifying performance obligations and licensing and narrow-scope improvements and practical expedients. Adoption of this update by the Company, effective January 1, 2018, was completed using the modified retrospective approach. The modified retrospective method contemplates that comparative periods should not be restated and the cumulative impact of applying the standard should be recognized at the date of initial adoption, January 1, 2018. The Company has elected to apply the method only to new contracts and contracts that were not completed as of January 1, 2018. As expected, the Company did not have any cumulative effect of initially applying the standard for contracts not complete as of January 1, 2018. As a result, the Company has presented comparative periods under legacy GAAP and there has been no change to any line item as a result of adoption of the new standard. There was no material impact to revenue recognition.

Revenue Recognition Accounting Policy: Revenue consists of sales value received for the Company’s principal products, gold and silver. Revenue is recognized when title to gold and silver passes to the buyer and when collectability is reasonably assured. Title passes to the buyer based on terms of the sales contract, usually upon delivery of the product. Product pricing is determined under the sales agreements which are referenced against active and freely traded commodity markets, for example, the London Bullion Market for both gold and silver, in an identical form to the product sold. Gold and silver doré produced from the San José mine is sold at the prevailing spot market price based on the London A.M. fix, while concentrates are sold at the prevailing spot market price based on either the London P.M. fix or average of the London A.M. and London P.M. fix depending on the sales contract. Concentrates are provisionally priced, whereby the selling price is subject to final adjustments at the end of a period ranging from 30 to 90 days after delivery to the customer. The final price is based on the market price of the precious metal content at the relevant quotation point stipulated in the contract. Due to the time elapsed between shipment and the final settlement with the buyer, MSC must estimate the prices at which sales of metals will be settled. At the end of each financial reporting period, previously recorded provisional sales are adjusted to estimated settlement metals prices based on relevant forward market prices until final settlement with the buyer. Any material differences to these differences are separately disclosed.

The Company entered into a doré sales agreement with a Canadian financial institution in July 2012. Under that agreement, the Company has the option to sell to the institution approximately 90% of the gold and silver contained in doré bars prior to the completion of refining by the third party refiner, which normally takes approximately 10 business days. Revenue is recognized when the Company has provided irrevocable instructions to the refiner to transfer to the purchaser the refined ounces sold upon final processing outturn, and when payment of the purchase price for the purchased doré or bullion has been made in full by the purchaser. There is no judgement involved in revenue recognition as revenue is recognized when payment has been made by the purchaser and the product has been delivered.

The Company also has a contract under which revenue is earned from a toll milling arrangement at the Black Fox Complex. Revenue is recognized when title to the product passes to the customer. This revenue is separately disclosed as Other revenue in the financial statements. There is no judgement involved in revenue recognition from the toll milling agreement as revenue is recognized when the customer takes delivery of the product.

Revenue by operating segments is separately disclosed in Note 12 to the financial statements.

Compensation – Stock Compensation – Scope of Modification Accounting: In May 2017, the FASB issued ASU No. 2017-09 which provides clarity and reduces diversity in practice with respect to the modification of terms or conditions of a share-based payment award. The update to the standard was effective for the Company for fiscal years beginning after December 15, 2017, with early application permitted. The Company adopted the update as of January 1, 2018 and adoption did not have any impact on the consolidated financial statements or disclosures.

Business Combinations: Definition of a business: In January 2017, the FASB issued ASU No. 2017-01 which changed the definition of a business to assist entities in evaluating when a set of transferred assets and activities is a business. The update to the standard was effective for the Company beginning after December 15, 2017, with early application permitted. The Company adopted the update as of January 1, 2018 and the adoption did not have any impact on the consolidated financial statements or disclosures.

Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory: In October 2016, the FASB issued ASU No. 2016-16 to modify the current exception to income tax accounting that required companies to defer the income tax effect of certain intercompany transactions. ASU No. 2016-16 only allows companies to defer the income tax effect of intercompany inventory transactions under an exception to the guidance on income taxes that currently applies to intercompany sales and transfers of all assets. The update to the standard was adopted by the Company beginning January 1, 2018 and adoption of the update did not have any impact on the consolidated financial statements or disclosures.

Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities: In January 2016, the FASB issued ASU No. 2016-01, which updates certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. The update to the standard was adopted by the Company beginning January 1, 2018 using the modified retrospective transition method. The new guidance requires entities to measure equity investments (except those accounted for under the equity method, those that result in consolidation of the investee and certain other investments) at fair value and recognize any changes in fair value in operations. Transitional guidance provided that entities with unrealized gains or losses on available for sale (“AFS”) equity securities were required to reclassify those amounts to beginning retained earnings in the year of adoption. As a result, the Company has reclassified the beginning amount of accumulated other comprehensive income related to AFS securities to accumulated deficit and all changes in fair values of these securities is now reflected in the Statement of Operations in the Company’s net loss for the period. The comparative information has not been restated and continues to be reported under the accounting standards in effect for the period.

Recently Issued Accounting Pronouncements

Leases – Amendments: In February 2016, the FASB issued ASU 2016-02 “Leases (ASC 842)” which provides that a lessee should recognize the assets and the liabilities that arise from leases, including operating leases. Under the new requirements, a lessee will recognize in the statement of financial position a liability to make lease payments (the lease liability) and the right-of-use asset representing the right to the underlying asset for the lease term. For leases with a term of twelve months or less, the lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessor have not significantly changed from the previous GAAP. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within such fiscal year, with early adoption permitted. The ASU requires a modified retrospective transition method with the option to elect a package of practical expedients. There are three practical expedients for which an election must be made and the election must be applied to all leases, as follows:

Package of practical expedients – to permit an entity to a) not reassess whether expired or existing contracts contain leases, b) not reassess lease classification for existing or expired leases and c) not consider whether previously capitalized initial direct costs would be appropriate under the new standard.

Hindsight practical expedient – to permit an entity to use hindsight in determining the lease term.

Easements practical expedient – to permit an entity to continue applying its current policy for accounting for land easements that existed as of, or expired before, the effective date of ASC 842 (ASU 2018-01).

The Company expects to elect to apply all of the practical expedients available. During the first quarter of 2018 the Company completed a preliminary analysis of the effect of the standard on its financial statements as well as a review of a select major contracts. Based on the Company’s preliminary analysis, it is not expected that the adoption of ASC 842 will result in significant changes to the financial statements. The Company anticipates that the adoption of the update for its leasing arrangements will (a) increase the Company’s recorded assets and liabilities, (b) increase related depreciation and amortization expense, (c) increase interest expense and (d) decrease lease/rental expenses. As of the release of these interim financial statements, the Company has developed a detailed implementation and transition plan including related internal controls, identified the population of contracts to be reviewed and determined the discount rate applicable to its leases. However, review of contracts is ongoing as well as continued analysis of the overall effect of the standard on its financial statements. A quantitative estimate of the effect cannot be reasonably made as of the date of this report.

In January 2018, the FASB issued ASU 2018-01. This update permits an entity to elect an optional transitional practical expedient to not evaluate land easements that exist or expire before the Company’s adoption of ASC 842 that were not previously accounted for as leases under ASC 840. The Company intends to elect this transitional provision.

In July 2018, the FASB issued ASU 2018-11, this update permits an entity to elect an optional transitional practical expedient to continue to apply ASC 840, Leases, including its disclosure requirements, in the comparative periods presented in the year of adoption of ASC 842. Under this optional practical expedient, the Company will apply the transition provisions on January 1, 2019 (the date of adoption) rather than January 1, 2017 (the beginning of the earliest comparative period presented). Upon adoption of ASC 842, the Company will be required to recognize a cumulative-effect adjustment to the opening accumulated deficit balance in the year of adoption. The Company is currently evaluating ASU 2018-11.

Measurement of Credit Losses on Financial Instruments: In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 will change how companies account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity debt securities, companies will be required to estimate lifetime expected credit losses and recognize an allowance against the related instruments. For available-for-sale debt securities, companies will be required to recognize an allowance for credit losses rather than reducing the carrying value of the asset. The adoption of this update will result in earlier recognition of losses and impairments. The Company is currently evaluating ASU 2016-13.

Recognition and Measurement of Financial Assets and Financial Liabilities: In February 2018, the FASB issued ASU 2018-03, “Recognition and Measurement of Financial Assets and Financial Liabilties”. ASU 2018-03 clarifies the guidance in ASU 2016-01. ASU 2018-03 is effective for annual reporting periods beginning after December 15, 2017 and interim reporting periods within those annual reporting periods beginning after June 15, 2018. Early adoption is permitted provided that ASU 2016-01 has already been adopted. The amendments should be applied retrospectively with a cumulative-effect adjustment applied at the effective date of ASU 2016-01. The guidance addresses six main improvement areas:

(1)

Equity Securities without a Readily Determinable Fair Value—Discontinuation;

(2)

Equity Securities without a Readily Determinable Fair Value—Adjustments;

(3)

Forward Contracts and Purchased Options;

(4)

Presentation Requirements for Certain Fair Value Option Liabilities;

(5)

Fair Value Option Liabilities Denominated in a Foreign Currency; and

(6)

Transition Guidance for Equity Securities without a Readily Determinable Fair Value.

The Company is currently evaluating the impact of ASU 2018-03.

Compensation – Stock Compensation: In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Under the update, companies will value nonemployee awards in a similar manner to employee awards under ASC 718. The update is effective for fiscal years beginning after December 15, 2018. The Company does not expect that the adoption of ASU 2018-07 will have a material impact on the Company’s financial statements or related disclosures.

Codification Improvements: In July 2018, the FASB issued ASU 2018-09 “Codification Improvements” (“ASU 2018-09”). ASU 2018-09 provides amendments to various topics in the FASB’s Accounting Standards Codification, which applies to all reporting entitites within the scope of the affected accounting guidance. The transition and effective date guidance are based on the facts and circumstances of each amendment. Some of the amendments in ASU 2018-09 do not require transition guidance and were effective upon issuance of ASU 2018-09. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018. The Company is currently evaluating the potential impact of adopting the applicable guidance, however it does not believe that the adoption of ASU 2018-09 will have a material impact on the Company’s financial statements and related disclosures.

Changes to the Disclosure Requirements for Fair Value Measurement: In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”. This update modifies the disclosure requirements for fair value measurements by removing, modifying or adding disclosures. ASU 2018-03 is effective for fiscal year beginning after December 15, 2019 and early adoption is permitted. Certain disclosures in the update are applied retrospectively, while others are applied prospectively. The Company is currently evaluating the potential impact of adopting this guidance on its financial statements.