INVESTMENT IN MINERA SANTA CRUZ S.A. ("MSC") - SAN JOSE MINE

3 Months Ended

Mar. 31, 2021

INVESTMENT IN MINERA SANTA CRUZ S.A. ("MSC") - SAN JOSE MINE

INVESTMENT IN MINERA SANTA CRUZ S.A. ("MSC") - SAN JOSE MINE

NOTE 9 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, 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.

A summary of the operating results for MSC for the three months ended March 31, 2021 and 2020 is as follows:

	Three months ended March 31,
	2021		2020
Minera Santa Cruz S.A. (100%)
Revenue from gold and silver sales	$	53,303	$	37,390
Production costs applicable to sales		(36,367)		(28,316)
Depreciation and depletion		(6,953)		(7,327)
Gross profit		9,983		1,747
Exploration		(2,236)		(2,866)
Other expenses(1)		(5,536)		(2,217)
Net income (loss) before tax	$	2,211	$	(3,336)
Current and deferred tax expense		(1,629)		49
Net income (loss)	$	582	$	(3,287)
Portion attributable to McEwen Mining Inc. (49%)
Net income (loss)	$	285	$	(1,611)
Amortization of fair value increments		(1,071)		(1,385)
Income tax recovery		212		320
Loss from investment in MSC, net of amortization	$	(574)	$	(2,676)

(1) Other expenses include foreign exchange, accretion of asset retirement obligations, and other finance related expenses

The loss from investment in MSC attributable to the Company includes amortization of the fair value increments arising from the initial purchase price allocation and related income tax recovery. The income tax recovery reflects the impact of the devaluation of the Argentine peso against the U.S. dollar on the peso-denominated deferred tax liability recognized at the time of acquisition, as well as income tax rate changes over the periods.

Changes in the Company’s investment in MSC for the three months ended March 31, 2021 and year ended December 31, 2020 are as follows:

	March 31, 2021		December 31, 2020
Investment in MSC, beginning of period	$	108,326	$	110,183
Attributable net income from MSC		285		2,745
Amortization of fair value increments		(1,071)		(5,390)
Income tax recovery		212		1,128
Dividend distribution received		(4,984)		(340)
Investment in MSC, end of period	$	102,768	$	108,326

During the three months ended March 31, 2021, the Company received $5.0 million in dividends from MSC (three months ended March 31, 2020 – $nil).

A summary of the key assets and liabilities of MSC on a 100% basis as at March 31, 2021, before and after adjustments to fair value on acquisition and amortization of the fair value increments arising from the purchase price allocation, are as follows:

As at March 31, 2021	Balance excluding FV increments		Adjustments		Balance including FV increments
Current assets	$	86,274	$	488	$	86,762
Total assets	$	176,082	$	105,603	$	281,685
Current liabilities	$	(39,203)	$	—	$	(39,203)
Total liabilities	$	(68,461)	$	(3,502)	$	(71,963)