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

6 Months Ended

Jun. 30, 2022

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 presented in accordance with U.S. GAAP.

A summary of the operating results for MSC for the three and six months ended June 30, 2022 and 2021 is as follows:

		Three months ended June 30,			Six months ended June 30,
	2022		2021		2022		2021
Minera Santa Cruz S.A. (100%)
Revenue from gold and silver sales	$	70,827	$	70,396	$	111,530	$	123,699
Production costs applicable to sales		(45,959)		(40,888)		(81,302)		(77,256)
Depreciation and depletion		(5,357)		(9,779)		(12,253)		(16,732)
Gross profit		19,511		19,729		17,975		29,711
Exploration		(3,093)		(2,941)		(4,828)		(5,177)
Other expenses(1)		(8,529)		(14,684)		(10,351)		(20,220)
Net income before tax	$	7,889	$	2,104	$	2,796	$	4,314
Current and deferred tax expense		(877)		(1,937)		2,929		(3,566)
Net income	$	7,012	$	167	$	5,725	$	748
Portion attributable to McEwen Mining Inc. (49%)
Net income	$	3,436	$	81	$	2,805	$	366
Amortization of fair value increments		(1,088)		(2,019)		(1,700)		(3,090)
Income tax recovery		163		85		286		297
Income (loss) from investment in MSC, net of amortization	$	2,511	$	(1,853)	$	1,391	$	(2,427)

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

The income from the 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 six months ended June 30, 2022 and year ended December 31, 2021 are as follows:

	Six months ended June 30, 2022		Year ended December 31, 2021
Investment in MSC, beginning of period	$	90,961	$	108,326
Attributable net income from MSC		2,805		132
Amortization of fair value increments		(1,700)		(8,331)
Income tax recovery		286		666
Dividend distribution received		(286)		(9,832)
Investment in MSC, end of period	$	92,066	$	90,961

During the three and six months ended June 30, 2022, the Company received $0.3 million in dividends from MSC, respectively (three and six months ended June 30, 2021 – $2.6 million and $7.6 million, respectively).

A summary of the key assets and liabilities of MSC on a 100% basis as at June 30, 2022, 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 June 30, 2022	Balance excluding FV increments		Adjustments		Balance including FV increments
Current assets	$	86,562	$	887	$	87,449
Total assets	$	192,423	$	86,915	$	279,338
Current liabilities	$	(53,324)	$	—	$	(53,324)
Total liabilities	$	(89,467)	$	(1,993)	$	(91,460)