INVESTMENT IN MSC - SAN JOSE MINE

3 Months Ended

Mar. 31, 2023

INVESTMENT IN MSC - SAN JOSE MINE

INVESTMENT IN 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. MSC is operated by the Company’s joint venture partner, Hochschild Mining PLC.

In applying the equity method of accounting, 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 months ended March 31, 2023 and 2022 is as follows:

	Three months ended March 31,
	2023		2022
Minera Santa Cruz S.A. (100%)
Revenue from gold and silver sales	$	45,740	$	39,207
Production costs applicable to sales		(41,124)		(31,789)
Depreciation and depletion		(8,230)		(6,896)
Gross (loss) profit		(3,614)		522
Exploration		(1,952)		(1,735)
Other expenses(1)		(3,234)		(3,880)
Net loss before tax	$	(8,800)	$	(5,093)
Current and deferred tax expense		3,315		3,807
Net loss	$	(5,485)	$	(1,286)
Portion attributable to McEwen Mining Inc. (49%)
Net loss	$	(2,687)	$	(630)
Amortization of fair value increments		(884)		(613)
Income tax recovery		110		123
Loss from investment in MSC, net of amortization	$	(3,461)	$	(1,120)

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

The income or loss 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 three months ended March 31, 2023 and year ended December 31, 2022 are as follows:

	Three months ended March 31, 2023		Year ended December 31, 2022
Investment in MSC, beginning of period	$	93,451	$	90,961
Attributable net (loss) income from MSC		(2,687)		6,303
Amortization of fair value increments		(884)		(4,155)
Income tax recovery		110		628
Dividend distribution received		—		(286)
Investment in MSC, end of period	$	89,990	$	93,451

A summary of the key assets and liabilities of MSC as at March 31, 2023, before and after adjustments for fair value increments arising from the purchase price allocation, are as follows:

As at March 31, 2023	Balance excluding FV increments		Adjustments		Balance including FV increments
Current assets	$	81,676	$	705	$	82,381
Total assets	$	188,078	$	79,484	$	267,562
Current liabilities	$	(52,936)	$	—	$	(52,936)
Total liabilities	$	(82,855)	$	(1,071)	$	(83,926)