UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to

Commission File Number: 001-33190

MCEWEN MINING INC.

(Exact name of registrant as specified in its charter)

150 King Street West, Suite 2800, Toronto, Ontario Canada M5H 1J9

(Address of principal executive offices) (Zip code)

(866) 441-0690

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 312,276,861 shares outstanding as of August 1, 2017.

MCEWEN MINING INC.

FORM 10-Q

Index

PART I

Item 1.  FINANCIAL STATEMENTS

MCEWEN MINING INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

(in thousands of U.S. dollars, except per share)

The accompanying notes are an integral part of these consolidated financial statements.

MCEWEN MINING INC.

CONSOLIDATED BALANCE SHEETS

(in thousands of U.S. dollars)

The accompanying notes are an integral part of these consolidated financial statements.

Commitments and contingencies, note 14.

MCEWEN MINING INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

(in thousands of U.S. dollars and shares)

The accompanying notes are an integral part of these consolidated financial statements.

MCEWEN MINING INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands of U.S. dollars)

The accompanying notes are an integral part of these consolidated financial statements.

NOTE 1  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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, development, production and sale of gold, silver and copper. On January 24, 2012, the Company changed its name from U.S. Gold Corporation to McEwen Mining Inc. after the completion of the acquisition of Minera Andes Inc. by way of a statutory plan of arrangement under the laws of the Province of Alberta, Canada.

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. It also owns and operates the El Gallo 1 mine in Sinaloa, Mexico. Finally, the Company owns the Los Azules copper deposit in San Juan, Argentina, the El Gallo 2 project in Sinaloa, Mexico, the Gold Bar project in Nevada in the United States, portfolio of exploration projects around Timmins, Ontario in Canada and a portfolio of exploration properties in Argentina, Mexico and Nevada.

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 for the three and six months ended June 30, 2017 and 2016, the Consolidated Balance Sheets as at June 30, 2017 (unaudited) and December 31, 2016, the unaudited Consolidated Statement of Changes in Shareholders’ Equity for the six months ended June 30, 2017 and 2016, and the unaudited Consolidated Statements of Cash Flows for the six months ended June  30, 2017 and 2016, 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, 2016.  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, 2016.  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

Compensation – Stock Compensation – Improvements to Employee Share-Based Payment Accounting: In March 2016, the FASB issued ASU No. 2016-09, which changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update to the standard is effective for the Company for fiscal years beginning after December 5, 2016, with early adoption permitted. Adoption of this guidance by the Company, effective January 1, 2017, had no impact on the consolidated financial statements or disclosures.

Recently Issued Accounting Pronouncements

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 is effective for the Company for fiscal years beginning after December 15, 2017, with early application permitted. The Company is currently evaluating the effect of this amendment and the impact it may have on the Company’s consolidated financial statements.

Business Combinations: Definition of a business: In January 2017, the FASB issued ASU No. 2017-01 which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The update to the standard is effective for the Company beginning after December 15, 2017, with early application permitted. The Company is currently evaluating the effect of this amendment and the impact it may have on the Company’s consolidated financial statements.

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 is effective for the Company beginning after December 5, 2016, with early application permitted as of the beginning of an annual period. The Company is currently evaluating the effect of this amendment and the impact it may have on the Company’s consolidated financial statements.

Revenue from Contracts with Customers: In 2016, the FASB issued three separate accounting standard updates regarding Topic 606: ASU 2016-08, ASU 2016-10 and ASU 2016-12. These ASUs outline amendments to Topic 606 which is not yet effective, including reporting revenue gross versus net, identifying performance obligations and licensing and narrow-scope improvements and practical expedients. The effective date and transition requirements for the amendments listed in these updates are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09) which is January 1, 2018, with earlier application permitted. The Company will not be early adopting Topic 606.

The new guidance permits two methods of adoption: (i) the full retrospective method, under which comparative periods would be restated, and the cumulative impact of applying the standard would be recognized as at January 1, 2017, the earliest period presented; and (ii) the modified retrospective method, under which comparative periods would not be restated and the cumulative impact of applying the standard would be recognized at the date of initial adoption, January 1, 2018. The Company expects to use the modified retrospective approach; however, it continues to monitor industry developments. Any significant industry developments could change the Company’s expected method of adoption.

As of June 30, 2017, the Company performed a comprehensive analysis of all sales contracts, including those contracts of MSC, to determine the effect of this amendment and the impact it will have on the Company’s consolidated financial statements. In the case of revenue recognized by the Company in its consolidated financial statements, some of the items subject to the evaluation included timing of revenue recognition, insurance and shipping services arranged by the Company on behalf of its customers, and refining and treatment costs classification. In the case of revenue recognized by MSC, additional items included variable consideration on concentrate sales and take-or-pay contract considerations. The Company is still in the process of completing the assessment of the impact; however, based on the analysis completed thus far, the Company does not expect that the adoption of the standard will materially affect the timing of recognition of revenue in the Company’s consolidated financial statements at the transition date or prospectively, and the overall impact will be limited to increased disclosure requirements. The Company will continue monitoring industry developments and assessing the new revenue recognition policy and any related impact on its internal controls with an expectation of having an update to the impact of the standard in the third quarter of 2017.

Leases – Amendments: In February 2016, the FASB issued ASU 2016-02 “leases (Topic 842)” which core principle is 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 lessee 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. The Company is evaluating the effect of this amendment and the impact it may have on the Company’s consolidated financial statements.

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 recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 is effective for the Company beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the effect of this amendment and the impact it may have on the Company’s consolidated financial statements.

NOTE 2   INVESTMENTS

The Company’s investment portfolio consists of marketable equity securities and warrants of certain publicly-traded companies. The Company classifies marketable equity securities as available-for-sale securities and warrants on equity interest in publicly traded securities as held for trading securities. Marketable equity securities are recorded at fair value based upon quoted market prices, and warrants are recorded at fair value using the Black-Scholes option pricing model. The following is a summary of the balances of investments as of June 30, 2017, and December 31, 2016:

As of June 30, 2017, the cost of the marketable equity securities and warrants was approximately $3.6 million (December 31, 2016 - $4.9 million).

The Company maintains a portfolio of warrants on equity interests in publicly traded securities for investment purposes. As the warrants meet the definition of derivative instruments, unrealized gains or losses arising from their revaluation are recorded in the Consolidated Statement of Operations and Comprehensive (Loss) Income. During the three and six months ended June 30, 2017, the Company recorded an unrealized loss of $0.7 million and an unrealized gain of $1.1 million, respectively compared to an unrealized gain of $1.7 million for the three and six months ended June 30, 2016.

In addition, during the three and six months ended June 30, 2017, the Company sold marketable equity securities for proceeds of $2.2 million.  The Company realized a gain of $0.8 million, which is included in the Consolidated Statement of Operations and Comprehensive (Loss) Income. In the comparative three and six months ended June 30, 2016, the Company realized a gain of $0.1 million on marketable equity securities sold. 

Gains and losses for available-for-sale securities are included in other comprehensive income and not reported in Net (Loss) Income unless the securities are sold or if there is an other-than- temporary decline in fair value below cost.

The Company recorded other comprehensive loss, net of tax, of $1.1 million and other comprehensive income, net of tax, of $2.8 million for the three and six months ended June 30, 2017, respectively. During the three and six months ended June 30, 2016, the Company recognized other comprehensive income of $2.2 million and $2.4 million, respectively, net of taxes.

During the period ended June 30, 2017, the Company reviewed its investment portfolio to determine if any security was other-than-temporarily impaired (“OTTI”). An OTTI security would require the Company to record an impairment charge in the statement of operations in the period any such determination is made. In making this determination, the Company evaluated, among other things, the duration and extent to which the fair value of a security was less than its cost; the financial condition of the issuer and any changes thereto; and the Company’s intent to sell, or whether it will more likely

than not be required to sell, the security before recovery of its amortized cost basis. As of June 30, 2017, the Company concluded that none of its marketable equity securities were considered OTTI. By comparison, the Company recognized an OTTI impairment loss of $0.6 million and $0.9 million for the three and six months ended June 30, 2016. 

NOTE 3   INVENTORIES

A portion of leach pad inventories in the amount of $10.0 million (December 31, 2016 – $nil) expected to be recovered after twelve months is included in the Other assets.

NOTE 4 MINERAL PROPERTY INTERESTS

The Company’s Mineral Property Interests include the El Gallo 1 mine in Mexico, the Gold Bar project in Nevada, the Los Azules project in Argentina and other properties located in Mexico and Nevada. On April 26, 2017, the Company also acquired Lexam VG Gold Inc. (“Lexam”) which included mineral property interests of $41.6 million relating to the Timmins properties in Canada. Refer to Note 15 Acquisition of Lexam for further discussion.

The Company conducts a review of potential triggering events for impairment for all its mineral property interests on a quarterly basis. When events or changes in circumstances indicate that the related carrying amounts may not be recoverable, the Company carries out a review and evaluation of its long-lived assets for impairment, in accordance with its accounting policy. During the six months ended June 30, 2017, the Company did not identify events or changes in circumstances affecting the carrying values of its long-lived assets.

The definition of proven and probable reserves is set forth in the SEC Industry Guide 7. If proven and probable reserves exist at the Company’s properties, the relevant capitalized mineral property interests and asset retirement costs are charged to expense based on the units of production method upon commencement of production. Since the Company has not completed feasibility or other studies sufficient to characterize the mineralized material at the El Gallo 1 mine as proven or probable reserves, the amortization of the capitalized mineral property interests and asset retirement costs are charged to expense based on the most appropriate amortization method which includes straight-line method or units-of-production method over the estimated useful life of the mine.

For the three and six months ended June 30, 2017, the Company recorded $0.6 million and $1.1 million, respectively (June 30, 2016, $0.8 million and $1.1 million, respectively), of amortization expense related to the El Gallo 1 mine, which is included in Production Costs Applicable to Sales in the Consolidated Statement of Operations and Comprehensive (Loss) Income.

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 presented under this heading is 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 $0.3 million and $0.1 million for the three and six months ended June 30, 2017, respectively (June 30, 2016 – income of $4.1 million and $9.1 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 six months ended June 30, 2017, the Company received $2.4 million and $4.9 million in dividends from MSC, respectively.  This compares to $2.8 million and $5.4 million received during the three and six months ended June 30, 2016, respectively.

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

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

As of June 30, 2017, MSC had current assets of $101.4 million, total assets of $430.1 million, current liabilities of $37.1 million and total liabilities of $109.1 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 $100.7 million, total assets of $261.3 million, current liabilities of $47.1 million, and total liabilities of $72.5 million as at June 30, 2017.

NOTE 6   RECLAMATION OBLIGATIONS

The Company is responsible for the reclamation of certain past and future disturbances at its properties. The most significant properties subject to these obligations are the Tonkin property in the state of Nevada, the El Gallo 1 mine in Mexico, and the Timmins properties in the province of Ontario which were acquired through the transaction with Lexam in April 2017. Refer to Note 15 Acquisition of Lexam.

A reconciliation of the Company’s asset retirement obligations for the six months ended June 30, 2017 and for the year ended December 31, 2016 are as follows: