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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

In the following discussion, “McEwen Mining”, the “Company”, “we”, “our”, and “us” refers McEwen Mining Inc. and as the context requires, its consolidated subsidiaries.

This section of this Annual Report on Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019 with a particular emphasis on 2020. For a discussion of our financial condition and results of operations for 2019 compared to 2018, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 16, 2020.

The technical contents of this management’s discussion and analysis has been reviewed and approved by Peter Mah, P.Eng., Chief Operating Officer and Luke Willis, Director, Resource Modelling as Qualified Persons as defined by Canadian Securities Administrator National Instrument 43-101 “Standards of Disclosure for Mineral Projects”.

With regard to properties and projects that are not in production, we provide some details of our plan of operation. This section provides information up to the date of filing this report.

The discussion contains financial performance measures that are not prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP” or “GAAP”). Each of the following is a non-GAAP measure: cash gross profit, cash costs, cash cost per ounce, all-in sustaining costs, all-in sustaining cost per ounce, average realized price per ounce, and liquid assets. These non-GAAP measures are used by management in running the business and we believe they provide useful information that can be used by investors to evaluate our performance and our ability to generate cash flows. These measures do not have standardized definitions and should not be relied upon in isolation or as a substitute for measures prepared in accordance with GAAP. Cash Costs equals Production Costs Applicable to Sales and is used interchangeably throughout the document.

For a reconciliation of these non-GAAP measures to the amounts included in our Statements of Operations for the three months ended December 31, 2020 and 2019 and the years ended December 31, 2020, 2019 and 2018 and to our Balance Sheets as of December 31, 2020 and 2019 and certain limitations inherent in such measures, please see the discussion under “Non-GAAP Financial Performance Measures”, on page 58.

This discussion also includes references to “advanced-stage properties”, which are defined as properties for which advanced studies and reports have been completed indicating the presence of mineralized material or proven and probable reserves, or that have obtained or are in the process of obtaining the required permitting. Our designation of certain properties as “advanced-stage properties” should not suggest that we have or will have proven or probable reserves at those properties as defined by the SEC Industry Guide 7. This section provides information up to the date of the filing of this report.

The information in this section should be read in conjunction with our consolidated financial statements and the notes thereto included in this Annual Report on Form 10-K.

Throughout this Management’s Discussion and Analysis (“MDA”), the reporting periods for the three months ended March 31, 2020, June 30, 2020, September 30, 2020, December 31, 2020, and December 31, 2019 are abbreviated as Q1/20, Q2/20, Q3/20, Q4/20 and Q4/19, respectively, the reporting periods for the six months ended June 30, 2020 and December 31, 2020 are abbreviated as H1/20 and H2/20, respectively, and the reporting for the years ended December 31, 2020 and 2019 are abbreviated as YTD/20 and YTD/19 respectively.

In addition, in this report, gold equivalent ounces (“Au Eq. oz”) includes gold and silver ounces calculated based on a 94:1 ratio for the first quarter of 2020, 104:1 for the second quarter of 2020, 79:1 for the third quarter of 2020, and 77:1 for the fourth quarter of 2020. Beginning with the second quarter of 2019, we adopted a variable silver to gold ratio for reporting that approximates the average price during each fiscal quarter.

Note: We ceased active mining and processing at the El Gallo mine in the second quarter of 2018. Where comparative results for mining operations are presented for prior periods, we continue to use the term “El Gallo Mine.” We use the

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term “El Gallo Project” to refer to the ongoing reclamation and residual heap-leaching that is taking place at the formerly-producing mine.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization (“WHO”) declared the COVID-19 virus a global pandemic. During late March and early April, our operations were disrupted by temporary shutdowns to protect our workforce from the spread of the virus. A summary of our operations during 2020 is as follows:

During and after the shutdown periods, rigorous policies and procedures have been implemented at each site to minimize potential health and safety risks to our workforce.

The temporary shutdowns have adversely impacted our mine operations, cash flow, and liquidity throughout 2020. In addition to the adverse effect on production and revenue, we have incurred costs in connection with the shutdowns and subsequent ramp-up at each operation. Our liquidity and financial condition have been adversely affected and as a result we have raised an additional $64.4 million in gross equity financings from September 2020 to February 2021. In addition, we renegotiated more favorable debt repayment terms in Q2 2020. We are currently maintaining normal operating capacity at our operations; however this remains dependent on the continued availability and logistical delivery of supplies, which remains out of our control. The long-term impact of the COVID-19 outbreak on our results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak, related advisories and restrictions and the viability and success of the worldwide vaccination roll out. Management continues to actively monitor the global situation with respect to COVID-19 and its ongoing impacts on our financial condition, liquidity, operations, suppliers, industry and workforce.

The governments of the United States, Canada and Mexico have enacted or proposed legislation to provide relief to companies and/or individuals affected by the enforced reduction in operations. During 2020, we secured $1.9 million of relief from the US government under the paycheck protection (“PPP”) program. The funds are fully forgivable so long as sufficient eligible expenditures were incurred in a 24 week period. The income from the PPP program is recognized on a systematic basis as eligible forgivable expenditures are incurred. As at December 31, 2020, the full amount has been recognized as other income, as the Company is reasonably assured that it is in compliance with the forgiveness criteria of incurring the eligible expenses for forgiveness within the required timeframe. We also secured $4.5 million of government relief in Canada through the Canadian Emergency Wage Subsidy (“CEWS”) program.

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Index to Management’s Discussion and Analysis:

Page

2020 and Q4/20 Operating and Financial Highlights 41

Selected Consolidated Financial and Operating Results 43

Consolidated Performance 43

Consolidated Financial Review 44

Liquidity and Capital Resources 45

Operations Review 47

U.S.A Segment 47

Gold Bar mine operating results 47

Exploration Activities - Nevada 48

Canada Segment 49

Black Fox mine and Froome mine development 49

Advanced-Stage Properties – Froome Project 49

Exploration Activities - Timmins 50

Mexico Segment 52

El Gallo Project operating results 52

Advanced-Stage Properties – Fenix Project 53

MSC Segment, Argentina 54

MSC operating results 54

Los Azules Segment, Argentina 57

Los Azules Project 57

Commitments and Contingencies 57

Non-GAAP Financial Performance Measures 58

Critical Accounting Estimates 62

Forward Looking Statements 64

Risk Factors Impacting Forward-Looking Statements 65

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2020 AND Q4/20 OPERATING AND FINANCIAL HIGHLIGHTS

Highlights for the year and quarter ended December 31, 2020 are summarized below and discussed further in the Consolidated Financial Performance:

COVID-19 Impacts

Performance

Cash Flow and Results of Operations

Exploration and Reserves

(1) At our 49% attributable interest.

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SELECTED CONSOLIDATED FINANCIAL AND OPERATING RESULTS

The following tables present select financial and operating results of our company for the three months ended December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019, and 2018:

Three months ended December 31, Year ended December 31,

(in thousands, except per share)

Three months ended December 31, Year ended December 31,

(in thousands, except per ounce)

Cash cost per ounce ($/Au Eq. oz sold):(2)

AISC per ounce ($/Au Eq. oz sold):(2)

(3) On sales from 100% owned operations only, excluding streaming arrangement.

CONSOLIDATED PERFORMANCE

For the year ended December 31, 2020, we reported a net loss of $152.3 million (or $0.38 per share) compared to a net loss of $59.7 million in 2019 (or $0.17 per share). The increased loss from year to year relates primarily to a non-cash impairment charge of $83.8 million in 2020 at Gold Bar; lower revenues of $12.2 million predominantly as a result of lower production from all sites in 2020 versus 2019; and higher cost of sales of $25.5 million in 2020 as a result of COVID-19 related production suspensions and related costs; and higher production costs from Gold Bar operations in 2020. These changes were partially offset by a reduced loss from our investment in MSC, and reduced general and administration as well as exploration costs in 2020 versus 2019. MSC’s results benefited from significantly higher average realized gold and silver prices (27% and 41% higher average gold and silver prices) and lower depreciation and depletion expenses due to lower mineralized material mined and processed.

Cash gross loss (a non-GAAP measure) of $4.0 million for 2020 decreased by $37.7 million compared to a cash gross profit of $33.7 million in 2019, mainly as the result of the decrease in production and revenue, coupled with higher production costs applicable to sales due to higher costs per ounce in particular at Gold Bar due to operational and grade

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reconciliation issues. This has been ongoing and drilling continued throughout 2020 and is ongoing to date, as well as updated independent technical studies, to mitigate this risk. See “Non-GAAP Financial Performance Measures” for a reconciliation to gross (loss) profit, the nearest GAAP measure.

Production from our 100% owned mines of 60,343 gold equivalent ounces in 2020 decreased by 22,423 gold equivalent ounces compared to 2019. The decrease is attributed to the temporary shutdowns of our mine operations in efforts to combat the spread of COVID-19 during the first half of 2020. Operations resumed, however, below capacity throughout most of 2020, given the challenges in mobilizing personnel and with government imposed travel restrictions. In addition to the impacts of COVID-19 on our operations in 2020, production at the El Gallo Project decreased by 8,261 gold equivalent ounces compared to 2019, as leaching continued to wind down.

Our share of the San José mine production of 54,500 gold equivalent ounces in 2020 was 37,153 ounces lower than in 2019; this decrease is attributable to the slow ramp up back to full production due to government imposed travel restrictions to combat the spread of COVID-19 for most of 2020.

CONSOLIDATED FINANCIAL REVIEW

Year ended December 31, 2020 compared to 2019

Revenue from gold and silver sales in 2020 of $104.8 million decreased by 10% compared to 2019. The decrease reflects 24,402 fewer gold equivalent ounces sold from our 100% owned mines in 2020 compared to 2019, partially offset by a higher average realized price ($1,771/oz or $368/oz higher compared to 2019).

The decrease in gold equivalent ounces sold includes 8,763 fewer gold equivalent ounces sold from the El Gallo Project as the operations continue to wind down, 12,923 fewer gold equivalent ounces sold from the Black Fox mine and 2,716 fewer gold equivalent ounces sold from the Gold Bar mine as a result of operational interruptions. The ongoing reserve estimate work culminated in an updated technical report filed on February 22, 2021. All of our operations were impacted by COVID-19 throughout 2020.

Production Costs applicable to sales in 2020 increased by 31% to $108.8 million compared to 2019; gold equivalent ounces sold in 2020 were 29% fewer than in 2019 but at a higher cash cost per ounce sold as explained in the “Consolidated Performance” section above.

Depreciation and depletion in 2020 decreased by $1.9 million to $22.9 compared to 2019, reflecting the decrease in gold equivalent ounces sold in 2020 and the lower depreciable and depletable asset base as a result of the impairment charge recorded at Gold Bar in the first quarter of 2020.

Advanced projects of $11.7 million for 2020 increased by $2.2 million compared to 2019. Advanced projects in 2020 included continued spending for the Froome development project in Timmins Ontario, engineering and permit work at the Gold Bar South property in Nevada and the Fenix project in Mexico.

Exploration costs of $15.9 million for 2020 decreased by $21.8 million compared to 2019. In 2020, exploration activities ramped up in the second half of the year as we announced the closing of two flow-through financing programs. Through December 31, 2020, we have incurred $1.9 million in qualifying exploration expenditures. Expenditures relate to exploration activities in Timmins at the Stock and Grey Fox targets. Exploration costs in 2019 related to expenses incurred at the Company’s Timmins operations.

General and administrative expenses of $9.2 million for 2020 decreased by $3.6 million, compared to 2019, due to lower salaries, financing fees, and a reduction in corporate activities in marketing and travelling in 2020 due to COVID-19.

Loss from investment in MSC of $1.5 million in 2020, decreased by $7.2 million from 2019, reflecting increased gross profits of $8.4 million.

Revision of estimates and accretion of asset retirement obligations of $1.8 million in 2020, decreased by $1.7 million from 2019, primarily due to the inclusion of the asset retirement obligations at the Gold Bar mine in 2019 as it transitioned to commercial production in May 2019. There was no such addition in 2020.

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Impairment of property, plant and equipment at Gold Bar was $83.8 million. During the first quarter of 2020, we performed a comprehensive review of our Gold Bar mine and determined that indicators of impairment existed. A recoverability test was performed and we concluded that the carrying value of the long-lived assets for the Gold Bar mine was impaired based on a reduction in preliminary estimated resources and expected future production at that time. Technical work and drilling has continued throughout 2020 to better understand the resources, which culminated in an updated reserve and resource estimate announced on January 7, 2021, with an updated technical report filed on February 22, 2021. The following are key points noted in the updated technical report:

Other operating of $2.0 million compared to $nil in 2019 and reflects the expenses relating to the suspension of our operations at the Gold Bar and Black Fox mines primarily related to COVID-19 costs.

Other income was $6.9 million for 2020 compared to $7.1 million for 2019. Other income in 2020 includes proceeds received from COVID-19 relief funds. The 2019 amount relates primarily to gains on marketable securities of $5.3 million.

Income and mining tax recovery of $1.4 million for 2020 decreased by $2.4 million from 2019. The decease is mainly due to lower amortization of the flow-through premium in 2020 as compared to 2019. In addition, the income and mining tax recovery reflects the devaluation of the Argentine and Mexican peso against the U.S. dollar on the Company’s peso-denominated deferred tax liability and the reversal of deferred tax liabilities on the impairment of the US properties.

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents balance at December 31, 2020 of $20.8 million decreased by $25.7 million from the balance at December 31, 2019. The decrease in cash and cash equivalents at December 31, 2020 was due to $27.9 million of cash used in operations and $13.4 million invested in mineral property interests and plant and equipment, partly offset by $17.6 million in cash provided by financing activities. Cash provided from financing activities included gross proceeds of $20.2 million (net proceeds of $19.6 million) from the issuance of flow-through shares on September 10, 2020 and December 31, 2020. We are required to spend the flow-through proceeds on flow-through eligible Canadian exploration expenditures (“CEE”) as defined by subsection 66(15) of the Income Tax Act (Canada). We expect to fulfill our CEE commitments by the end of 2022. For more details on our flow-through financing refer to Note 14 to the Consolidated Financial Statements, Shareholders’ Equity.

Working capital at December 31, 2020 of $7.9 million decreased by $35.2 million from December 31, 2019, reflecting the decrease of $25.6 million in cash and cash equivalents and the decrease of $11.4 million in inventory, primarily in materials on the leach pads at the Gold Bar and El Gallo projects, which was partially offset by the decrease in current liabilities as result of the debt refinancing.

Cash used in operations of $27.9 million in 2020 decreased from $39.5 million cash used in operations in 2019. The change is attributed to a decrease in exploration expenses of $21.8 million, receipt of COVID-19 related relief funds of $6.4 million, a decrease in general and administrative expenses of $3.6 million and an increase in accounts payable of $2.0 million in 2020; partially offset by a decrease in revenue of $12.2 million and increased production costs of sales adjusted for inventory write-downs of $11.6 million.

Cash used in investing activities of $11.8 million in 2020 decreased from $14.1 million in 2019. The net difference of $2.3 million is primarily due to a decrease of $16.3 million in spending on mineral property interest and plant and equipment as the construction of the Gold Bar mine was completed in May 2019. This decrease was partially offset by lower proceeds from sale of investments ($1.3 million in 2020 compared to $6.8 million in 2019) and lower dividends received from MSC ($0.3 million in 2020 compared to $8.9 million in 2019). On January 28, 2021 we received a dividend of $2.5 million from MSC, refer to Note 23 –Subsequent Events, to the Consolidated Financial Statements.

During 2020, we spent $13.4 million on mineral property and plant and equipment, (a decrease of $16.3 million from the year 2019), predominantly on capital development, with the spending mainly related to underground development at the Fox Complex and infill drilling at Gold Bar.

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Financing activities provided $17.6 million in cash in 2020 compared to $70.0 million in 2019. In 2020, this included $19.6 million from the issuance of flow-through shares, slightly offset by $2.2 million in lease obligations payments. The proceeds will be used to incur CEE at the Grey Fox, Stock and Whiskey Jack targets in Timmins over the next 2 years.

In June 2020, the loan facility was amended under a new administrative agent resulting in an extension of the required principal payments. The amendment also reduced the minimum working capital covenant to $nil at December 31, 2020. The remainder of the agreement remains in full force and effect.

During the year and subsequent to year end the Company closed on $64.4 million in gross proceeds from equity financings. As a result of this, the Company believes it has sufficient liquidity along with funds generated from ongoing operations, to fund anticipated cash requirements for operations, capital expenditures and working capital purposes. As a result, the previously disclosed going concern uncertainty disclosure has been removed, as substantial doubt no longer exists regarding the Company’s ability to meet its obligations as they become due within one year after the date that the financial statements are issued. Refer to Note 14 – Shareholders and EquityNote 23 –Subsequent Events, to the Consolidated Financial Statements.

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OPERATIONS REVIEW

U.S.A. Segment

The U.S.A. segment is comprised of the Gold Bar mine and certain exploration properties.

Gold Bar mine

2020 compared to 2019

The following table sets out operating results for the Gold Bar mine for the three months and year ended December 31, 2020. As the Gold Bar mine achieved commercial production on May 23, 2019, the comparatives for cash costs, cash cost per ounce, all-in sustaining costs and all-in sustaining costs per ounce for the year ended 2019 include sales and costs from pre-commercial production during the first months of 2019:

Three months ended December 31, Year ended December 31,

Operating Results (in thousands, unless otherwise indicated)

Gold ounces:

Silver ounces:

Sold — — 0.6 0.3

Gold equivalent ounces:

Despite the significant impacts of the COVID-19 pandemic and outbreaks in the region, the Gold Bar mine produced 27,900 gold equivalent ounces in 2020 compared to 30,700 GEOs the year prior. The COVID-19 outbreak had a significant impact on production as the Gold Bar operation shut down for part of Q2 and isolation quarantine protocols resulted in reduced operating shifts in Q4 after positive COVID-19 tests of site personnel. The slower ramp up to full mining rates following the shut down was primarily due to delays related to mining contractor rehiring of operators after the shutdown resulting in slower than planned equipment operation, and the Company completing drilling, assaying, and an updated in-house resource model to develop a plan forward that includes mining from Gold Bar South. When compared to 2019 there were less ore tonnes mined, lower grades and a reduced gold production as a result. We continue to execute improvement initiatives at Gold Bar targeted to support the turnaround of the operations, which includes but are not limited to the following: improving contractor mining efficiencies, processing optimizations and ongoing exploration drilling targeting potentially economic near term gold production mineralization.

During Q4/20 and into Q1/21, a final updated resource model and updated resource and reserve estimates were completed which provided us with a more accurate model to plan from moving forward as compared to the 2018 feasibility study. A

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feasibility study update for Gold Bar was filed on February 22, 2021. The following are key points noted in the updated technical report:

With respect to our operational experience at Gold Bar, the majority of material mined during 2020 was from the Pick West pit with the remainder of the Cabin reserve being mined and completed in Q1. The transition in 2020 to mining from the Pick West pit has returned lower ore tonnes, gold grade and contained ounces from the upper benches as compared to the feasibility block model. This is due to greater structural control of the mineralization than was previously expected, but which was exposed in the newly developed pit. Due to the differences observed between the modeled and mined ore tonnage and grade from the Pick West pit, the reserve estimate as at December 31, 2018 and the future mine plan were re-evaluated. Remodeling of these deposits have been completed in-house and reviewed by an independent third party engineering firm. Optimization of this reserve will continue into 2021 to improve ore deliveries to the pad.

Revenue from gold and silver sales increased by $5.1 million compared to 2019. The increase is attributed to the higher average realized gold prices in 2020 partially offset by lower gold equivalent ounces sold. The decrease in ounces sold is as a result of the COVID-19 restrictions and the underperformance of Pick West actual mining to plan as discussed above.

Production costs applicable to sales was $58.5 million for 2020 versus $33.6 million in 2019. The production cost variance from year to year is related mainly to the start of leach pad stacking in 2019 and as a result a significant portion of those costs were recognized on the balance sheet as build up of inventory, whereas, in 2020 there were higher costs related to the historically mined gold ounces being drawn down from the heap leach and in-circuit inventory balances and recognized in production costs.

Cash cost and AISC per gold equivalent ounce of $2,106 and $2,459 were negatively impacted by the lower ore tonnes mined and placed on the heap leach pad at a decreased grade, as noted above. They were also impacted by $4.5 million of pre-strip costs and $12.4 million in write-downs of the stockpile, heap leach and in-circuit inventory balances. Higher costs were partially offset by work force and contractor reductions.

Gold Bar mine impairment

In Q1/20, we recorded an impairment charge of $83.8 million based on the preliminary revised mine plan, which indicated a significant reduction in contained ounces relative to the 2018 reserve estimate. The impairment charge reduced the carrying value of the Gold Bar mineral property interests and plant and equipment.

Evaluation of the resource estimate continued through the fourth quarter of 2020 and an updated resource and reserve estimate and feasibility study update for Gold Bar Mine was filed on February 22, 2021, with economic highlights noted above.

Exploration Activities – Nevada

In 2020, we spent $5.1 million on exploration activities in and around the Gold Bar mine. This is compared to the $7.2 million spent on exploration activities in Nevada in 2019.

The exploration activities in 2020 included 110,500 feet (33,700 m) of drilling and metallurgical testing to support the updated Reserve estimates. The drilling program included 64,000 feet (19,500 m) at the Pick deposit, 35,000 feet (10,700 m) at Gold Bar South, and an ongoing drill program at the Gold Ridge deposit with 11,500 feet (3,500 m) drilled to date.

Drilling at Gold Bar South has successfully advanced the project and is expected to contribute to Gold Bar mine’s future production. Subject to the receipt of permit approvals as planned, the mining of Gold Bar South could begin as early as in Q1 2022.

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Canada Segment

The Canada segment is comprised of the Fox Complex, which includes the Black Fox gold mine, the Froome underground mine development and the Grey Fox and Stock advanced-stage projects, the Stock mill, and other gold exploration properties located in Timmins, Ontario, Canada.

Black Fox mine and Froome mine development

The Black Fox mine plan currently shows production winding down in H1 2021 while exploration will continue following up on known target areas with the aim to extend potentially economic mineralization and mine life. There are 111,000 ounces in the life of mine plan at the Froome Project and with more surface and underground exploration drilling planned to extend the Froome deposit near existing and planned infrastructure. Underground development will continue to advance towards the deposit in 2021. We expect to reach the main deposit in early Q2 2021, and achieve commercial production in Q4 2021.

The following table sets out operating results for the Black Fox mine for the three months ended December 31, 2020 and 2019, and the years ended December 31, 2020, 2019, and 2018:

Three months ended December 31, Year ended December 31,

Operating Results (in thousands, unless otherwise indicated)

Gold equivalent ounces:

2020 compared to 2019

Production decreased by 11,300 gold equivalent ounces or 32% mainly due to lower gold grades processed in 2020. In addition, mined mineralized tonnes were negatively impacted by a suspension of mining activities due to COVID-19. In the second half of the year, grade reconciliation and performance improved following more drill accesses and tighter drill spacings, a greater number of mining headings available, improved sequencing and timing, improved resource modelling accuracy and improved grade control and mining practices.

Revenue from gold and silver sales decreased by $8.6 million or 17% in 2020 compared to 2019. The change reflects a 12,923 gold equivalent ounce decrease in sales due to the technical and operational issues discussed above, partially offset by an increase in average gold price realized.

Production costs applicable to sales increased by $3.5 million or 11% compared to 2019, despite fewer gold ounces produced and sold. The increase in production costs applicable to sales is due to underground development costs being expensed as incurred due to the end of mine life.

All-in sustaining costs decreased by $5.3 million or 11% to $40.9 million in 2020, compared to 2019, due to lower sustaining capital expenditures. All-in sustaining cost per gold equivalent ounce increased in 2020 to $1,650/oz versus $1,225/oz in 2019, primarily due to 34% less gold equivalent ounces sold in 2020.

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Froome Underground Mine Development

The Froome deposit which is part of the overall Fox Complex, is accessed from two declines at the bottom of the Black Fox pit and situated approximately one-half mile west of the Black Fox mine. The mineralized material from Froome will be hauled approximately 20 miles to the Stock Mine mill, where it will be processed.

We expect that the Froome underground decline development will access the deposit in early Q2 2021 and as of December 31, 2020 has advanced 76% of the plan. Life of mine production from the Froome deposit is estimated to be approximately 2.5 years and low cost, bulk mining is expected to bridge gold production providing cashflow while we continue to drill and assess potential additional resources at the Black Fox, Grey Fox, Stock and Lexam projects for future development towards expanded production.

We expect that operational synergies through shared resources and infrastructure with the ongoing production of the Fox Complex will improve the production and cost profile for the combined projects.

Exploration Activities and Expansion Study – Timmins

We remain focused on our principal exploration goal of cost-effectively discovering and extending gold deposits adjacent to our existing operations to contribute to near-term gold production. We incurred $6.5 million in 2020 for exploration initiatives, compared to $25.8 million in 2019.

Black Fox mine

In the first half of 2020, underground drilling at the Black Fox Mine continued to return encouraging high-grade intercepts at depth before being transitioned to infill drilling for near term production opportunities. The exploration activities during 2020 were confined to 42,526 feet (12,962 meters) of underground diamond drilling and related sample analysis in order to discover and identify additional mineralization adjacent to the Black Fox ore body. There is a strong potential to extend the mineralization to greater depths as well as towards the western margin of the ore body, as the mineralization remains open in all directions.

Grey Fox project

Exploration drilling commenced within the northern portion of the Grey Fox mineralization in August 2020. One drill rig was primarily focused on advancing the Whiskey Jack discovery made in late 2019, coring 16,634 feet (5,070 meters) prior to its transfer to our Stock exploration site.

Highlights of the Whiskey Jack drilling campaign were presented in our October 16, 2020 news release.

Stock property

The Stock exploration area sits adjacent to our Stock mill, which currently processes ore from our Black Fox mine. This facility processed ore from the historical underground Stock mine, which operated intermittently from the early 1980s until 2004, generating a total of 137,000 ounces of gold.

The Stock West mineralized zone was discovered in mid-2019; in 2020 five drill rigs completed 53,642 feet (16,350 meters) of follow-up drilling. Initial results suggest the potential to define a significant new zone of mineralization 800m (1/2 mile) from our Stock processing facility.

We returned our efforts to this high-priority target in late August by adding four surface drill rigs. The majority of our Q4 drilling was designed to infill the gaps between our encouraging 2019 intercepts. This will increase the density of the data needed to develop a 3D model and to generate an initial resource estimate. Four contracted drill rigs completed a total of 58,593 feet (17,859 meters) by year-end. Drill crews returned to site in early January 2021 as we continue to advance the potential of the Stock property. Assuming this drilling is successful in identifying sufficient gold to support a decision to re-open the historic Stock Mine, we are well positioned to act quickly and begin dewatering the mine in the second half of 2021. Previously the mine was dewatered in just 4 months through the existing shaft workings.

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Fox Complex Expansion – Economic Study

We have engaged an independent engineering group to complete a Preliminary Economic Assessment (PEA) on the Grey Fox - Black Fox, Stock and Timmins resources utilizing our existing central milling capacity. The PEA is expected to be completed in the second quarter of 2021. The objective of the PEA is to develop a plan for the Fox Complex over a 10-year life. Production growth is envisioned to start ramping up in 2022.

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Mexico Segment

The Mexico segment includes the El Gallo Project (formerly “El Gallo 1” or “El Gallo Mine”) and the advanced-stage Fenix Project, located in Sinaloa.

El Gallo Project

Current activities at the El Gallo Project are limited to residual leaching as part of closure and reclamation plans.

The following table summarizes certain operating results at the El Gallo Project for the three months ended December 31, 2020 and 2019, and for the years ended December 31, 2020, 2019, and 2018:

Three months ended December 31, Year ended December 31,

Operating Results (in thousands, unless otherwise indicated)

Gold ounces:

Silver ounces:

Gold equivalent ounces:

Cash costs and All-in-sustaining costs and Cash cost and AISC per gold equivalent ounce

As the El Gallo Project’s gold and silver production and sales are the result of residual leaching activities, we have ceased relying on, and disclosing, cash cost and all-in sustaining cost per gold equivalent ounce as key metrics for the Project. The economics of residual leaching are measured by incremental revenues exceeding incremental costs; residual leaching is expected to continue as long as incremental revenues exceed incremental costs. Cash costs and all-in sustaining costs include, in addition to current period residual leaching costs, prior-year leach pad inventory costs expensed in the current period, with the latter not relevant on the evaluation of the economics of the residual leaching operations. Residual leaching costs for the year ended December 31, 2020 were $11.4 million, or $1,409 per gold equivalent ounce.

El Gallo project recoveries

Due to long process cycles, actual recoveries from the heap are difficult to measure and may fluctuate significantly based on the timing, quantity and metallurgical attributes of the mineralized material placed on the leach pads, among other variables. The cumulative recovery rate realized for gold production from September 1, 2012 (start of production) to December 31, 2020 including residual heap leaching activities following the cessation of mining activities in the second quarter of 2018, is estimated at 65%.

The residual leaching activities in El Gallo are expected to continue in 2021 or until it remains economical.

2020 compared to 2019

Production and revenue continued to decrease in 2020 reflecting the prior cessation of active mining as the operation moved into residual heap leaching in mid-2018. The decrease in revenue was due to the decrease in production of 50% partially offset by a higher average realized gold price.

Costs increased in 2020 due to a $1.7 million write-down of the stockpile, heap leach and in-circuit inventory balances.

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Advanced-Stage Properties – Fenix Project

McEwen Mining announced on December 31, 2020 the results of a feasibility study for the development of its 100%-owned Fenix Project, which includes the El Gallo Gold and El Gallo Silver deposits, located in Sinaloa, Mexico.

The study envisions a 9.5-year mine life with an attractive after-tax IRR of 28% using $1,500/oz gold and $17/oz silver, with an estimated initial capital expenditure of $42 million for Phase 1 and $24 million for Phase 2. The project implementation is envisioned in two distinct phases: Phase 1 (years 1 to 6) - gold production from heap leach reprocessing, and Phase 2 (years 7 to 10) - silver production from open pit mining.

The key environmental permits for Phase 1 were received in Q3 2019, including the approval for an in-pit tailings storage facility and process plant construction.

We incurred $2.5 million during 2020 on activities required to advance the Fenix Project. This compares to the $2.4 million we spent during 2019. The Fenix Project feasibility study was published on February 16, 2021.

The feasibility study is available for review on our website and SEDAR (www.sedar.com).

The Company is currently evaluating multiple financing alternatives, including the potential divestiture of our Mexican business unit.

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MSC Segment, Argentina

The MSC segment is composed of the San José mine, located in Argentina.

MSC – Operating Results

The following table sets out operating results for the San José mine for the three months ended December 31, 2020 and 2019, and for the years ended December 31, 2020, 2019, and 2018.

Three months ended December 31, Year ended December 31,

Operating Results (in thousands, except otherwise indicated)

San José Mine—100% basis

Average grade mined (gpt)

Average grade processed (gpt)

Average recovery (%):

Gold ounces:

Silver ounces:

Gold equivalent ounces:

Average realized price:

The comparative analysis below compares the operating and financial results of MSC on a 100% basis.

2020 compared to 2019

Gold and silver production decreased by 38% and 40%, respectively, in 2020 compared to 2019 as a result of a 26% decrease in processed mineralized material, coupled with 17% and 19% decreases in the average grades of gold and silver, respectively, of the mineralized material processed in 2020. The decrease in processed mineralized material reflected the suspension of mining activities due to COVID-19 followed by operating below capacity, as the ongoing countrywide restrictions on the movement of people resulted in the ramp-up being phased over a significant period of time.

Revenue from gold and silver sales decreased by 17% in 2020 compared to 2019, reflecting fewer gold equivalent ounces sold due to lower production as noted above, partially offset by higher average realized gold and silver prices in 2020.

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Cash costs decreased by $21.7 million or 14% in 2020 compared to 2019, reflecting lower activity related to tonnes of mineralized material processed and fewer ounces produced and sold. All-in sustaining costs for 2020 decreased by $40.5 million or 19% compared to 2019, mainly due to lower cash costs, coupled with lower capitalized underground mine development and sustaining capital investment in plant and equipment.

Cash cost and all-in sustaining cost per gold equivalent ounce sold were higher for 2020 compared to 2019, as lower aggregate fixed cash costs and AISC were spread over 39% fewer gold equivalent ounces sold, as noted above.

Investment in MSC

Our 49% attributable share of operations from our investment in MSC was a loss of $1.5 million in 2020, compared to a loss of $8.8 million in 2019, reflecting a higher gross profit of $8.4 million primarily due to lower production costs, depreciation, and lower revenue. The decrease in revenue is a result of 39% lower gold equivalent ounces sold in 2020 as compared to 2019 offset by a 27% and 41% higher gold and silver price realized.

On a 100% basis, improved performance reflects significantly higher gross profit of $51.0 million in 2020 compared to $34.0 million in 2019 for the reasons as listed above.

Higher gross profit in 2020 was due primarily to higher average realized gold and silver prices, offset by lower gold and silver ounces sold. In addition, there were lower production costs applicable to sales and depreciation and depletion expense mainly as a result of lower variable costs associated with the lower production. These all were partially offset by $11.4 million operating costs due to the COVID-19 pandemic in 2020.

In 2020, on a 100% basis, MSC generated a cash gross profit of $80.8 million and incurred $22.9 million of development and other capital expenditures, $10.4 million of exploration spending and $30.5 million of other expenditures, with the latter including primarily foreign exchange losses and financing fees. Current and deferred income taxes at December 31, 2020 include current income taxes payable of $4.5 million. MSC paid $0.7 million of dividends to the joint venture partners in 2020 ($0.3 million attributable to us).

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A summary of the operating results from MSC for the years ended December 31, 2020, 2019, and 2018 is as follows:

Year ended December 31,

Minera Santa Cruz S.A. (100%)

Current and deferred tax expense (4,466) (14,556) (10,934)

Portion attributable to McEwen Mining Inc. (49%)

Amortization of fair value increments (5,390) (9,448) (9,730)

Changes in our investment in MSC for the years ended December 31, 2020 and 2019 are as follows:

Attributable net income (loss) from MSC 2,745 (2,097)

Amortization of fair value increments (5,390) (9,448)

Dividend distribution received (340) (8,877)

MSC Dividend Distribution (49%)

During 2020, we received $0.3 million in dividends from MSC, compared to $8.9 million in dividends received during 2019. Subsequent to year end on January 28, 2021, we received a dividend of $2.5 million from MSC. For more details on our Investment in MSC, refer to Note 10 to the Consolidated Financial Statements, Investment in Minera Santa Cruz S.A. (“MSC”) — San José mine.

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Los Azules Segment, Argentina

Los Azules is a copper exploration project located in San Juan, Argentina.

Los Azules Project

During 2020, work continued on preliminary engineering and developing cost estimates to advance the proposed low altitude all year access route. Most of the surveying and staking of the mining rights was completed to be able to consolidate all the mining rights into a single mining group. The Escorpio IV and Mercedes survey were complete in January 2021.

In 2021, we expect to continue baseline studies related to flora, fauna, surface water quality and archeology required by the environmental and mining authorities for the current stage of exploration. In addition, the Company is looking at a road study to reduce costs for potential drilling work campaigns.

We are currently evaluating two alternatives with regard to Los Azules to realize more value for our shareholders: one is pursuing a joint venture with a senior mining company to bring the project into production; and the other alternative is spinning out the asset into a new public company. Concurrently we are looking at opportunities to improve the economics of Los Azules with ore sorting technologies.

The preliminary economic assessment (PEA) for the Los Azules Project, completed and announced in September 2017, is available on our website at www.mcewenmining.com.

COMMITMENTS AND CONTINGENCIES

As of December 31, 2020, we have the following consolidated contractual obligations:

Payments due by period

(1) Amounts presented represent the undiscounted uninflated future payments.

Operating lease obligations include long term leases covering office space, exploration expenditures, option payments and option payments on properties.

We have surety bonds outstanding to provide bonding for our environmental reclamation obligations in the United States and Canada. These surety bonds are available for draw down in the event we do not perform our reclamation obligations. When the specific reclamation requirements are met, the beneficiary of the surety bonds will cancel and/or return the instrument to the issuing entity. As of December 31, 2020, no additional liability has been recognized for our surety bonds of $31.8 million.

Off-Balance Sheet Arrangements

As of December 31, 2020, we did not have any off-balance sheet arrangements (as that phrase is defined by SEC rules applicable to this report) which have or are reasonably likely to have a material adverse effect on our financial condition, results of operations or liquidity.

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NON-GAAP FINANCIAL PERFORMANCE MEASURES

We have included in this report certain non-GAAP performance measures as detailed below. In the gold mining industry, these are common performance measures but do not have any standardized meaning and are considered non-GAAP measures. We believe that, in addition to conventional measures prepared in accordance with GAAP, certain investors use such non-GAAP measures to evaluate the Company’s performance and ability to generate cash flow. We also report these measures to provide investors and analysts with useful information about our underlying costs of operations and clarity over the Company’s ability to finance operations. Accordingly, they are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. There are limitations associated with the use of such non GAAP measures. We compensate for these limitations by relying primarily on our U.S. GAAP results and using the non-GAAP measures supplementally.

The non-GAAP measures are presented for our wholly owned mines and our interest in the San José mine. The GAAP information used for the reconciliation to the non-GAAP measures for our minority interest in the San José mine may be found in Item 8. Financial Statements and Supplementary Data, Note 10, Investment in Minera Santa Cruz S.A. (“MSC”)– San José Mine. The amounts in the tables labeled “49% basis” were derived by applying to each financial statement line item the ownership percentage interest used to arrive at our share of net income or loss during the period when applying the equity method of accounting. We do not control the interest in or operations of MSC and the presentations of assets and liabilities and revenues and expenses of MSC do not represent our legal claim to such items. The amount of cash we receive is based upon specific provisions of the Option and Joint Venture Agreement (“OJVA”) and varies depending on factors including the profitability of the operations.

The presentation of these measures including the minority interest in the San José, has limitations as an analytical tool. Some of these limitations include:

Cash Gross Profit

Cash gross profit is a non-GAAP financial measure and does not have any standardized meaning. We use cash gross profit to evaluate our operating performance and ability to generate cash flow; we disclose cash gross profit or loss as we believe this measure provides valuable assistance to investors and analysts in evaluating our ability to finance our ongoing business and capital activities. The most directly comparable measure prepared in accordance with GAAP is gross profit or loss. Cash gross profit or loss is calculated by adding depletion and depreciation to gross profit or loss.

The following tables present a reconciliation of cash gross profit or loss to the most directly comparable GAAP measure, gross profit or loss:

Three months ended December 31, 2020 Year ended December 31, 2020

(in thousands) (in thousands)

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Three months ended December 31, Year ended December 31,

San José mine cash gross profit (100% basis) (in thousands)

Three months ended December 31, 2019 Year ended December 31, 2019

(in thousands) (in thousands)

Year ended December 31, 2018

Gold Bar Black Fox El Gallo Total (100% owned)

(in thousands)

Cash Costs and All-In Sustaining Costs

The terms cash costs, cash cost per ounce, all-in sustaining costs, and all-in sustaining cost per ounce used in this report are non-GAAP financial measures. We report these measures to provide additional information regarding operational efficiencies on an individual mine basis, and believe these measures provide investors and analysts with useful information about our underlying costs of operations.

Cash costs consist of mining, processing, on-site general and administrative expenses, community and permitting costs related to current operations, royalty costs, refining and treatment charges (for both doré and concentrate products), sales costs, export taxes and operational stripping costs, but exclude depreciation and amortization (non-cash items). The sum of these costs is divided by the corresponding gold equivalent ounces sold to determine a per ounce amount.

All-in sustaining costs consist of cash costs (as described above), plus accretion of retirement obligations and amortization of the asset retirement costs related to operating sites, environmental rehabilitation costs for mines with no reserves, sustaining exploration and development costs, sustaining capital expenditures and sustaining lease payments. Our all-in sustaining costs exclude the allocation of corporate general and administrative costs. Following is additional information regarding our all-in sustaining costs:

The sum of all-in sustaining costs is divided by the corresponding gold equivalent ounces sold to determine a per ounce amount.

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Costs excluded from cash costs and all-in sustaining costs, in addition to depreciation and depletion, are income and mining tax expense, all corporate financing charges, costs related to business combinations, asset acquisitions and asset disposal, and any items that are deducted for the purpose of normalizing items.

The following tables reconcile these non-GAAP measures to the most directly comparable GAAP measure, production costs applicable to sales; the El Gallo Project results are excluded from this reconciliation for 2020 as the economics of residual leaching operations are measured by incremental revenue exceeding incremental costs. Cash costs and all-in sustaining costs include, in addition to current period residual leaching costs, prior-year leach pad inventory costs expensed in the current period, with the latter not relevant on the evaluation of the residual leaching operations. Residual leaching costs for the year ended December 31, 2020 were $11.4 million or $1,409 per gold equivalent ounce. Residual leaching is expected to continue as long as incremental revenues exceed incremental costs. For this reason, we have ceased relying on, and disclosing, cash cost and all-in sustaining cost per gold equivalent ounce as key metrics for the El Gallo Project:

Three months ended December 31, 2020 Year ended December 31, 2020

Gold Bar Black Fox Total Gold Bar Black Fox Total

(in thousands, except per ounce) (in thousands, except per ounce)

Three months ended December 31, 2019 Year ended December 31, 2019

Gold Bar Black Fox El Gallo Total Gold Bar Black Fox Total

(in thousands, except per ounce) (in thousands, except per ounce)

In‐mine exploration — 296 — 296 — 3,726 3,726

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Year ended December 31, 2018

Gold Bar Black Fox El Gallo Total

(in thousands, except ounces and per ounce)

Mine site reclamation, accretion and amortization — 656 343 999

Ounces sold, including stream (Au Eq. oz) — 51.0 51.7 102.7

Cash cost per ounce ($/Au Eq. oz sold) $ — $ 845 $ 733 $ 789

AISC per ounce ($/Au Eq. oz sold) $ — $ 1,137 $ 771 $ 952

Three months ended December 31, Year ended December 31,

San José mine cash costs (100% basis) (in thousands, except per ounce)

Average realized prices

The term average realized price per ounce used in this report is also a non-GAAP financial measure. We prepare this measure to evaluate our performance against market (London P.M. Fix). Average realized price is calculated as gross sales of gold and silver, less streaming revenue, divided by the number of net ounces sold in the period, less ounces sold under the streaming agreement.

The following table reconciles this non-GAAP measure to the most directly comparable U.S. GAAP measure, revenue from gold and silver sales. Ounces of gold and silver sold for the San José mine are provided to us by MSC.

Three months ended December 31, Year ended December 31,

Average realized price - 100% owned (in thousands, except per ounce)

Less: gold ounces sold, stream 0.6 0.6 2.1 2.8 4.1

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Three months ended December 31, Year ended December 31,

Liquid assets

The term liquid assets used in this report is also a non-GAAP financial measure. We report this measure to better understand our liquidity in each reporting period.

Liquid assets are calculated as the sum of the Balance Sheet line items of cash and cash equivalents, restricted cash and investments, plus ounces of doré held in precious metals inventories valued at the London PM Fix spot price at the corresponding period. The following table summarizes the calculation of liquid assets as at December 31, 2020 and 2019:

December 31,

(in thousands)

Restricted cash 3,595 48

Investments - 1,885

Precious Metals valued at market value (1)(2) 1,412 1,329

CRITICAL ACCOUNTING ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in conformity with U.S. GAAP. The preparation of these statements requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We base these estimates on historical experience and on assumptions that we consider reasonable under the circumstances; however, reported results could differ from those based on the current estimates under different assumptions or conditions. The summary of our significant accounting policies is detailed in Note 2 of the Consolidated Financial Statements.

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We believe that significant areas requiring the use of management estimates and assumptions relate to environmental reclamation and closure obligations; asset useful lives utilized for depletion, depreciation, amortization and accretion calculations; the fair value of equity investments and asset groups used in impairment testing; recoverable gold in leach pad inventory; current and long-term inventory and mine development capitalization costs; the collectability of value added taxes receivable; fair values of assets and liabilities acquired in business combinations; reserves; valuation allowances for deferred tax assets; income and mining tax provisions and reserves for contingencies and litigation. There are other items within our financial statements that require estimation, but are not deemed to be critical. However, changes in estimates used in these and other items could have a material impact on our financial statements. In the section below we identify estimates critical to the understanding of our financial condition and results of operations and that require the application of significant management judgment.

Asset Retirement Obligation, reclamation and remediation costs: The Company records the fair value of a liability for an asset retirement obligation (“ARO”) in the period that it is incurred if a reasonable estimate of fair value can be made. The Company prepares estimates of the timing and amounts of expected cash flows when an ARO is incurred, which are updated to reflect changes in facts and circumstances. Estimation of the fair value of AROs requires significant judgment, including amount of cash flows, timing of reclamation, inflation rate and credit risk. Accrued reclamation and closure costs can represent a significant and variable liability on our balance sheet. The company has estimated its liabilities under appropriate accounting guidance, and on at least an annual basis reviews its liabilities. However, the ranges of liability could exceed the liabilities recognized. If substantial damages were awarded, claims were settled, or remediation costs incurred in excess of our accruals, our financial results or condition could be materially adversely affected.

Mineral property interests, Plant and Equipment and Mine Development costs: The Company amortizes its mineral property interests, plant and equipment, and mine development costs using the most appropriate method, which includes the units-of-production method over the estimated life of the mine or ore body based on recoverable ounces to be mined from proven and probable reserves, or the straight-line method over the useful life. The accounting estimates related to amortization are critical accounting estimates because (1) the determination of reserves involves uncertainties with respect to the ultimate geology of its reserves and the assumptions used in determining the economic feasibility of mining those reserves and (2) changes in estimated proven and probable reserves and asset useful lives can have a material impact on net (loss) income.

Estimates regarding mine development capitalization costs involve the determination of proven and probable reserves.

Impairment of Long-lived Assets: The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Once it is determined that impairment exists, an impairment loss is measured as the amount by which the asset carrying value exceeds its fair value.

For asset groups where an impairment loss is determined using the undiscounted future net cash flows method or discounted future net cash flows method, future cash flows are estimated based on quantities of recoverable mineralized material, expected gold and silver prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine plans. The term “recoverable mineralized material” refers to the estimated amount of gold or other commodities that will be obtained after taking into account losses during processing and treatment. The Company’s estimates of future cash flows are based on numerous assumptions and uncertainties. It is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, gold, silver and other commodity prices, production levels and costs of capital are each subject to significant risks and uncertainties.

Stockpiles, Material on Leach Pads, In-process Inventory, Precious Metals Inventory and Materials and Supplies: Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, an estimate of the contained metals (based on assay data) and the estimated metallurgical recovery rates. Costs are allocated to stockpiles based on current mining costs incurred including applicable overhead relating to mining operations.

Costs are attributed to the mineralized material on leach pads based on current mining costs incurred up to the point of placing the ore on the pad. Costs are removed from the leach pad inventory based on the average cost per estimated recoverable ounce of gold on the leach pad as the gold is recovered. The estimates of recoverable gold on the leach pads are calculated from the quantities of mineralized material placed on the leach pads (measured tonnes added to the leach pads), the grade of mineralized material placed on the leach pads (based on assay data) and a recovery percentage.

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Although the quantities of recoverable gold placed on the leach pads are reconciled by comparing the grades of ore placed on the pads to the quantities of gold actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and the engineering estimates are refined based on actual results over time.

In-process material is measured based on assays of the material from the various stages of processing. Costs are allocated to in-process inventories based on the costs of the material fed into the process attributable to the source material coming from the mines, stockpiles and/or leach pads plus the in-process conversion costs incurred to that point in the process.

Costs are allocated to precious metal inventories based on costs of the respective in-process inventories incurred prior to the refining process plus applicable refining costs.

The assumptions used by the Company to measure metal content during each stage of the inventory conversion process includes estimated recovery rates based on laboratory testing and assaying. The Company periodically reviews its estimates compared to actual experience and revises its estimates when appropriate. The ultimate recovery will not be known until leaching operations cease.

Proven and Probable Reserves: Critical estimates are inherent in the process of determining the Company’s reserves. The Company’s reserves are affected largely by our assessment of future metals prices, as well as by engineering and geological estimates of ore grade, accessibility and production cost. The Company’s assessment of reserves occurs at least annually, and periodically utilizes external audits.

Reserve estimates are used in determining appropriate rates of units-of-production depreciation, with net book value of many assets depreciated over remaining estimated reserves. Reserves are also a key component in forecasts, with which the Company compares future cash flows to current asset values in an effort to ensure that carrying values are reported appropriately. The Company’s forecasts are also used in determining the level of valuation allowances on the Company’s deferred tax assets. Reserves also play a key role in the valuation of certain assets in the determination of the purchase price allocations for acquisitions. Reserves involve many estimates and are not guarantees that the Company will recover the indicated quantities of metals. Changes in reserve estimates could result in material adjustments to the Company’s reserve estimates.

Income and Mining Taxes: The Company accounts for income and mining taxes under ASC 740 using the liability method, recognizing certain temporary differences between the financial reporting basis of liabilities and assets and the related tax basis for such liabilities and assets. This method generates either a net deferred income and mining tax liability or asset for the Company, as measured by the statutory tax rates in effect. The Company derives the deferred income and mining tax charge or benefit by recording the change in either the net deferred income and mining tax liability or asset balance for the year. The Company records a valuation allowance against any portion of those deferred income and mining tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income and mining tax asset will not be realized.

Accounting for Government Assistance: The Company analogized guidance to account for the COVID-19 relief funds received from the United States Small Business Administration (“SBA”) and the Canada Revenue Agency (“CRA”). The ability to analogize standards from other GAAP sources is provisioned under ASC 105-05-2 when guidance is not provided for certain transactions under US GAAP. The adoption of the standard had a material impact on the financial statements as of December 31, 2020. Under this policy, the Company has recognized the income from the relief funds in the Statement of Operations, as the criteria for recognition of the funds have been met.

FORWARD-LOOKING STATEMENTS

This report contains or incorporates by reference “forward-looking statements”, as that term is used in federal securities laws, about our financial condition, results of operations and business. These statements include, among others:

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These statements may be made expressly in this document or may be incorporated by reference to other documents that we will file with the SEC. Many of these statements can be found by looking for words such as “believes”, “expects”, “anticipates”, “estimates” or similar expressions used in this report or incorporated by reference in this report.

Forward-looking statements and information are based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties, risks and contingencies, and there can be no assurance that such statements and information will prove to be accurate. Therefore, actual results and future events could differ materially from those anticipated in such statements and information.

Included among the forward-looking statements and information which we may provide is production guidance. From time to time the Company provides guidance on operations, based on stand-alone budgets for each operating mine. In developing the mine production portion of the budget, we evaluate a number of factors and assumptions, which include, but are not limited to:

● gold and silver price forecasts;

● average gold and silver grade mined, using a resource model;

● expected tonnes moved and strip ratios;

● available stockpile material (grades, tonnes, and accessibility);

● estimated mill recovery rates (San José mine and Black Fox mine);

● dilution of material processed;

● internal and contractor equipment and labor availability; and

● seasonal weather patterns.

Actual production results are sensitive to variances in any of the key factors and assumptions noted above. As a result, we frequently evaluate and reconcile actual results to budgeted results to determine if key assumptions and estimates require modification. Any changes will, in turn, influence production guidance.

We caution you not to put undue reliance on these forward-looking statements, which speak only as of the date of this report. Further, the information contained in this document or incorporated herein by reference is a statement of our present intention and is based on present facts and assumptions, and may change at any time and without notice, based on changes in such facts or assumptions. Readers should not place undue reliance on forward-looking statements.

RISK FACTORS IMPACTING FORWARD-LOOKING STATEMENTS

The important factors that could prevent us from achieving our stated goals and objectives include, but are not limited to, those set forth in other “Risk Factors” section in this report and the following:

● decisions of foreign countries, banks and courts within those countries;

● unexpected changes in business, economic, and political conditions;

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● operating results of MSC;

● timing and amount of mine production;

● our ability to retain and attract key personnel;

● technological changes in the mining industry;

● changes in operating, exploration or overhead costs;

● results of current and future exploration activities;

● changes in our business strategy;

● the uncertainty of reserve estimates and timing of development expenditures;

● litigation or regulatory investigations and procedures affecting us;

● accidents, public health issues, and labor disputes;

● our continued listing on a public exchange;

● uncertainty relating to title to mineral properties; and

We undertake no responsibility or obligation to update publicly these forward-looking statements, except as required by law and may update these statements in the future in written or oral statements. Investors should take note of any future statements made by or on our behalf.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Our exposure to market risks includes, but is not limited to, the following risks: changes in foreign currency exchange rates, equity price risks, commodity price fluctuations, credit risk and inflationary risk. We do not use derivative financial instruments as part of an overall strategy to manage market risk.

Further, our participation in the joint venture with Hochschild for the 49% interest held at MSC creates additional risks because, among other things, we do not exercise decision-making power over the day-to-day activities at MSC; however, implications from our partner’s decisions may result in us having to provide additional funding to MSC or in a decrease in our percentage of ownership.

Foreign Currency Risk

In general, the devaluation of non-U.S. dollar currencies with respect to the U.S. dollar has a positive effect on our costs and liabilities which are incurred outside the U.S. while it has a negative effect on our assets denominated in non-U.S. dollar currency. Although we transact most of our business in U.S. dollars, some expenses, labor, operating supplies and property and equipment are denominated in Canadian dollars, Mexican pesos or Argentine pesos.

Since 2008, the Argentine peso has been steadily devaluing against the U.S. dollar by 10% to 53% on an annual basis. As noted in the graph below, during 2020 the Argentine peso devalued 29% compared to devaluations of 37% and 53% in 2019 and 2018 respectively. During 2020, the Mexican peso devalued 5% against the US dollar, compared to an increase in value of 5% in 2019 and a decrease in value of 5% in 2018.

During 2020, the Canadian dollar increased in value by 2%, compared to the same increase in value of 2% in 2019 and a decrease in value of 5% in 2018.

The following table illustrates changes in the value of these currencies compared to the U.S. dollar in the twelve months ended December 31, 2020:

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The value of cash and cash equivalents denominated in foreign currencies also fluctuates with changes in currency exchange rates. Appreciation of non-U.S. dollar currencies results in a foreign currency gain on such investments and a depreciation in non-U.S. dollar currencies results in a loss. We have not utilized material market risk-sensitive instruments to manage our exposure to foreign currency exchange rates but may do so in the future. We hold minor portions of our cash reserves in non-U.S. dollar currencies.

Based on our Canadian cash balance of $10.7 million (C$13.6 million) at December 31, 2020, a 1% change in the Canadian dollar would result in a gain/loss of $0.1 million in the Consolidated Statements of Operations and Comprehensive (Loss) Income. We also hold negligible portions of our cash reserves in Mexican and Argentine pesos, with effect of a 1% change in these respective currencies resulting in gains/losses immaterial for disclosure purposes.

Further, we are also subject to foreign currency risk on the fluctuation of the Mexican peso on our VAT receivable balance. As of December 31, 2020, our VAT receivable balance was 18,250,711 Mexican pesos, equivalent to approximately $0.9 million, for which a 1% change in the Mexican peso would have resulted in a gain/loss of less than $0.1 million in the Consolidated Statements of Operations and Comprehensive (Loss) Income.

MSC holds a portion of its local cash balances in Argentine pesos and is therefore exposed to the effects of this continued devaluation and also the risk that there may be a sudden severe devaluation of the Argentine peso. A severe devaluation could result in material foreign exchange losses as reported in U.S. dollars.

Equity Price Risk

We have in the past sought and will likely in the future seek to acquire additional funding by sale of common stock or other equity securities. Movements in the price of our common stock have been volatile in the past and may also be volatile in the future. As a result, there is a risk that we may not be able to sell equity securities at an acceptable price to meet future funding requirements.

MUX US Equity

MUX · 10-K · period ended 2020-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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MUX · 10-K · period ended 2020-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

MUX US Equity