THE SILVER MARKET IN 2016 Johann Wiebe Senior Analyst, Precious Metals Demand

The Silver Institute - 2016 Interim Report November 16, 2016

REAL GDP GROWTH 12 Emerging Countries

10

Advanced Economies

% YOY

8 6 4 2 0 -2 -4 2007

2008

Source: IMF WEO

2009

2010

2011

2012

2013

2014

2015 2016F

GROWTH IN PHYSICAL SILVER DEMAND 40

Emerging Countries

30

Advanced Economies

% Change

20 10 0

-10 -20 -30 -40

2007

2008

2009

Source: GFMS, Thomson Reuters

2010

2011

2012

2013

2014

2015 2016F

WORLD SILVER SUPPLY AND DEMAND Moz Mine Production

2012

2013

2014

2015

2016f

%∆2015

%∆2012

790.8

823.7

868.0

893.0

887.4

-0.6%

12.2%

1,006.6

988.9

1,053.0

1,046.4

1,012.4

-3.2%

0.6%

Jewelry & Silverware

229.1

276.6

284.7

289.1

257.6

-10.9%

12.4%

Coins & Bars

159.6

241.9

236.5

292.4

222.0

-24.1%

39.1%

Industrial Fabrication

615.0

619.1

611.2

588.9

585.1

-0.6%

-4.9%

1,003.7

1,137.6

1,132.4

1,170.3

1,064.6

-9.0%

6.1%

2.9

- 148.7

- 79.3

- 124.0

- 52.2

na

na

31.15

23.79

19.08

15.68

17.15

9.4%

-44.9%

Total Supply

Physical Demand Physical Surplus/Deficit Annual Average Silver Price $/oz

Source: GFMS, Thomson Reuters

THE SILVER MARKET IN 2016 • SILVER PRICES • DEMAND

• SUPPLY • INVESTMENT

• PRICE OUTLOOK

US DOLLAR SILVER PRICES (As of 15th Nov)

*intra-period change refers to difference between the last business day and the first business day of the year

Source: Thomson Reuters Eikon

LONG TERM GOLD/SILVER RATIO (BASIS MONTHLY AVERAGE PRICES)

Source: Thomson Reuters Eikon

THE SILVER MARKET IN 2016 • PRICES • DEMAND

• SUPPLY • INVESTMENT

• OUTLOOK

WORLD PHYSICAL SILVER DEMAND FORECAST ANNUAL CHANGES: 2016F LESS 2015 (Moz) 0 -10

-13.9

-17.7

-3.8

-20

-1.1

Moz

-30 -40 -50 -60

-70.3

-70 -80

Jewellery

Source: GFMS, Thomson Reuters

Coins & Bars

Silverware

Industrial Photography Fabrication (minus Photography)

INDUSTRIAL FABRICATION FORECAST ANNUAL CHANGES: 2016F LESS 2015 (Moz) 10 8.1

8 6 Moz

4 2

0.0

0 -2 -4

-1.1 -2.1 -3.9

-4.7

-6 Electrical & Electronics

Brazing Alloys & Solders

Source: GFMS, Thomson Reuters

Photography

Solar

Ethylene Oxide Catalyst

Other Industrial Application

SOLAR DEMAND - SILVER POWDER PRODUCTION 90

Japan

United States

China

Silver Demand (Moz)

80 70 60 50

41%

68% 60%

40

39%

52% 43%

30 20 10

32%

39%

45%

2011

2012

2013

45%

2014

48%

45%

2015

2016F

0

Source: GFMS, Thomson Reuters

GLOBAL COIN SALES 35

N America

Europe

Asia

Other

Coin Sales Moz

30 25 20 15

10 5

0 08-Q1 09-Q1 10-Q1 11-Q1 12-Q1 13-Q1 14-Q1 15-Q1 16-Q1 *Excludes Commemorative and China Mint coins

Source: GFMS, Thomson Reuters – Quarterly Coin Sales Survey

WORLD PHYSICAL SILVER DEMAND FORECAST ANNUAL CHANGES: 2016F LESS 2015 (Moz) 10 0.3

0 -1.8

-10

Moz

-20

-2.9

-15.3 -25.9

-30 -40 -50 -60 -60.1

-70 China

India

North America

Europe

Japan

ROW

Source: GFMS, Thomson Reuters

DEMAND SUMMARY

•

Strong decline in physical bar and coin demand following last years' stellar growth

•

Jewelry fabrication struggling to recover with weak demand out of Asia and a looming stock overhang

•

Solar demand positive outlier this year driven in large by capacity expansions in China

•

The continued shift toward smaller mobile devices and away from larger desktop computers will remain intact, weighing on electronics demand growth

THE SILVER MARKET IN 2016 • PRICES • DEMAND

• SUPPLY • INVESTMENT

• OUTLOOK

MINE PRODUCTION WINNERS AND LOSERS H1 2015 VERSUS H1 2016

SILVER MINE PRODUCTION BY REGION Rest of the World

Mexico

Peru

Chile

China

Russia

Australia

1,000 900 800 700 Moz

600 500 400 300 200 100 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E Source: GFMS, Thomson Reuters

SILVER MINE PRODUCTION BY SOURCE METAL other 0.6% gold 12.5% primary 30.4% copper 22.1%

lead/zinc 34.4%

Source: GFMS, Thomson Reuters

TOTAL CASH COSTS NET OF BYPRODUCTS

Source: GFMS, Thomson Reuters

TOTAL CASH COST ON A COPRODUCT BASIS + CAPEX

Source: GFMS, Thomson Reuters

WORLD SILVER SCRAP SUPPLY

Moz

India

Europe

North America

ROW

Share of Total Supply

300

30

250

25

200

20

150

15

100

10

50

5

0

0

%

China

Source: GFMS, Thomson Reuters

OUTSTANDING DELTA ADJUSTED PRODUCERS HEDGE POSITION 60

Net Hedging Moz year-on-year change

40 20 -20 -40

Net De-hedging

-60 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: GFMS, Thomson Reuters

SUPPLY SUMMARY

•

We estimate that mine supply peaked in 2015 and will trend lower in the foreseeable future.

•

Supply from scrap is expected to stabilize around 2016 levels in the

medium term.

•

The hedge book remains at low levels and hedging is not forecast to return to the market in strength.

•

Government sales are not expected to be a feature of the market in the years ahead .

•

Declining total supply is expected to be a key driver of annual deficits in

the silver market going forward.

THE SILVER MARKET IN 2016 • PRICES • DEMAND

• SUPPLY • INVESTMENT

• OUTLOOK

WORLD SILVER IDENTIFIABLE INVESTMENT VOLUME AND VALUE 300

9

Coins & Bars ETP Inventory Build Total Identifiable Investment in US$ Bn (RHS)

8 7

250

6

Moz

200

5 150 4 100

US$ Bn

350

3

50

2

0

1

-50

0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Identifiable Investment is the sum of bars, coins and ETPs.

Source: GFMS, Thomson Reuters

INVESTORS’ POSITIONS IN COMEX SILVER FUTURES & OPTIONS

As of 15th November

Thomson Reuters Datastream

ABOVE GROUND STOCKS 3,000 2,500

Industry Exchange Custodian Vaults

Government ETPs

*

2,000

Moz

1,500 1,000 500 0 2007

2008

2009

2010

2011

As of end-Q3. Custodian vault figures exclude ETF holdings

2012

2013

2014

2015 2016F

Source: GFMS, Thomson Reuters

THE SILVER MARKET IN 2016 • PRICES • DEMAND

• SUPPLY • INVESTMENT

• OUTLOOK

OUTLOOK

• •

• • •

The sluggish sentiment in Asia has had a significant impact on silver offtake in 2016, a theme expected to persist in 2017, albeit to a lesser extent. Physical demand is expected to pick up again (Europe) supported by short term falling prices. PV demand in the solar sector is expected to continue to be the star performer of industrial offtake. Mine supply is expected to decline in the long run and we believe that 2016 was the beginning of this protracted decline. Meanwhile, scrap levels are expected to stabilize. Above ground stocks are expected to flat line going forward amid a chronic shortfall of supply against physical demand. This will provide support to prices in the long run

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