Silver InstituteInterim Silver Market Review 2019

Philip Newman, Metals Focus

November 19th 2019, New York

About Metals Focus

2

• Independent & specialized; focused only on precious metals

• Large, highly experienced team of analysts: 25 in seven countries

• Extensive travel program to gather data & information

3

Silver now holding in a higher range

Source: Bloomberg

12

13

14

15

16

17

18

19

20

Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19

US$/oz

4

Headwinds from equites, but safe haven demand also rising

Source: Bloomberg

2,300

2,400

2,500

2,600

2,700

2,800

2,900

3,000

3,100

3,200

48

50

52

54

56

58

Oct-17 Feb-18 Jun-18 Oct-18 Feb-19 Jun-19 Oct-19

S&P 500Bonds ($Trn)

Bloomberg-Barclays global investment grade aggregate

S&P 500

5

German yields reach new low, while VIX also remains low

Source: Bloomberg

-1.0

-0.5

0.0

0.5

1.0

Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19

%

10152025303540

Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19

German 10-Year Bund Yields

VIX Index

6

Negative yielding debt has surged

Source: Bloomberg

4

6

8

10

12

14

16

18

Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19

$Trn

Global negative yielding debt market size

7

Silver had also started to outperform gold

Source: Bloomberg

70

75

80

85

90

95

8

Base metals weakness had been a problem for silver

Source: Bloomberg

Index

75

80

85

90

95

100

105

110

115

120 LME Index Silver Gold

9

But the ratio remains historically high

Source: Bloomberg

20

30

40

50

60

70

80

90

100

110

10

Investor positioning has improved noticeably

Source: Bloomberg

13

14

15

16

17

18

19

20

21

-300

-200

-100

0

100

200

300

400

500

600

Nov-16 Nov-17 Nov-18 Nov-19

Net Long Silver Price (RHS)

Moz US$/oz

11

ETP holdings at close to record highs

Source: Bloomberg

0

5

10

15

20

25

30

0

100

200

300

400

500

600

700

800Value ($bn)Moz

12

Mine production eases back further in 2019

Source: Metals Focus

0

100

200

300

400

500

600

700

800

900

2010 2012 2014 2016 2018

Moz At start of 2019, several key

producers forecasting increased production which, following three years of losses, had potential to support a return to growth for silver mine supply.

However, community protests and strikes across South America, a blockade at Peñasquito and lower than expected grades at Uchucchacua, Fresnillo and Saucitohave weighed on global output.

13

Mine production eases back further in 2019

Source: Metals Focus

0

100

200

300

400

500

600

700

800

900

2010 2012 2014 2016 2018

Moz Production expected to fall 0.7% to

849.3Moz.

However, major uncertainties remain for Q4 and the annual total will be dictated by the resumption of disrupted operations and key mines achieving grade targets.

Declines from Peru (-13Moz), Mexico (-4Moz) and Indonesia (-3Moz) to offset growth from Australia (+5Moz), Argentina (+4Moz) and the US (+4Moz).

All-in Sustaining Costs – Primary Silver Mines

14

• H1.19 AISC rose 32% y/y to $10.85/oz. • Costs up partly due to higher input costs (wages, electricity, fuel, grinding media,

sodium cyanide), along with lower by-product credits due to lower base metal prices.

Note: costed production = c.80% of primary silver supply.Source: Metals Focus – Silver Mine Cost Service

-20

-10

0

10

20

30

40

0% 25% 50% 75% 100%

US$/oz

Cumulative Silver Production / Market Share

AISC - H1.18AISC - H1.19

Average H1.19 Silver Price ($15.23/oz)

Primary Silver Industry Cost Index

15Source: Metals Focus – Silver Mine Cost Service

-40%-30%-20%-10%

0%10%20%30%40%

Q1 12 Q1 13 Q1 14 Q1 15 Q1 16 Q1 17 Q1 18 Q1 19

Y/Y impact (weighted currencies & CPI)

Xrate Impact YoY CPI adjusted Xrate QoQ Chg Silver price yoySource: Skarn Associates, Bloomberg

• The impact of weaker FX less of an issue in 2019 vs 2018• Mines still seeing cost inflation in key inputs. Increased gold by-product credits and

the exit of high cost supply will benefit industry costs towards end-2019.• Most important though is the impact of higher H2.19 silver prices.

16

Global supply summary

Source: Metals Focus

1,024

+0.8 +0.3

-5.8

1,019

1,000

1,005

1,010

1,015

1,020

1,025

1,030

2018 Scrap ProducerHedging

MineProduction

2019E

Moz

17

Industrial demand – the trade war takes its toll

Source: Bloomberg

-6

-4

-2

0

2

4

6

8

10

Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

Y/Y % change

US Germany Japan

Source: Metals Focus, Precious Metals Commodity Management LLC, LMC Automotive. * passenger and light commercial. ** excludes conductive pastes in demisting applications.

18

Automotive offtake: the new star in emerging uses?In

dex:

201

0 =

100

• rising global incomes lift sales of upper end cars• infotainment systems’ spread down the price scale • adoption of new devices (e.g. sensors) • battery electric vehicles’ novel demand

80

100

120

140

160

180

200

220

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

vehicle production* silver use in automotive**

Source: Metals Focus, various19

Photovoltaics - still a clear success story

0

20

40

60

80

100

120

140

0

20

40

60

80

100

120

2010 2012 2014 2016 2018 2020

GWIn

dex

(201

0=10

0)

PV Installations Silver use per watt (index)

20

Industrial Demand – remains near record highs

Source: Metals Focus

0

100

200

300

400

500

600

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F

Moz

Electrical & Electronics Brazing Alloys Other Industrial

Source: Metals Focus21

Jewelry & silverware’s dependence on India

0

50

100

150

200

250

300

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F

Other jewelry India jewelry Other silverware India silverwareMoz

22

Bar and coin investment still short of recent peaks

0

50

100

150

200

250

300

350

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F

Other Europe India US

Moz

Source: Metals Focus

23

Global demand summary

Source: Metals Focus

992

1,002

-0.4 -1.1

-8.7

+12.3

+8.3

980

985

990

995

1,000

1,005

1,010

1,015

2018 PhysicalInvestment

Jewelry &Silverware

IndustrialPhotography

ProducerDe-Hedging

2019E

Moz

24

Silver remains in surplus

10

15

20

25

30

35

40

-60

-40

-20

0

20

40

60

80

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F

Balance Silver Price

Moz $/oz

Surplus

Deficit

Source: Metals Focus

25

As the surplus grows in 2019, stocks continue to rise

Source: Bloomberg, LBMA

80

160

240

320

Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19

Moz

900

1,000

1,100

1,200

Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19

Moz

LBMA

COMEX

26

Gold Forecast, 2019: $1,400, +10%

Source: Metals Focus

1,200

1,350

1,500

1,650

May-19 Aug-19 Nov-19 Feb-20 May-20 Aug-20

Spot/Average High Low

27

Silver Forecast, 2019: $16.20, +3%

Source: Metals Focus

13

14

15

16

17

18

19

20

21

May-19 Aug-19 Nov-19 Feb-20 May-20 Aug-20

Spot/Average High Low

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Disclaimer & Copyright @ Metals Focus Ltd, 2019

Although every effort has been made to undertake this work with care and diligence, Metals Focus Ltd cannot guarantee the accuracy of any forecasts or assumptions. Nothing contained in this presentation constitutes an offer to buy or sell securities or commodities and nor does it constitute advice in relation to the buying or selling of investments. It is published only for informational purposes. Metals Focus Ltd does not accept responsibility for any losses or damages arising directly or indirectly from the use of this presentation.