THE SILVER MARKET IN 2016

Johann Wiebe

Senior Analyst, Precious Metals Demand

The Silver Institute - 2016 Interim Report

November 16, 2016

REAL GDP GROWTH

-4

-2

0

2

4

6

8

10

12

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F

Emerging Countries

Advanced Economies

Source: IMF WEO

% Y

OY

GROWTH IN PHYSICAL SILVER DEMAND

-40

-30

-20

-10

0

10

20

30

40

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F

Emerging Countries

Advanced Economies

Source: GFMS, Thomson Reuters

% C

ha

ng

e

WORLD SILVER SUPPLY AND DEMAND

Source: GFMS, Thomson Reuters

Moz 2012 2013 2014 2015 2016f

% ∆ - 2015

% ∆ - 2012

Mine Production 790.8 823.7 868.0 893.0 887.4 -0.6% 12.2%

Total Supply 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%

Physical Demand 1,003.7 1,137.6 1,132.4 1,170.3 1,064.6 -9.0% 6.1%

Physical Surplus/Deficit 2.9 - 148.7 - 79.3 - 124.0 - 52.2 na na

Annual Average Silver Price $/oz 31.15 23.79 19.08 15.68 17.15 9.4% -44.9%

THE SILVER MARKET IN 2016

• SILVER PRICES

• DEMAND

• SUPPLY

• INVESTMENT

• PRICE OUTLOOK

US DOLLAR SILVER PRICES (As of 15th Nov)

Source: Thomson Reuters Eikon

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

business day of the year

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)

Source: GFMS, Thomson Reuters

-17.7

-70.3

-13.9 -3.8

-1.1

-80

-70

-60

-50

-40

-30

-20

-10

0

Jewellery Coins & Bars Silverware Industrial Fabrication

(minus Photography)

Photography

Mo

z

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

-3.9

-2.1 -1.1

8.1

0.0

-4.7 -6

-4

-2

0

2

4

6

8

10

Electrical & Electronics

Brazing Alloys & Solders

Photography Solar Ethylene Oxide

Catalyst

Other Industrial

Application

Mo

z

Source: GFMS, Thomson Reuters

SOLAR DEMAND - SILVER POWDER PRODUCTION

Source: GFMS, Thomson Reuters

32% 39% 45% 45% 48% 45%

68%

60% 52%

43%

39% 41%

0

10

20

30

40

50

60

70

80

90

2011 2012 2013 2014 2015 2016F

Silver

Dem

an

d (

Mo

z)

Japan United States China

GLOBAL COIN SALES

*Excludes Commemorative and China Mint coins Source: GFMS, Thomson Reuters – Quarterly Coin Sales Survey

0

5

10

15

20

25

30

35

08-Q1 09-Q1 10-Q1 11-Q1 12-Q1 13-Q1 14-Q1 15-Q1 16-Q1

Co

in S

ale

s M

oz

N America Europe Asia Other

-15.3

-60.1

-25.9

-1.8

0.3

-2.9

-70

-60

-50

-40

-30

-20

-10

0

10

China India North America

Europe Japan ROW

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

Mo

z

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

Source: GFMS, Thomson Reuters

0

100

200

300

400

500

600

700

800

900

1,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E

Mo

z

Rest of the World Mexico Peru Chile China Russia Australia

SILVER MINE PRODUCTION BY SOURCE METAL

Source: GFMS, Thomson Reuters

primary 30.4%

lead/zinc 34.4%

copper 22.1%

gold 12.5%

other 0.6%

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

Source: GFMS, Thomson Reuters

0

5

10

15

20

25

30

0

50

100

150

200

250

300

%

Mo

z

China India Europe North America ROW Share of Total Supply

OUTSTANDING DELTA ADJUSTED PRODUCERS HEDGE POSITION

Source: GFMS, Thomson Reuters

-60

-40

-20

-

20

40

60

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Mo

z y

ea

r-on-y

ea

r ch

an

ge

Net Hedging

Net De-hedging

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

Source: GFMS, Thomson Reuters Identifiable Investment is the sum of bars, coins and ETPs.

0

1

2

3

4

5

6

7

8

9

-50

0

50

100

150

200

250

300

350

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

US

$ B

n

Mo

z

Coins & Bars

ETP Inventory Build

Total Identifiable Investment in US$ Bn (RHS)

INVESTORS’ POSITIONS IN COMEX SILVER FUTURES & OPTIONS

As of 15th November Thomson Reuters Datastream

ABOVE GROUND STOCKS

*

Source: GFMS, Thomson Reuters As of end-Q3. Custodian vault figures exclude ETF holdings

0

500

1,000

1,500

2,000

2,500

3,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F

Industry Government

Exchange ETPs

Custodian Vaults

Mo

z

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

DISCLAIMER

The information and opinions contained in this presentation have been obtained

from sources believed to be reliable, but no representation, guarantee, condition

or warranty, express or implied, is made that such information is accurate or

complete and it should not be relied upon as such. Accordingly, Reuters Ltd

accepts no liability whatsoever to the people or organizations attending this

presentation, or to any third party, in connection with the information contained in,

or any opinion set out or inferred or implied in, this presentation. This presentation

does not purport to make any recommendation or provide investment advice to

the effect that any gold related transaction is appropriate for all investment

objectives, financial situations or particular needs. Prior to making any investment

decisions investors should seek advice from their advisers on whether any part of

this presentation is appropriate to their specific circumstances. This presentation

is not, and should not be construed as, an offer or solicitation to buy or sell silver

or any other metal. Expressions of opinion are those of Reuters Ltd only and are

subject to change without notice.