World Sil W ld Silver Survey 2011 S

Chairman, Chairman GFMS Limited

New York, 7th April 2011 York

Philip Klapwijk

GFMS Limited

The leading consultancy specialising in precious metals markets research. Large and experienced team of 25 analysts and consultants consultants. Not just desk-based: Over 300 companies and organisations in more t a 30 countries visited by our personnel in t e last 12 o e than cou t es s ted ou pe so e the ast months. Annual Gold, Silver, Platinum & Palladium and Copper Surveys. , , pp y Also, weekly, monthly, quarterly & bi-annual reports plus forecasts and a wide range of consultancy services across all the precious and base metals & steel. For more information visit: www.gfms.co.uk or email: charles.demeester@gfms.co.uk

World Silver Survey 2011

Prices Demand Supply Investment Outlook

for 2011

The Silver Price

40 US$/oz 35 2010 30 US S$/oz 25 20 15 10 5 Jan-06
Source: Thomson Reuters

Average Year-on- IntraYear-on- Intrayear period 20.19 31.86 37.6% 88.2% 78.4% 23.5%

JanJan-Mar 2011

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

US Dollar and Euro Prices

40 35 US$/ and Euro /oz /oz / 30 25 20 15 10 5 0 Jan-06
Source: Thomson Reuters

/oz 2010 JanJan-Mar 2011

Average Year-on- IntraYear-on- Intrayear period 15.23 23.20 44.6% 89.5% 92.0% 15.9%

US$ Euro

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Silver, Gold and Base Metals Prices

220 200 In ndex (Ja 10=10 an 00) 180 160 nickel 140 120 100 80 60 Jan-10 copper gold zinc silver tin

p Apr-10

Jul-10

Oct-10

Jan-11

Source: GFMS, Thomson Reuters

Quarterly Correlation of Daily Silver Prices with Gold and Copper Prices
1.0 0.8 Corr relation Coefficie C ent 0.6 06 0.4 0.2 0.0 00 -0.2 -0.4 Jan-96
Source: GFMS

Gold

Copper

Jan-98

Jan-00

Jan-02

Jan-04

Jan-06

Jan-08

Jan-10

100 90 80 70 60 50 40 30 20 10 0 1968
Source: GFMS Ltd.

Gold / Silver Ratio 1968-2010 1968-

Average 53:1

1973

1978

1983

1988

1993

1998

2003

2008

Gold / Silver Ratio 20012011-to-date 20012011-to(basis weekly average prices)

90 80 70 60 50 40
Jan-Mar 2011 = 44:1
Average 62:1

30 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: GFMS Ltd.

Real and Nominal Silver Prices

(real US$ price in constant 2010 terms)
1980 average: $55.53 $55.53

60 50 40 US$/oz 30 20 10

1980s peak of $49.45 equals to over $130 in real 2010 terms

2010 average: $20.19 $20 19 Real Price

Nominal Price
0 1975 1980 1985 1990 1995 2000 2005 2010

Source: GFMS, Thomson Reuters

World Silver Survey 2011

Prices Demand Supply Investment Outlook

for 2011

World Silver Fabrication Demand in 2010

Total Fabrication Demand in 2010: +12.8% to 878.8 Moz
Coins & Medals 12% S ve wa e Silverware 6%

Jewelry 19%

Industrial Applications 55%

Photography 8%

Source: GFMS Ltd.

World Silver Fabrication

Annual Changes: 2010 less 2009
100 80 M Million ounces o 60 40 20 0 -20
Industrial Photography Applications A li i
Source: GFMS Ltd.

Jewelry

Silverware

Coins & Medals M d l

World Silver Fabrication

10-Year Ch 10-Y Changes: 2001-2010 2001200 150 100 Million ounces n s 50 0 -50 -100 -150 -200
Industrial Photography Applications
Source: GFMS Ltd.

+39% + 233%

-4% - 53% - 66%

Jewelry Silverware Coins & Medals

Industrial Fabrication by End-Use End1990: 272.6 Moz

Other E & E excluding Photo Voltaics Ph t V lt i Other

2010: 487.4 Moz

E & E excluding Photo Voltaics

Photo Voltaics Brazing Alloys and S ld d Solders Ethylene Oxide Ethylene Oxide Brazing Alloys and Solders

Photo Voltaics

Source: GFMS Ltd.

Industrial Fabrication
500 400 Millio ounce on es

300

200

100

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: GFMS Ltd.

Economic Indicators
12% 10% 8% 6% 4% 2% 0% 2% -2% -4% -6% -8% -10% 12% -12% -14% Annu % ch ual hange
Global GDP Growth

OECD Industrial Production Growth

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Source: IMF, OECD

Global Semiconductor Billings

Numb of sh ber hipments (million s ns) 350 300 250 200 150 100 50 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: SIA

Other Asia/Pacific Japan Europe Americas

Industrial Fabrication

Industrial offtake rebounded by 20.7% to 487.4 Moz in y 2010, a fraction shy of the pre-crisis record in 2008. preMain drivers of the strong rise were continued robust emerging market economies growth, industrialized worlds recovery from recession and pipeline restocking. y pp g Most areas of end-uses enjoyed gains, particularly in photo endvoltaic, EO catalysts and the automobile industry. The only main area that disappointed was construction in industrialized countries. All regions, bar the Indian Sub-continent, saw gains, with Subthose in Japan being the greatest. greatest

Jewelry & Silverware Fabrication

300 250
Million ounces n

200 150 100 50 0

Silverware

Jewelry

2001
Source: GFMS Ltd.

2003

2005

2007

2009

10-Year Percentage Ch 10-Y P t Changes in Demand: 2001 to 2010 i D d t

% cha ange dem mand : 200 to 2010 01

Jewellery Fabrication: Silver, Gold, Platinum

0 -5 -10 -15 -20 -25 -30 -35
Silver Gold Platinum

Source: GFMS Ltd.

Jewelry & Silverware

Jewelry: Demand rose by 5.1% to 167.0 Moz, its first increase of substance since 2003 2003. Higher offtake was primarily due to rising consumer spending in many emerging markets, particularly China, and a recovery in i k t ti l l Chi d i consumption in industrialized countries. Demand was also supported by substitution gains at the d l db b h expense of gold. Silverware: Silverware: Offtake dropped by a hefty 14% to 50.3 Moz, a result of lower demand in India on higher prices coupled with ongoing structural decline in western markets, although part of the fall was offset by gains in China and Russia.

Consumer Film and Digital Camera Sales

5
160

Consumer Film
Bill lions of rolls/disk r ks 4 3 2 1 0

Digital Cameras

Digital C Camera Sales (m a millions) )

140 120 100 80 60 40 20 0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Photofinishing News Inc., Lyra Research Inc.

Photography g p y

Photographic demand for silver posted its smallest loss in nine years in 2010, falling by 8% to 72.7 Moz. Its share of total fabrication demand fell to just above 8%, compared to 30% in 1990. The more modest decline in 2010 was due to only a slight drop in demand from the medical sector, the largest area th l t these d days of photo-related silver demand. f photo- l t d il h t d d In contrast, global demand for film rolls fell by 25%, driven by ongoing migration to digital systems.

World Silver Survey 2011

Prices Demand Supply Investment Outlook

for 2011

World Silver Supply in 2010

Total Supply in 2010: Up 14.6% at 1,056.8 Moz
Hedging 6% Scrap 20%

Government Sales 4%

Mine Production 70%

Source: GFMS Ltd.

World Silver Supply

100 80 Million ounces n 60 40 20 0 -20
Mine Production Government Sales Old Silver Scrap Producer Hedging

Annual Changes: 2010 less 2009

Source: GFMS Ltd.

World Silver Mine Production

800 700 600 Million ounces n 500 400 300 200 100 0
2001
Source: GFMS Ltd.

Growth of 129.7 Moz or 21% from 2001-2010

2002

2003

2004

2005

2006

2007

2008

2009

2010

Mine Production by Source Metal

Winners and Losers: 2010 less 2009
14 12 10
Million ounces n s

8 6 4 2 0 -2 -4 4 -6 Lead/Zinc Primary Other Copper Gold

Source: GFMS Ltd.

Winners and Losers: 2010 less 2009

12 10 Millio ounce on es 8 6 4 2 0 -2 -4 -6

Mine Production by Region

North America*

Rest of the World W ld

Asia & CIS

Latin America

Source: GFMS Ltd.; *includes Mexico

Mine Production

World silver mine output rose by 2%, or 17.6 Moz last year, year to a new record high of 735 9 Moz 735.9 Moz. An increase of 5% was recorded from both the lead/zinc and primary silver sectors. Many increases came not from 2010 starts, but from the build up of production at projects which began operations in 2009, such as the Peasquito sulfide plant and 2009 Palmarejo. Largest gains seen in Mexico (+15.3 Moz), China (+10.0 Moz) and also Australia (+7.4 Moz), with the most noticeable decline in Peru (-7.4 Moz). (-

Producer Hedging g g

2010 saw a marked return to net producer hedging, with a net 61 1 Moz of supply throughout the year. The bulk 61.1 year of this occurred in the fourth quarter. In the I th main hedging was conducted by by-product silver i h d i d t d b by- d t il b producers, to risk manage a non-core revenue stream. nonImportant additions to the global hedge book seen from I t t dditi t th l b l h d b k f Frisco, Barrick and Volcan. Volcan. Four consecutive years of d -h d f de hedging activity h d left the dehad l f h endend-2009 hedge book at a two-decade low. As such twothere was littl in the way of deliveries to provide an th little i th f d li i t id offset, as several producers moved to lock in higher prices at th t il-end of 2010 i t the tail d f 2010. tail-

Scrap Supply

Scrap supply increased by 14% to a new record high of S l i db t d hi h f 215 Moz in 2010, despite a continued slide in silver 2010, recovered from photographic applications. Much of the rise was due to higher scrap receipts from the g p p industrial sector, itself a result of tighter environmental legislation coup ed with a s a p rise in s e p ces eg s at o coupled t sharp se silver prices. Recycling from jewelry and silverware also rose notably, particularly in the more price sensitive developing world world.

Net Government Sales

100 80 M Million ounces s 60 40 20 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: GFMS Ltd.

Others Russia China

Government Sales

Government sales estimated at 44 8 Moz in 2010 up by 44.8 2010, a massive 188% on the previous years level. Russia R i accounted f th b lk of government sales and t d for the bulk f t l d apparent disposals from the country nearly doubled in 2010. Other official sales last year were small scale and related to the melting of old coins. Total government silver stocks conservatively estimated at 110 Moz at end-2010. end-

Identified Bullion Stocks (end-year) (end1200 1000 Millio ounce on es 800 600 400 200 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Others Government

Comex European Dealers* l *

Source: GFMS Ltd.; *includes ETF holdings

Market Shifts From Deficit to Surplus

1000 950 900 Mill lion ounc ces 850 800 750 700 650 600 550
1990
Source: GFMS

DEMAND
(fabrication demand)

SUPPLY
(mine production + scrap)

1995

2000

2005

2010

World Silver Survey 2011

Prices Demand Supply Investment Outlook

for 2011

Silver (Dis)Investment and Real Price

200 160 120 25

rea silver price in 2010 d al n dollars/o oz

Net Investment Real Silver Price

20

Million ounces n s

80 40 0 -40 -80 120 -120 -160

1985

15

10

Net Disinvestment
0
1990 1995 2000 2005 2010

Source: Silver Institute, GFMS Ltd. Investment refers to the Implied Net (Dis)Investment series only.

300 250 200 150 100 50 0 2001

World Investment* o d
Value of Investment

6.0 5.0 4.0 40 3.0 2.0 1.0 0.0

US$ Billion U

Million ounces s

2003

2005

2007

2009

*World Investment is the sum of Implied Net (Dis)Investment and Coins & Medals. Source: Source: GFMS

ETF Silver Holdings

700 600 500 Million ounces n s 400 300 200 100 0 Apr-06 06 Apr-07 0 Apr-08 08 Apr-09 09 Apr-10 0
Sprott Physical Silver Trust Other Zrcher Kantonalbank ETF Securities iShares Silver Trust Silver Price

40 35 30 25 US$/ /oz 20 0 15 10 5 0

Source: Respective ETF issuers

Investors* Net Positions in Comex Silver Futures

100 Ne positio (cont et ons tracts, th housands s) Average Positions (Moz)
2010 Jan-Mar Jan Mar 2011 264 257

4000 Comex Settlement Price 3600 3200 2800

cents s/oz

80

60

2400 2000

40

1600 1200

20

800 400

0 Jan-05

0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

*Non-commercial & non-reportable net positions in futures taken as proxy for investors positions. Source: CFTC

World Silver Survey 2011

Prices Demand Supply Investment Outlook

for 2011

Outlook for 2011: Supply

Mine production will record another increase in 2011, with output expected t reach some 790 Moz. Key to this will be an t t t d to h M K t thi ill b acceleration of growth in Mexico, though widespread increases are forecast forecast. Net producer hedging is likely to remain a strong component of the supply side at around 40 Moz in 2011. 2011 Scrap supply is forecast to increase in 2011, due to higher industrial and jewelry scrap. Government sales are difficult to predict, opportunistic sales could emerge on any price rallies. Overall, supply currently projected to rise a further +/- 3% this +/y year or roughly 30 Moz. g y

Outlook for 2011: Demand

Growth in industrial demand will slow significantly in 2011, owing to a slower global GDP growth and normalization of stock levels. However, higher base means +/- 40 Moz could be added to demand, easily taking +/it to a new record level. Photographic demand will drop again, although this will have little impact as current level of demand already so low. Jewelry is likely to rise further in 2011, chiefly as benefits of ongoing l lk l f h h fl b f f recovery in economy and higher gold prices should outweigh the negative of higher silver prices. Silverware should fall, a result of ongoing secular shifts plus high prices. Total fabrication demand in 2011 forecast to increase by 5%-10%. 5%The silver market will remain in substantial surplus this year but this metal will be absorbed by investors at much higher average prices.

Outlook for 2011: Silver Price

Average spot price in Q1 2011 was $31.86 basis the London fix. This average was up no less than 88% year-on-year compared to the year-onaverage price recorded in the same period of 2010. The gold:silver ratio has fallen sharply to 37:1 just recently, compared with an average of 62:1 in 2010. Silvers traditional high price volatility and trading range are factors to consider: Already year-t -date $13 t di range ($26.68-$39 63) and id Al d year-to d t totrading ($26.68-$39.63) d ($26 68 average Q1 2011 price volatility 39.6% (gold 12.9%). Investment will remain the main driver of the price Silvers greater price. Silver s volatility in a smaller and less liquid market than gold is attractive to certain investors, with many now eyeing the all-time-high of $50/oz. all-time2011 may well see silver reach or even exceed $50/oz, in part basis strong probability of gold peaking comfortably above $1,600/oz.

Thank you for y y your attention!

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