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Presentation to the

Rideau Club

Eric Sprott
Chief Executive Officer & Senior Portfolio Manager

October 2013

Disclaimer
Sprott Asset Management LP is the investment manager to the Sprott Funds (collectively, the Funds). Important information about these Funds, including their investment objectives and strategies, purchase options, and applicable management fees, performance fees (if any), and expenses, is contained in their prospectus or offering memorandum. Please read these documents carefully before investing. Commissions, trailing commissions, management fees, performance fees, other charges and expenses all may be associated with investing in the Funds. The indicated rates of return for series A/class A securities of the Funds for the period ended September 30, 2013 are based on the historical annual compounded total returns including changes in unit/share value and reinvestment of all distributions or dividends and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. This communication does not constitute an offer to sell or solicitation to purchase securities of the Funds. The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Funds may be lawfully sold in their jurisdiction.

Disclaimer
Forward-Looking Statements
This presentation contains forward-looking statements which reflect the current expectations of management regarding future growth, results of operations, performance and business prospects and opportunities. Wherever possible, words such as may, would, could, will, anticipate, believe, plan, expect, intend, estimate, and similar expressions have been used to identify these forward-looking statements. These statements reflect managements current beliefs with respect to future events and are based on information currently available to management. Forward-looking statements involve significant known and unknown risks, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance or achievements could vary materially from those expressed or implied by the forward-looking statements contained in this document. These factors should be considered carefully and undue reliance should not be placed on these forward-looking statements. Although the forwardlooking statements contained in this document are based upon what management currently believes to be reasonable assumptions, there is no assurance that actual results, performance or achievements will be consistent with these forwardlooking statements. These forward-looking statements are made as of the date of this presentation and Sprott does not assume any obligation to update or revise.
Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Sprott Asset Management LP. Any reference to a particular company is for illustrative purposes only and should not to be considered as investment advice or a recommendation to buy or sell nor should it be considered as an indication of how the portfolio of any investment fund managed by Sprott Asset Management LP is or will be invested. The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Funds may be lawfully sold in their jurisdiction.

Eric Sprott, FCA


Eric Sprott has more than 40 years of experience in the investment industry. After earning his designation as a chartered accountant, Eric entered the investment industry as a research analyst at Merrill Lynch. In 1981, he founded Sprott Securities (now called Cormark Securities Inc.), which today is one of Canadas largest independently owned securities firms. In 2001, Eric established Sprott Asset Management Inc. Erics investment expertise is well represented in his track record in managing the Sprott Hedge Fund L.P., Sprott Hedge Fund L.P. II, Sprott Bull/Bear RSP Fund, Sprott Offshore Funds, Sprott Canadian Equity Fund, Sprott Silver Equities Class and Sprott Managed Accounts. His extensive list of accolades include: Canadian Investment Awards Opportunistic Strategy Hedge Fund Award (Sprott Hedge Fund L.P., 2004); MarHedges Best Canada Based Annual Performance Award (Sprott Offshore Fund Ltd., 2006); HFM Weeks Best Long/Short Hedge Fund Globally (Sprott Offshore Fund Ltd., 2008); and Winner of Absolute Returns Hedge Fund of the Year (Sprott Capital LP, 2010). Over the years, Eric has personally been the recipient of numerous awards and honours, including one of Investor Digests Canadas Best Investors (2004); Ernst & Youngs Entrepreneur of the Year (2006); Investment Executives Fund Manager of the Year (2007); and Advisor.cas Top Financial Visionary (2011); Queen Elizabeth II Diamond Jubilee Medal by the Governor General (2012); and Terrapinns Most Influential Hedge Fund Manager (2012). More recently, Eric has been elected Fellow of the Institute of Charted Accountants of Ontario (FCA), a designation reserved for those who demonstrate outstanding career achievements and service to the community and profession.

Eric Sprott
Chief Executive Officer & Senior Portfolio Manager

The Economy

Americas Debt
Off-Balance Sheet Liabilities
U.S. National Debt Expected Value of US Debt and Liabilities

$69.2T $16.2T $85.4T

U.S. GDP (U.S. Debt + Liabilities)/U.S. GDP

$16.6T

~515%

The present value of unfunded liabilities increased by

$4.5T

between 2011 and 2012

Source: World Bank, Department of Treasury

Detroit Template = US Template


Before Bankruptcy After Bankruptcy
(under current proposal)

Net Loss to pensioners

Liabilities OPEB* Total Benefits Due Less Assets Net Deficit

$15.2bn $5.7bn $20.9bn $11.7bn $9.2bn

$11.7bn $0.57bn $12.27bn $11.7bn $0.57bn

$3.5bn $5.13bn $8.63bn -

A recent report by Standard & Poors highlights that, for 2012, the total deficit of S&P 500 companies pension plans and OPEBs amounted to $452 billion and $235 billion, respectively.1
Another report by the Boston College Center for Retirement Research surveyed 126 state and municipal pension plans and found that, for 2011, they were underfunded by approximately $1 trillion.
*Other Post-employment Benefits Source: City of Detroit Proposal to Creditors, June 14 2013 1 https://ratings.standardandpoors.com/us-public-finance/An-Aging-Population-Puts-Pension-Plans-To-The-Test.html 7

Has the Fed Lost Control of the Bond Market?


US 10-Year Yields
5.5

QE1
5.0 4.5

QE2

Increase to QE3

10 Year Yield in Percent

4.0

QE3

3.5
3.0 2.5 2.0 1.5 1.0

Source: Bloomberg

Housing Affordability On the Decline


US Housing Affordability Index
220

210
200 190 180 170 160 150 140 130 120

And the decline in affordability will likely persist as bond yields rise

Source: Bloomberg

US Jobs
MoM Nonfarm Payrolls
# Jobs created in Thousands 600 400 200 0 -200 -400 -600 -800 -1000 % Participation 66 65 64 63 62 67

US Labor Participation Rate

936,000
additional Americans reported working on a

27,000
additional Americans reported working on a

As a result, participation rate sits near a

part-time basis

full-time basis

35-year low.

The US has struggled to create jobs over the past two years, especially quality jobs. Since January 2013, 936,000 additional Americans reported working on a part-time basis while only 27,000 reported getting a full-time job.*
Data source: Bloomberg * Source: UPI

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US Non-Recovery
Real Median Household Income Index (Deflated by CPI-U)
To July 2013, Seasonally-Adjusted (www.SentierResearch.com)

Annual Real Median Household Income Index (Deflated by CPI-U)


1967 to 2012, Indexed to 2008 = 100, (ShadowStats.com, BLS, Census)

Annual Median Household Income (1967to 2012)


Expressed in Constant 1967 Dollars, CPI-U vs. CPI-U-RS, (ShadowStats.com, BLS, Census)

Source: www.shadowstats.com

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US Non-Recovery
Real Disposable Income Per Capita
(excluding transfer payments) indexed 1/1/2006 = 100
110

105

100

95

90 2006 2007 2008 2009 2010 2011 2012 2013

Real Disposable Personal Income is Struggling to Grow, Often Remaining in Negative Territory
Source: U.S. Department of Commerce: Bureau of Economic Analysis 12

Global Growth in Question


The International Monetary Fund lowered its expectations for global economic growth in 2013. The organization cut its forecast to 3.3 percent growth, down from 3.5 percent in January, saying, the road to recovery remains bumpy and uneven for advanced economies.
- International Monetary Fund, April, 2013

World: 2013 GDP Growth Forecasts (Percent)

Source: IMF staff estimates

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Further Hints at the Global Non-recovery


U.S. third quarter earnings warning ratio is second worst since 2001:
Companies issuing negative outlooks for the quarter outnumber positive ones by 5.2-to-1, the most negative since the 6.3-to-1 ratio in the second quarter. The second-quarter ratio is the worst since the first quarter of 2001. The third quarter would be the second worst since 2001, according to Thomson Reuters data.
- Reuters, September 30, 2013

John Chambers, CEO of Cisco:


The economic recovery is slower and more inconsistent. While the US market has been getting better, that improvement is offset by softening in emerging markets.
- Telegraph, August 15, 2013

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Bail-Ins & The Threat to Bank Deposits


Now that bail-ins have become accepted practice all over the planet, no bank account and no pension fund will ever be 100% safe again. In fact, Cyprus-style wealth confiscation is already starting to happen all around the world private pension funds were just raided by the government in Poland, and a bail-in is being organized for one of the largest banks in Italy.
Centre for Research on Globalization, September 26, 2013

Cyprus Poland Russia Italy


Banca Monte Dei Paschi
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Market Malfunction
Permanent Open Market Operations - POMO
It even works week by week
Weekly Fed purchases vs associated market move in credit and equities, Jan 09 Apr 13
Fed buying ($bn) S&P Chg (pts) Chg (%) U.S. BIG Chg bp # Weeks count

>5 bn

570

54%

-401

159

<5 bn

141

15%

55

62

<0

-51

-2%

36

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Source: Bloomberg, Haver Analytics. 16

Precious Metals

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Central Bank Gold Purchases Remain Strong


500 400

Change in Gold Holdings


300 200 100

Tonnes

0 -100 -200 -300 -400

Central banks have transitioned from being sellers of ~500T of gold annually to buyers of ~500T of gold annually.

Source: IMF

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Notable Central Bank Gold Purchases


Turkey raised its gold reserves by the most in five months in August and topped the list of countries that bought more bullion, according to the International Monetary Fund, showing that gold's appeal remains intact despite falling prices. Russia, which has the world's seventh largest reserves of gold, increased its holdings last month by the biggest amount since December, according to the IMF data on Wednesday.
Reuters, September 25, 2013

Purchases YTD

Azerbaijan
Kazakhstan South Korea Nepal

8.0T
15.6T 20.0T 6.2T

Russia
Turkey
Source: World Gold Council. Limited data available for August & September 2013.

38.7T
81.9T
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Notable Private Imports


YLG Bullion International Co. Thailands biggest domestic gold importer, expects to more than double purchases this year after the bear market in prices spurred a surge in demand for physical metal.

The company may import as much as 200 metric tons in 2013, from 92 tons last year, Chief Executive Officer Pawan Nawawattanasub said in an interview yesterday. First-half shipments advanced to 112 tons, accounting for 60 percent of the countrys total, she said.

The Asian Consumer


Demand in Thailand rose 58 percent to 26.6 tons in the second quarter from a year earlier, World Gold Council data show. The nation was the third-largest Asian user after India and China in 2012 and ranked seventh globally.
- Bloomberg, September 25, 2013

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Gold Imports Into China Continue to Rise


Hong Kong Gold Exports To China (tonnes)
250

Gross Exports
200

LTM August 2013: Gross: 1,319 tonnes, Net: 928

tonnes

Net Exports
150

LTM July 2012: Gross: 796 tonnes, Net: 562

tonnes

100

LTM July 2011: Gross: 187 tonnes, Net:

108 tonnes

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(50)

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

As at August 30, 2013 Source: CENSTAD

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Chinese Net Gold Imports Form Hong Kong


Hong Kong Gold Net Imports Bars & Coins (Tonnes)
600

500

400

300

200

100

August 2013

YTD 2013

-100

-200

2009

2010

2011

2012

2013

As at August 30, 2013 Source: CENSTAD

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Shanghai Gold Exchange: Physical Delivery


Physical Gold Delivered on Shanghai Gold Exchange (1546T YTD) vs. World Mining Production (1902T YTD)

Weeks

As at September 13, 2013 Source: Koosjansen.blogspot.nl, sge.sh, usgs.gov,

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Shanghai Gold Exchange: Physical Delivery


Shanghai Gold Exchange Physical Delivery vs. Chinese Mining + Net Inflow from Hong Kong

As at September 13, 2013 Source: Koosjansen.blogspot.nl, sge.sh, usgs.gov, Hong Kong Census and Statistics Department

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Gold Getting Harder to Find


Gold Discovered in Large Deposits has Declined while Exploration Spending has Increased

Source: Goldcorp Inc., as at October 2012

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World Gold Supply and Demand (Tonnes)


Supply Mine production less Chinese domestic production less Russian domestic production Total mine production (Excluding China & Russia) Demand Hong Kong Net Exports to China Net imports to Hong Kong Thailand Net imports Turkey Net imports India Net imports Central Banks Change in Reserves Other countries jewellery, coin and bar demand YTD 1,383 270 122 991 Annualized 2,765 440 183 2,142 Source
GFMS China Gold Association WBMS

716 471 157 124 551 216 654.5

1,074 707 313 248 1,102 431 1,309

Hong Kong Census Hong Kong Census UN COMTRADE statistics UN COMTRADE statistics UN COMTRADE statistics IMF GFMS

Total Demand
Other sources of supply Gold recycling ETF outflows

2,889

5,185

672 724

1,344 917

GFMS Bloomberg

Sources: GFMS data comes from the WGCs Gold Demand Trends publications for 2013Q1 & Q2. Chinese mine supply comes from the China Gold Association and is up to August 2013, the annualized number is a Sprott estimate. Russian mine supply comes from the WBMS (Bloomberg ticker WBMGOPRU Index) and is for 2012, 2013 statistics are still unavailable. Chinese data is taken from the Hong Kong Census and Statistics Department and covers the period Jan-Aug 2013 and is annualized to account for the 4 missing months to the year. Changes in Central Bank gold reserves are taken from the IMFs International Financial Statistics, as published on the World Gold Councils website for 2013Q1 & Q2 and include all international organizations as well as all central banks. Net imports for Thailand, Turkey and India come from the UN COMTRADE database and include gold coins, scrap, powder, jewellery and other items made of gold. The data is for 2013Q1 & Q2. ETFs data comes from Bloombergs ETFGTOTL Index. 26

Demand for Physical Silver Getting Stronger


Ratio of Silver oz. to Gold oz. Sold
350

2013

300
250 200 150 100 50 0

2011

2012

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Investor interest in silver coins has started gaining substantial steam over the past months.

Source: Bloomberg, Sprott Research

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Increase in Silver Demand in India


Silver Imports into India (tonnes)
2,500

2,000

Year to date, Indian imports have totaled

2,304
Tonnes
1,500

tonnes On an annualized basis, this is 6,030 tonnes, or

1,000

500

25%
of the total market size
2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2

Source: GFMS

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Prices Vs. Inventories: The Tightness in Physical Gold


German Gold Repatriation Finland & Hungary Gold Repatriation Movements

COMEX Inventories
GOFO Rates

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Market Manipulation
Interest rates manipulation by the Fed LIBOR scandal - $2.5bn in fines so far FOREX manipulation by traders London Whale JP Morgan fined $920mm Crude oil trader fined 3m Electricity market JP Morgan fined $410mm Silver market JP Morgan narrowly escapes fine

Platinum and Palladium Moore Capital fined $48.4mm


Swaps markets investigation ongoing Gold market - The Journal of Futures Markets Sept. 2013. Gold and Index market - Front-running of Fed No-Taper
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Synopsis

Manipulation of the Gold price

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Gold & Silver 12 Month Forecast

Gold: $2,400 / Oz. Silver: $60 / Oz.

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Divergence in Gold Equities


Gold Equities Have Underperformed Gold Bullion
200%

150%

100%

93% Correlation
50%

0%

Breakdown in Correlation

-50%

-100%

AMEX Gold Bugs Index (^HUI) - Index Value

Gold (COMEX:^GC) - Day Close Price

Source: Bloomberg

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Participation in Private Placements

Veris Atna

Ramelius Elgin Mining

Lachlan Star
San Gold

Carpathian
US Silver & Gold

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Upside Scenarios
Company Market Cap at Sept. 23/13 2013E production Earnings @ $1400 Earnings @ $2400 Au (E) Au (E)

Veris Gold Corp.

$67M

150,000

$42M

$147M

In a $2,400/oz. Au gold price environment and using a 10x earnings multiple:

Market cap grows by over 2,000% to $1.47B

Illustrative purposes only Eric Sprott and Sprott Asset Management Funds beneficially (directly or indirectly) own in excess of 1% of one or more classes of the issued and outstanding securities of Veris Gold Corp. Source: Sprott estimates

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Upside Scenarios
Company Market Cap at Sept. 23/13 2013E production Earnings @ $1400 Earnings @ $2400 Au (E) Au (E)

San Gold Corporation

$64M

85,000

$24M

$83M

In a $2,400/oz. Au gold price environment and using a 10x earnings multiple:

Market cap grows by 1,200% to $830M


Shares purchased at an average cost of $0.17 per share:

At $2,400/oz. gold price, shares go up to over $2 per share


Illustrative purposes only Eric Sprott and Sprott Asset Management Funds beneficially (directly or indirectly) own in excess of 1% of one or more classes of the issued and outstanding securities of San Gold Corporation Source: Sprott estimates

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Opportunity of a Lifetime
The current pullback in gold prices presents a great opportunity for an investor The valuations on gold stocks are extremely attractive and provide the investor with a leveraged way to participate in rising gold prices

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Q&A

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Contact Information

Sprott Asset Management LP Royal Bank Plaza, South Tower 200 Bay Street Suite 2700 Toronto, ON M5J 2J1 T: 416 943 6707 Toll Free: 1 866 299 9906 F: 416 943 6497 Email: invest@sprott.com Web: www.sprott.com
Follow us on Twitter @Sprott
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