THE SILVER MARKET IN 2011

THE SILVER MARKET IN 2011 PHILIP KLAPWIJK GLOBAL HEAD OF METAL ANALYTICS The Silver Institute, New York, 16 th November 2011

THE SILVER MARKET IN 2011 SILVER PRICES DEMAND SUPPLY INVESTMENT PRICE OUTLOOK

THE SILVER PRICE 60 50 40 US$/oz Average Year-on-year Intra-period 2010 20.19 37.6% 78.4% 1 Jan - 15 Nov 35.70 87.9% 10.9% US$/oz 30 20 10 0 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

US DOLLAR AND EURO PRICES 60 Euro/oz Average Year-on-year Intra-period 50 2010 15.17 44.7% 96.6% US$ and Euro/oz 40 30 20 1 Jan-15 Nov 25.45 77.5% 9.1% US $ Euro 10 0 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

SILVER, GOLD & BASE METALS PRICES 180 Index (4th January 2011 = 100) 160 140 120 100 80 Lead Silver Zinc Gold Copper 60 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11

QUARTERLY CORRELATION OF DAILY SILVER PRICE WITH GOLD & COPPER PRICES 1.2 Correlation Coefficient 1 0.8 0.6 0.4 0.2 0 Gold Copper -0.2-0.4 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11

GOLD/SILVER RATIO 2000 2011-TO DATE (BASIS WEEKLY AVERAGE PRICES) 90 80 70 60 Average 60.5 50 40 30 1 st Jan-15th Nov 2011 = 44.1 20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

THE SILVER MARKET IN 2011 PRICES DEMAND SUPPLY INVESTMENT PRICE OUTLOOK

WORLD SILVER DEMAND 2010 Actual 2011 Forecast Investment 27% Industrial 46% Investment 26% Industrial 48% Jewellery & Silverware 20% Jewellery & Silverware 20% Photography 7% Photography 6%

WORLD SILVER FABRICATION FORECAST ANNUAL CHANGES: 2011 LESS 2010 30 25 Million ounces 20 15 10 5 0-5 -10 Industrial Coins Jewellery & Silverware Photographic

DEMAND SUMMARY Total fabrication demand forecast to rise by 4% in 2011 After 2010 s stellar rise, growth in industrial offtake has slowed, on the back of the tragedy in Japan, the end of stock replenishment and, more recently, slower economic growth Despite higher prices, jewellery up a little in 2011, due to ongoing market penetration in the youth demographic and substitution at the expense of gold Both silverware and photographic demand maintain their long term trend of decline, with this exacerbated by high prices Coin demand will rise to a new record level this year, reflecting strong investor interest.

WORLD SILVER SUPPLY 2010 Actual 2011 Forecast Scrap 20% Scrap 22% Producer Hedging 5% Government Sales 4% Producer Hedging 3% Government Sales 1% Mine production 71% Mine production 74%

WORLD SILVER SUPPLY FORECAST ANNUAL CHANGES: 2011 LESS 2010 50 40 30 Million ounces 20 10 0-10 -20-30 -40-50 Mine production Net Government Sales Net producer hedging Scrap

WORLD SILVER MINE PRODUCTION 900 800 700 Growth of almost 190Moz in 2002-2011F 4% increase forecast for 2011 Million ounces 600 500 400 300 By-product 200 100 0 Primary 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F

MINE PRODUCTION: WINNERS AND LOSERS IN 2011* 16.0 12.0 Million ounces 8.0 4.0 0.0-4.0 Mexico China Russia United States Peru Australia -8.0-12.0 * Figures represent year-on-year change, i.e. 2011 less 2010

OUTSTANDING DELTA ADJUSTED PRODUCERS HEDGE POSITION 140 120 Million ounces 100 80 60 40 20 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F

SUPPLY SUMMARY Total supply forecast to be marginally higher year-on-year Mine production expected to rise by 31Moz or 4% in 2011, driven by a strong project pipeline, much higher precious metal prices and a healthy performance by the base metals sector Producer hedging will remain an important source of supply in 2011, albeit slightly lower year-on-year Scrap supply forecast to rise by 20Moz or 9% in 2011, despite ongoing declines from the photographic sector Government sales largely unpredictable but estimated to have fallen sharply in 2011 to-date.

FROM DEFICIT TO SURPLUS 1200 1100 1000 SUPPLY (mine production + scrap) Million ounces 900 800 700 DEMAND (fabrication excluding coins) 600 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F

WORLD SILVER INVESTMENT* AND VALUE 300 250 Investment Value 12 10 200 8 Million ounces 150 100 6 4 US$ Billions 50 2-2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F 0 *World Investment is the sum of implied net investment and coins & medals

SILVER ETF HOLDINGS Million ounces 700 600 500 400 300 200 ishare ZKB ETF Securities* Other** 577Moz at end-october 2011, down by 23Moz from end-2010 100 0 2006 2007 2008 2009 2010 2011 *Includes ETFS London, Australia, NYSE, Glitter and WITE ** Includes Julius Baer, Mitsubishi, Sprott, Claymore, Central Fund of Canada, Silver Bullion Trust, DB Physical Silver, ishare ETC, Source: Respective issuers

INVESTORS * NET POSITIONS IN COMEX SILVER FUTURES Net positions (contracts, thousand) 90 80 70 60 50 40 30 20 Comex Settlement Price 5000 4000 3000 2000 1000 Cents/oz 10 2005 2006 2007 2008 2009 2010 2011 0 * non-commercial & non-reportable net positions in futures taken as proxy for investors positions; Source: CFTC

MONTHLY CHANGES IN SILVER INVESTMENT 150 100 Coins* 50 Million ounces 0-50 -100 ETFs Comex -150-200 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 *Excludes medals & some coins

INVESTMENT SUMMARY Investor activity the main factor behind rally in price to $50/oz in late April and sharp corrections in early May and late September Silver benefits from gains in gold, with similar precious metal motivations at work, namely the sovereign debt crisis, inflation fears, loose monetary policies, weak US dollar etc. Copper also an influence, with silver often regarded as an industrial metal ; lately therefore the white metal facing downside pressure, given increasingly bearish economic outlook For some, silver is a more economical alternative to gold (~45 x lower unit price) Silver s greater volatility and trading range than gold makes it attractive to certain investors.

PRICE OUTLOOK Negatives: Mine production continues to grow (+190Moz in 2002-2011) Ongoing secular decline in photography (though mainly offset by lower photo scrap) and silverware Sovereign debt concerns and liquidity constraints could hit real economy and industrial demand Large and growing fundamental market surplus (+/- 230 Moz forecast for 2011) Positives: Investor interest remains strong due to favourable financial backdrop and in spite of two major sell-offs this year Underlying secular growth in industrial demand continues, with much of this relatively price-insensitive, particularly in the short-run Little threat to prices from higher government sales or even gains in scrap supply Price forecasts: We now forecast an average price of $35.66 in 2011 (1 st Jan - 15th Nov average $35.70). Our short-term forecast is that through to year-end silver will trade between $31-$38.and.

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