The Silver Market in 2009

Philip KlapwijkChairman, GFMS Limited

The Silver Institute, New York, 18th November 2009

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The GFMS Group’s Unique Research

Capabilities & Programme

Silver Prices

Demand

Supply

Investment

Price Outlook

Silver: Presentation Outline

2

4

6

8

10

12

14

16

18

20

22

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

US$

/oz

The Silver Price – US$/ozUS$/oz Average Year-

on-yearIntra-period

2008 14.99 12.0% -27.7%Jan-Oct 2009 14.06 -11.7% 49.5%

Source: Thomson Reuters EcoWin

2

4

6

8

10

12

14

16

18

20

22

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

US

$ an

d E

uro

/oz

US Dollar and Euro Prices

US$

Euro

€/oz Average Year-on-year

Intra-period

2008 10.09 3.3% -24.2%

Jan-Oct 2009 10.18 -3.6% 40.8%

Source: Thomson Reuters EcoWin

80

100

120

140

160

180

200

220

240

Jan-09 Apr-09 Jul-09 Oct-09

Inde

x (0

2/01

/ 200

9 =

100)

Silver, Gold and Base Metals Prices

CRB Index

copper

silver

zinc

lead

gold

Source: GFMS Ltd.

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Cor

rela

tion

Coe

ffic

ient

Quarterly Correlation of Daily Silver Price with Gold and Copper Prices

Copper

Gold

Correlation against copper has increased recently; in Q1-Q2

2009 notably weaker than that with gold but stronger in Q3.

Source: GFMS Ltd.

40

50

60

70

80

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

Gold / Silver Ratio 2001-2009 to-date(basis weekly average prices)

2001-09 Average = 62:1

Jan-Oct 2009 = 68:1

Source: GFMS Ltd.

Silver Demand

World Silver Demand

Industrial 51%

Photography 12%

De-Hedging1%

Jewelry & Silverware

24%

Coins 7%

Investment5%

Industrial 39%

Jewelry & Silverware

25%

Coins 9%

De-hedging2%Photography

10%

Investment15%

2008 Actual 2009 Forecast

Source: GFMS Ltd.

World Silver FabricationForecast Annual Changes: 2009 less 2008

-100

-80

-60

-40

-20

0

20

Industrial Jewelry &Silverware

Coins Photographic

Mill

ion

ounc

es

Source: GFMS Ltd.

Industrial Fabrication

0

100

200

300

400

500

1999 2001 2003 2005 2007 2009F

Mill

ion

ounc

es

Electrical & Electronic

Other

Source: GFMS Ltd.

20% decline forecast for 2009

Global Billings (semiconductor shipments)

0

50

100

150

200

250

300

1997 1999 2001 2003 2005 2007 2009

Num

ber

of s

hipm

ents

(m

illio

ns)

Source: SIA; *Jan-Aug annualized using weightings derived from average monthly and annual figures over the 2000-2008 period

Other

Americas

Europe

Japan

Jan-Aug 2009

Annualized*

Indian Silver Bullion Imports (Jan 2004 – Aug 2009)Imports have fallen sharply in 2009 to-date due to impact of high local

prices plus stocks carried over from Q4 2008

0

300

600

900

1200

1500

1800

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

Ton

nes

7

10

13

16

19

22

25

Rupees/K

g (thousands)

Average Monthly

Rupee Price

Source: GFMS Ltd.

Photographic Fabrication

0

50

100

150

200

250

1999 2001 2003 2005 2007 2009F

Mil

lion

oun

ces

16% decline forecast

for 2009

Source: GFMS Ltd.

Demand Summary Total fabrication demand forecast to be around 11% lower year-

on-year in 2009.

Industrial demand forecast to fall by more than 88 Moz for full

year 2009, although it has shown some improvement in recent

months. A double digit recovery is expected in 2010.

Photographic demand is falling rapidly due to impact of digital

technology and the economic downturn.

Jewelry & Silverware demand will increase slightly year-on-year.

Coin demand continues to rise.

Investment demand has increased strongly in 2009.

Silver Supply

World Silver Supply

Mine Production

77%

Scrap 20%

Gove rnment Sales 3%

Mine Production

78%

Scrap 19%

Gove rnment Sales 3%

Source: GFMS Ltd.

2008 Actual 2009 Forecast

World Silver Supply Forecast Annual Changes: 2009 less 2008

-10

-5

0

5

10

15

Mine Production Old Silver Scrap Net Government Sales

Mill

ion

ounc

es

Source: GFMS Ltd.

World Silver Mine ProductionWinners & Losers: 2008-2009F*

-10

-5

0

5

10

Bolivia Argentina Peru Canada Chile Australia

Mill

ion

ounc

es

Cessation at Cerro Bayo, lower output from Escondida & wider copper industry

Capacity expansions at Arcata, Pallancata

Production lower at several large scale operations, notably Cannington.

Full year of operations at San Bartolome.

Source: GFMS Ltd; *forecast mid-November

Start up of ManantialEspejo, Pirquitas, capacity expansion at San Jose

Cessation at Caribou, Eskay Creek

World silver mine production expected to come in 2%

higher than in 2008. Disruptions to base metal sector

overcome by new projects and mine expansions.

Growth in 2010 silver mine production expected to be

maintained, to push past 700 Moz. Growth will be driven

from Palmarejo, Peñasquito, Pirquitas, Dolores, Dukat and

Manantial Espejo.

Moderate increase in producer de-hedging in 2009.

Forward sales buy-backs and options delta effects behind

the larger hedge book cut this year.

Mine Production + Hedging

Scrap expected to slip by just under 4% in 2009 due to the

structural decline in the photographic use of silver.

Price not high enough to stimulate much scrapping of jewelry and

silverware.

Scrap supply for silver far less price-sensitive than for gold due to

different composition of above-ground stock of fabricated

products and much higher margins over metal value on silver than

gold jewelry.

Scrap Supply

Changes in Government Stocks

-100

-80

-60

-40

-20

0

20

40

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Mill

ion

ounc

es

Purchases

Sales

Source: GFMS Ltd.

From “Deficit” to “Surplus”

500

550

600

650

700

750

800

850

900

950

1992 1994 1996 1998 2000 2002 2004 2006 2008

Mil

lion

ou

nce

s

DEMAND(fabrication demand)

SUPPLY(mine production + scrap)

Source: GFMS Ltd.

Silver Investment

Silver (Dis)Investment and Real Price

-160

-120

-80

-40

0

40

80

120

160

1985 1990 1995 2000 2005

mill

ion

oz

0

2

4

6

8

10

12

14

16 real silver price in 2008 dollars/oz

Real Silver Price

Net Disinvestment

Net Investment

Source: Silver Institute, GFMS Ltd.

2009 Forecast

ETF Silver Holdings

0

100

200

300

400

Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09

Mill

ion

ounc

es

8

10

12

14

16

18

20

22

US$/oz

Other ZKB ETF Securities iShares Silver Trust

Silver Price

Source: Respective ETF issuers

Total end-October 2009 = 375 Moz

0

10

20

30

40

50

60

70

80

90

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

Ne

t p

osi

tio

ns

(co

ntr

act

s, t

ho

usa

nd

s)

0

5

10

15

20

25

US

$/o

z

Settlement Price

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

Investors’* Net Positions in Comex Silver Futures

Net long position jumped by nearly 143 Moz between 30/12/08 and 09/11/09

Investment a key factor since Q4 2003 (n.b. two years after gold) and particularly relevant to the drive into double-digits.

Silver generally led by gold and also to some extent base metals. Similar factors have been at work to those driving gold investment:

US$ devaluation, credit market crisis, inflation fears, growth in commodities as an asset class, etc.

Trends largely positive in January-October 2009: Rise of over 100 Moz in ETF holdings and over 140 Moz in investors’ net long positions on the Comex. Strong demand for physical bullion too.

Key issues for sustainability of investment demand relate to inflation expectations and foreign exchange value of the US dollar. How these factors develop over the course of 2010 will be critical.

Investment - Summary

Silver Price Outlook

Total supply now expected to be little changed year-on-year:

Lower scrap and government sales will be largely offset by a

modest increase in mine production.

Mine production forecast to increase by nearly 2% this year,

with similar growth expected in 2010.

Supply from scrap and government sales unlikely to grow and

may well drop next year.

Silver Price OutlookSupply

Total fabrication demand forecast to fall heavily in 2009.

Overall, price is less of an issue than slowdown in GDP growth.

Industrial demand has been hard hit this year by the downturn in

the global economy.

Jewelry & Silverware: slightly higher demand, benefit from some

substitution gains at gold’s expense.

Photography: continued secular decline.

Coin demand has risen, reflecting growing investor interest.

Fabrication demand set to recover in 2010, basis rebound in

industrial offtake.

Silver Price OutlookDemand

Silver’s supply/demand fundamentals (excluding investment) will provide some support for prices in 2010, mainly due to the recovery expected in fabrication demand.

The silver market will still remain in substantial surplus, albeit of a smaller magnitude compared with 2009. This surplus will be absorbed by investors.

GFMS now forecast an average price of $14.78/oz in 2009. A spike to $20 or higher before year-end is likely.

Silver prices will be volatile but tend to fall from current levels next year, especially in the second half. GFMS’ current forecast under its ‘base case’ scenario is for a calendar 2010 average in the mid-$14s/oz.

Silver Price OutlookConclusion

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Expressions of opinion are those of GFMS Ltd only and are subject to change without notice.

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