Industry Report: Basic Materials Sub-industry: Silver Mining Senior Analyst: Andrew Hui Junior Analysts: Michael Clawar, Kevin Lo Will Roeder, Matthew Siwkiewicz

2 Micro-Industry Overview Companies in this micro-industry explore, acquire property and mine predominantly silver in the Americas. The majority of demand from end markets is generated by contracted delivery of refined silver to industry, jewelry, and investment. These small cap companies are valued between $1 Billion to $3.5 Billion.

3 Industry Rating Silver Mining Service Sub-Sector TREND 2 TREND 1 TREND 3 Inflation and Expectations Macroeconomic Shifts Monetary Policy Key Industry Drivers/Trends SILVER Mining INDUSTRY RATING: POSITIVE

4 Sector and Industry Breakdown Micro-Industry Market Caps Relative Market Size

5 Revenue Generation

6 The Demand for Silver Investment, Jewelry, and Industrial Applications provide opportunities for growth 78% of total demand

7 Trends Monetary Policy Inflation and Expectations Macroeconomic Shifts

8 Monetary Policy

9 Federal Reserve actions influence the market Large Scale Asset Purchases Maturity Extension Program Bank of Japan has similar influence on investors’ economic outlook

10 Trends Monetary Policy Inflation and Expectations Macroeconomic Shifts

11 Inflation and Expectations

12 Inflation and Expectations Investors use silver to hedge against inflation Fed: 2% target Currently 1.8% Treasury Inflation Protected Securities Principal increases with inflation FED to keep interest rates at 0–0.25% through mid-2015

13 Implied Net Investment Increase in investment demand Post-Recession Driven by investor hedging against inflation, expectations

14 Excess Demand 31.53%30.46% 30.74% 25.29%23.14% 30.08%

15 Excess Demand

16 Predicted Silver Price  Projecting 2014: –Tips = -.50% –FEDBAL = $4 Trillion –PCE Inflation = 2.0% –BOJ Money Stock = 135 Trillion Yen  Point Estimate of Silver Price: $40.20

17 Trends Monetary Policy Inflation and Expectations Macroeconomic Shifts

18 Macroeconomic Shifts  Jewelry demand decreased in 2011 –Non-Essential Purchases  15.36% of total demand  2010 Revenue: $3.4 Billion  2011 Revenue: $5.6 Billion  Support for inelastic demand

19 Inflation and Expectations  11.36% of total silver demand  Value of silver coin based on silver commodity price  Increased confidence in future higher value of silver  Opens market to small investors CAGR: 24.38%

20 Risks Potential for change in government regulation and permits Shift in leadership to prioritize national issues, especially in emerging markets Governments beginning to limit amount of land allowed for drilling More local business Fiscal policy’s impact on global economy Potential for second U.S. Recession Insolvency in Europe could impact demand Prevent reinvestment due to loss of capital by companies in silver industry Government Environmental Policy Greater focus on environmental issues Less potential for expansion of mines and new exploration

21 Financial Comparisons Industry AVGRevenueOperating MarginRevenue GrowthEBITDAX 2011$332,241, %44.80%$293,059, $229,450, %67.64%$211,065, $136,869, % --- $88,843,650.00

22 Conclusion Significant short term risks with government policy and fiscal cliff Current excess demand gives small cap companies room to compensate for short term risk Long term upside from inflation expectations and monetary institutions’ open market operations POSITIVE INDUSTRY RATING:

23 Q&A

24 Appendix

25 Index Demand for Silver Long Term Silver Price PV Production Mine Operations Government Regulations Breakdown of Supply Deficit Elasticity Silver Price and Share Price Financial Comparisons

26 End

27 Financial Comparisons Ticker Stock Price EV/EBIT DAEV/EBIT LTM EBITDA Revenue Growth Forward PE EV/Reve nue AG % PAAS % SSRI % CDE % Min % Med % Mean % Max % Industry AVGRevenueOperating MarginRevenue GrowthEBITDAX ,241, %44.80%$293,059, $229,450, %67.64%$211,065, $136,869, %---$88,843, Index

28 The Demand for Silver Index

29 Silver Price Normal Trading Area Index

30 Solar PV Energy Production  More countries looking to adopt solar energy –Cheaper –Safer –Cleaner Index

31 PV Installation Production

32 Macroeconomic Shifts  New markets in Germany, Japan, U.S., China, and India  5.8% of total silver demand  Cheaper, safer, and cleaner

33 Mine Operations Index

34 Government Regulations MexicoPeruBoliviaArgentinaUSAChileCanada Index

35 Index

36 Index

37 Inelastic Demand Index

38 Silver Price and the Industry Index