Metals Focus Precious Metals Investment Focus 2017/2018 - Degussa

Metals Focus Precious Metals Investment Focus 2017/2018 - Degussa

Metals Focus Precious Metals Investment Focus 2017/2018 - Degussa

Metals Focus Precious Metals Investment Focus 2017/2018

Metals Focus Precious Metals Investment Focus 2017/2018 - Degussa

Degussa. Proud sponsors of Precious Metals Investment Focus 2017/2018 The Degussa name is synonymous with quality and durability unsurpassed in the world of precious metals. Today, this rich history and tradition is carried by Degussa Goldhandel GmbH. As an internationally operating company handling gold, silver and platinum metals, Degussa is Europe’s market leader among independent precious metal traders. In addition to headquarters in Frankfurt am Main, Degussa ofers its extensive range of bullion products at ten locations in Germany as well as at its international branches in London, Singapore, Zurich, Geneva and Madrid.

Our bullion showrooms are complemented by the online Degussa webshop which ofers a fast, easy and lexible way of investing in precious metals. Investment gold, for example, can be purchased at the highest purities in either bar or coin form, and in a wide variety of weights to suit all needs.

With such passion for precious metals, Degussa also creates attractive objects from precious metals that make life more beautiful. The Degussa gold gift collection combines master craftsmanship with the real intrinsic value of precious metals and comprises jewellery, watches, statues, gift bars etc. Degussa furthermore ofers services such as buying gold scrap, secure storage, numismatics and a gold savings plan. The employees working for Degussa are all absolute experts in their ield, many with a banking background. On the precious metals purchase side, Degussa is stafed with craft-trained men and women, master goldsmiths and watchmakers among others.

Many of the employees have decades-long experience in precious metals trading, logistics and processing. Degussa – passion for precious metals.

Wolfgang Wrzesniok-Roßbach Chief Executive Oicer

Metals Focus Precious Metals Investment Focus 2017/2018 - Degussa

London Metal Exchange. Proud sponsors of Precious Metals Investment Focus 2017/2018 At the London Metal Exchange (LME) we have long held strong and positive relationships with the precious metals community. We’ve recently broadened the ofering for this market with the launch of LMEprecious – our collaboration with the World Gold Council and a group of leading industry players - introducing an innovative suite of precious metals products. LMEprecious provides the market with reliable and liquid tools for price discovery, trading and risk management with loco London delivery.

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Metals Focus Precious Metals Investment Focus 2017/2018 - Degussa

Precious Metals Investment Focus 2017/2018 Philip Newman Nikos Kavalis Oliver Heathman Neil Meader Philip Klapwijk Junlu Liang George Coles Peter Ryan Elvis Chou, Taipei Chirag Sheth, Mumbai Çagdas Küçükemiroglu, Istanbul Yiyi Gao, Shanghai Gary Gong, Shanghai Madeleine Hinton Daniel Macfarlane Pete Roberts Charles de Meester Carmen Eleta Neelan Patel Lisa Mitchell Unit T, Reliance Wharf, 2-10 Hertford Road, London, N1 5ET Telephone: +44 20 3301 6510, Email: info@metalsfocus.com Bloomberg Metals Focus Launch Page: MTFO Bloomberg chat: IB MFOCUS www.metalsfocus.com ISBN : 978-0-9935876-8-9 Metals Focus Precious Metals Investment Focus 2017/2018 PRODUCED BY WITH THE SUPPORT OF

Metals Focus Precious Metals Investment Focus 2017/2018 - Degussa

Precious Metals Investment Focus 2017/2018 About Metals Focus Metals Focus is one of the world’s leading precious metals consultancies. We specialise in research into the global gold, silver, platinum and palladium markets, producing regular reports, forecasts, proprietary data and bespoke consultancy. The quality of Metals Focus’ work is underpinned by a combination of top-quality desk-based analysis, coupled with an extensive program of travel to generate ’bottom up’ research for our forecasting reports and consultancy services. Our analysts regularly travel to the major markets speaking to contacts from across the value chain from producers to end-users, to obtain irst hand and unique information for our reports.

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Whilst every care has been taken in preparing the information published in this Report, Metals Focus Ltd does not guarantee the accuracy or currency of the content. Metals Focus Ltd does not accept responsibility for any errors or omissions and accepts no liability for any loss or damage howsoever arising, nor to any third party in respect of this Report.

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Metals Focus Precious Metals Investment Focus 2017/2018 - Degussa

Precious Metals Investment Focus 2017/2018 7 11 16 26 47 58 64 78 1. Executive Summary Introduction 7 Gold 8 Silver 8 Platinum 9 Palladium 9 2. Price and Market Forecast Introduction 11 Gold 12 Silver 12 Platinum 13 Palladium 14 3. Price Review Introduction 16 Gold 16 Silver 20 Platinum 22 Palladium 24 4. Mining Equities Introduction 26 Gold Mining 28 Gold-Silver & Silver Mining 34 Platinum Group Metal (PGM) Mining 38 Streaming & Royalty Equities 42 Focus Box: Mining Equities Proile 27 Focus Box: Streaming & Royalty Companies’ Proile 42 Focus Box: Precious Metal Mining Indices 43 Focus Box: Precious Metal Mining Funds & ETFs’ Proile 44 5.

Exchanges & OTC Market Introduction 47 Gold 48 Silver 53 Platinum 55 Palladium 56 Focus Box: Commodity Exchanges Proile 47 Focus Box: Precious Metals in the Over-the-Counter and Allocated Metal Account Markets 50 Focus Box: The New Era for Gold Benchmarks 52 6. Exchange Traded Products Introduction 58 Gold 59 Silver 59 Platinum & Palladium 62 Non-physically Backed and Basket ETPs 63 Focus Box: Precious Metal ETPs Proile 58 7. Physical Investment Introduction 64 Gold 66 Silver 71 Platinum & Palladium 76 Focus Box: Physical Investment Proile 64 Focus Box: The Changing Dynamics of Indian Physical Investment 67 Focus Box: Precious Metals Retirement Accounts 72 Focus Box: Gold Jewellery as a Form of Investment 75 8.

Appendices Contents

Metals Focus Precious Metals Investment Focus 2017/2018 - Degussa

Introduction In many ways, the global macroeconomic and geopolitical backdrop has been positive for gold and the wider precious metals complex in 2017. Monetary policy has remained accommodative across all major currencies, with real and in many cases even nominal short term interest rates having been negative throughout the year. Focusing on the all-important US monetary policy, the year saw market consensus increasingly question both the speed and extent of forthcoming policy rate hikes. In contrast, investors have been eyeing the possibility for the ECB tightening cycle to commence. Meanwhile, the euphoria that Mr Trump’s election had fuelled initially has in large part dissipated, as the new administration has failed to deliver on some of its most widely publicised plans.

Related to these points, the dollar has spent much of the year in a downtrend. The year has also seen a lurry of geopolitical tensions. Among these, North Korea’s nuclear weapons programme and increasingly incendiary comments out of both that country and the US stand out. In Europe, the irst few months of the year saw growing concerns about the rise of populism within Europe, though the outcome of the elections that took place in the year has helped ease these fears. Finally, the unconventional nature of President Trump and his confrontational comments towards a number of traditional allies of the US create a wider feeling of uncertainty.

With all this in the background, one may wonder why precious metals prices have not fared better. Other than palladium, that has beneited from its strong fundamentals, price performance for the sector may have disappointed. Gold, for example, has trended up over the year, but failed to break its 2016 peak and it looks like the full year average will be a mere 2% higher y/y. Silver and platinum, meanwhile, have been moving sideways for most of 2017, the latter heading towards a full year average decline. Behind such lacklustre performance lies a reticence by professional investors to move into gold.

In large part, this relates to the lack of an obvious trigger for material price upside in the short to medium term. Other than that, investors clearly appreciate that tail-risks abound, including a major equity market correction, the North Korean war of words spiralling into full blown military conlict or a liquidity crisis erupting in China. However, the probability of each event is seen as low. Importantly, given the continued strength of equity markets, investors are mindful of the opportunity cost of exiting that ield too early, even in part. Looking ahead, we believe that this backdrop represents both a headwind and opportunity for precious metals.

On the one hand, unless one of the risks crystallise, it is diicult to see mainstream investors returning to the space in a large way. On the other, given their limited involvement in gold and, in contrast, their extended positioning in equities, when the expected Executive Summary Chapter 1 – In spite of a broadly favourable economic backdrop, growth in precious metals investment has been limited in 2017. – Net investor longs in futures recorded decent gains, but these are against relatively light positioning at the start of year following heavy sell-ofs in late 2016. – ETP demand has grown modestly, aside from a decline in the palladium market.

– Bar and coin sales have fallen for silver and platinum, with gold rising modestly.

2017 Precious Metals Price Performance *Index, 2nd January 2017 =100 Source: Metals Focus 90 100 110 120 130 140 150 Jan-17 Apr-17 Jul-17 Index* Gold Silver Platinum Palladium Precious Metals Investment Focus 2017/2018 7

Metals Focus Precious Metals Investment Focus 2017/2018 - Degussa

Chapter 1: Executive Summary 8 Precious Metals Investment Focus 2017/2018 correction in the latter comes, this should result in hefty inlows into gold and, to some extent, also other precious metals. Gold This September, improved investor demand saw gold touch a 13-month high of $1,358, generating an intra-year gain of around $200. This however came short of the 2016 high, and was followed by liquidations that took the price down to the $1,280s.

Through to the price peak, investors’ net long Comex positions more than doubled intra-year to 25Moz (787t), while ETP demand rose by 9% this year to 69.0Moz (2,145t). OTC positions, however, seem to have seen modest inlows. Overall, these relatively modest gains relect the aforementioned lack of conviction among large investors. While there is recognition of a generally supportive macro and geopolitical backdrop for gold, many institutional investors have not returned to the market. Some of the gap has been illed by machine-driven funds, that normally lack long-term commitment to one market.

One silver lining of investors’ reticence is the light positioning and, given the uncertain macroeconomic backdrop, gold’s price outlook can still be seen to have good potential. It was also signiicant that gold established a series of higher lows this year, which may encourage those professional investors mindful of a still broadly unsupportive supply/demand backdrop. Mine output in 2017 for instance remains near record highs, while jewellery fabrication continues to languish at multi-year lows. Although investors have watched Indian imports improve sharply, this compares with an exceptionally weak 2016.

Furthermore, this upturn is being ofset by uninspiring demand in other key markets, notably China. One positive development within the physical market is the expected rise in retail investment this year. Even so, a 5% lift is modest and the global total remains signiicantly lower than over 2010-13. The increase comprises a dramatic rise in the Middle East, plus modest gains in Europe, India and East Asia, which are nearly ofset by a slump in the US (the latter relecting disillusionment with gold’s lack of price action for much of 2017). Silver This year so far, silver has underperformed gold, with the former rising by less than 10%.

This may surprise as silver’s strong, but more volatile, relationship to gold tends to see it outperform in a rising market. Instead, silver has struggled, with levels today some 20% down on last year’s highs. In particular, silver had to contend with a mid-year drag from a sell-of in some industrial metals. Moreover, silver has sufered from its disadvantage over gold, in that the wealth management sector, that have been buyers this year, typically favours gold. Aside from the drop in coin and bar demand, interest in silver ETPs has been mixed; having seen global holdings hit a record high in July of 682Moz (21,216t), a subsequent retreat saw these gains wiped out.

Similarly, net Comex longs achieved a record high in April of 584Moz (18,169t), but have since fallen quite sharply. However, even if an under-performer this year, we still believe that silver is likely to rally strongly looking further out, when the case for precious metals’ upside becomes clearer.

Value of Global Physical Investment in 2017* ($47.6Bn) NB: Value of palladium retail investment in 2017 is forecast to be $0.02Bn; *based on Metals Focus’ demand and prices forecasts Source: Metals Focus Gold ($44.3Bn) Platinum ($0.3Bn) Silver ($3.0Bn) Five-Year Precious Metals Price Performance * Index, 3rd September 2012=100 Source: Bloomberg 40 60 80 100 120 140 160 Sep-12 Mar-14 Sep-15 Mar-17 Index* Gold Silver Platinum Palladium

Chapter 1: Executive Summary 9 Precious Metals Investment Focus 2017/2018 Platinum The rise in some areas of platinum investment could be viewed as a sign of improved sentiment.

In particular, net Nymex long positions have risen 34% intra-year to 1.9Moz (60t), which has made up for a muted rise in ETPs (+2% to 2.4Moz, 75t). However, the gains in the futures market need to be set against a sharp drop in late 2016. Moreover, this compares poorly with net long gold positions (+115%). That the growth in platinum investment has fallen short relects its challenging supply/demand conditions. Looking at these in some detail, meaningful cuts in South African output continue to look unlikely, hence our 2017 forecast of a mere 1% fall in global mine supply. More important than the lack of producer discipline is investors’ take on the outlook for demand.

This relates to the challenges facing European light duty diesel sales. It is worth remembering that the light duty diesel segment of autocatalyst demand accounts for over a quarter of global platinum oftake. Until recently, rising overall car sales in Europe and higher loadings, due to the implementation of Euro 6 emissions limits, have ofset the impact of this loss of market share. However this is changing. Already, for 2017 and 2018 we are forecasting 1% and 3% y/y declines in platinum demand from the auto sector. This trend seems likely to continue and it is a major concern for investors.

We also forecast a marked drop in coin and bar demand this year. Overall, platinum investors must therefore contend with a growing physical surplus, which is also set to continue for some years to come. Returning to this year, this will result in further growth to already sizeable above-ground stocks which, by end- 2017, are estimated to reach some 9Moz (270t).

Palladium The strength in the palladium price has been nothing short of impressive; it has clearly been the best performer across the precious metals so far, rising by more than 30% intra-year. The scale at which it has gained ground on platinum has also focussed attention, with palladium moving to a premium over platinum in late September, for the irst time since 2001. This relects palladium’s strong fundamentals, characterised by physical deicits since 2012. These have seen above-ground stocks fall from 18Moz (560t) at end-2010 to an end-2017 forecast of 14Moz (430t). In addition, investor interest in palladium has grown following Trump’s victory, seen as a boost to pro-cyclical assets.

This has been relected in the strong inlows into Nymex investor positions over the year. In contrast, ETP palladium holdings are down year-to-date, suggesting some of the longer-term investors in the metal decided to take advantage of rising prices and take some proit. Meanwhile, the over-the-counter and physical markets have seen investor buying, including continued speculative purchases in China. These contributed to a liquidity squeeze mid-year that, while only brief, served as a warning for future potential tightness. Looking ahead, there is a risk that some of the inventory that has been moved to China will be sold and this would weigh on palladium.

Even so, this would be a short-term risk and would not detract from the metal’s strong fundamentals, which should maintain investor interest.

Value of ETP Holdings at end-August 2017 ($113.1Bn) Source: World Gold Council, Bloomberg, Metals Focus Gold ($97.5Bn) Palladium ($1.5Bn) Platinum ($2.4Bn) Silver ($11.7Bn) Value of Net Long Positions* at end-August 2017 ($42.9Bn) *Net long investor positions in Comex/Nymex futures (basis non-commercial plus non-reportable open interest). Source: CFTC, Metals Focus Gold ($32.8Bn) Palladium ($2.3Bn) Platinum ($2.0Bn) Silver ($5.8Bn)

11 Precious Metals Investment Focus 2017/2018 Precious Metals Historic Spot Prices and Quarterly Forecast, US$/oz Source: Metals Focus, Bloomberg.

Forecast prices are quarterly averages. Introduction On balance, we believe that the wider macroeconomic backdrop remains positive for precious metals prices through to 2018. Crucial to this view is that monetary policies are likely to remain accommodative, with most major currencies seeing negative real rates for some time to come. Meanwhile, we believe that the downtrend that the US dollar has seen for much of the year will continue. Last but not least, we believe a US equity markets correction is likely within the next twelve months. The gold price will be the main beneiciary of these conditions, but silver and, to a lesser extent, platinum should also beneit.

For silver and platinum, the forecast year-on-year price rise will be higher than for gold in 2018. In part, this relects their underperformances this year and so we expect both to make up some lost ground. The fact that the size of the white metal markets are much smaller and hence less liquid than gold will mean that speculative demand will have a more pronounced impact on prices. Finally, palladium is projected to post the smallest price rise in 2018 among the four metals, but this is against a new all-time high this year. Price & Market Forecast Chapter 2 Gold Silver Platinum Palladium 1,050 1,150 1,250 1,350 1,450 Jan-16 Jan-17 Jan-18 13 15 17 19 21 23 Jan-16 Jan-17 Jan-18 700 800 900 1,000 1,100 1,200 1,300 Jan-16 Jan-17 Jan-18 400 500 600 700 800 900 1,000 Jan-16 Jan-17 Jan-18 – Gold prices are forecast to rise 10% y/y to an average of $1,400 next year, as low interest rates and disappointment about US equities encourage investment.

– Silver will be lifted by gold, with the 2018 average forecast to hit $20.60, up 18% y/y. – Platinum will also enjoy positive spill-overs from gold, rising to $1,090 (+12% y/y). – Palladium’s rally is expected to slow, but a new record annual average of $880 is forecast for 2018.

Chapter 2: Price & Market Forecast 12 Precious Metals Investment Focus 2017/2018 US Inlation Source: Bloomberg -3 -2 -1 1 2 3 4 5 6 2008 2010 2012 2014 2016 % CPI Urban Consumer PCE Core Price Index Gold Metals Focus expects the global macroeconomic environment to remain generally favourable for gold investment and hence prices for the rest of 2017 and well into 2018. Of course, the prospect of one further rate hike in late 2017, two to three more in 2018 and the start of balance sheet normalisation by the Fed poses headwinds for the metal. However, the speed at which monetary authorities move towards ‘normal’ monetary policies will continue to be slow and probably no faster than markets are currently pricing in.

Even assuming inlation remains at current levels, this will perpetuate the current negative or low short-term real interest environment in the US. Meanwhile, negative rates are also seen across other key currencies, importantly including the euro, even taking into account the growing likelihood of the ECB starting to tighten policy in the near future.

Another key driver behind the forecast return of investor interest in gold will be the future performance of the US economy, which we believe is likely to fall short of expectations. Looking ahead, we are sceptical about the current US administration’s ability to raise infrastructure spending, cut taxes, reduce regulation and renegotiate trade deals, and this is likely to generate further disappointment. Importantly, we believe that all this will eventually result in a sizeable correction to US equities, prices for which have looked excessively high for some time now.

The above alone should ofer gold a boost later in the year and into the next.

The likelihood for geopolitical risks to remain in the background should also help. As the opportunity cost of investing in gold remains relatively low, we believe that institutional investors will once again be convinced by the positives. In contrast, the scope for a rise in the gold price stemming from developments in the physical markets seems far less compelling. Total supply, for instance, is forecast to rise marginally, as irming prices encourage a modest rise in recycling. On the demand side, jewellery oftake is expected to bottom out this year, before recording its irst annual gain in ive years in 2018.

However, overall volumes will remain relatively low by historical standards. As a result, the market is expected to remain in a sizeable surplus next year, although these excess supplies should be easily absorbed by institutional investors.

Silver With its close link to gold, silver is projected to beneit from a recovery in investor interest in safe haven assets. Given the relatively light additions to investor positions so far in 2017, this should leave scope for healthy gains next year. In addition, the fact that the size of the silver market is smaller and hence less liquid than gold will amplify the impact of speculative interest on the price. With these factors in mind, we forecast silver to average $20.60 next year, with the gold:silver ratio falling to the mid-60s in the fourth quarter of 2018.

Gold Supply & Demand Moz 2016 2017F 2018F Supply Mine Production 104.9 104.2 104.1 Recycling 41.7 38.6 39.5 Net Hedging Supply 1.1 0.3 - Total Supply 147.7 143.1 143.7 Demand Jewellery 64.0 63.9 65.0 Industrial 10.4 10.5 10.7 Physical Investment 33.1 34.8 35.9 Net Hedging Demand - - 0.6 Oicial Sector Purchases 12.5 11.9 11.3 Total Demand 120.0 121.0 123.5 Market Balance 27.7 22.0 20.1 Gold Price (US$/oz) 1,251 1,275 1,400 Source: Metals Focus

Chapter 2: Price & Market Forecast 13 Precious Metals Investment Focus 2017/2018 In contrast to our bullish expectations for institutional investment next year, it is diicult to argue that silver will enjoy much support from supply- demand developments. For the third year in a row, the silver market is expected to remain in a fundamental surplus of around 70Moz. The main disappointment remains physical investment, the key culprit for the silver market moving into a major surplus over 2016-17. Even though demand for bars and coins is expected to recover next year, this is against a low base, with the global total still the second lowest this decade.

In essence, this relects the ongoing weakness in the US and India.

A more positive picture is expected for fabrication (excluding bars and coins), as industrial oftake is forecast to grow by 2% to a new all-time high, thanks to rising end-use in a wide range of sectors such as solar and automotive. Jewellery and silverware oftake is also forecast to grow, though we expect these gains will be modest because of projected price rises causing damage in such countries as India. Jewellery will also receive a beneit from structural change in the West and China, as higher margin styles gain market share, making consumption more price inelastic. On the supply side, a marginal rise in mine output and a recovery in recycling will see total supply record its irst annual increase in four years.

Platinum Our forecast recovery to an annual average price of $1,090 next year is almost entirely down to platinum’s positive correlation with gold. Even so, the expected 11% rise may surprise as that means platinum will outperform both gold and palladium. However, it is worth stressing that this is against low prices in 2017. Platinum is the only precious metal on track to record successive price losses in 2016 and 2017 (basis annual averages). In addition, relatively light positioning in futures creates the prospect for these positions to grow. In a small market, this could therefore have a greater impact on platinum prices than is the case elsewhere.

Finally, even though platinum’s poor fundamentals are weighing on investor conidence, much should already be factored into current prices, although their negative impact could easily reappear looking further out. Despite some 50% of the South African platinum industry being loss making during 2016 on an AISC basis, we do not believe this will translate into steep production cuts in the foreseeable future, given the high unemployment rate in the country and potential political pressures closures would lead to. This situation, along with a modest rise in autocatalyst recycling, will keep annual platinum supply above 8Moz per annum during 2017-18.

On the demand side, we expect to see little change next year in the global total. Autocatalyst demand is expected to disappoint, with a second consecutive decline. Moreover, its questionable long-term outlook, in the face of diesel’s declining market share of European sales, is hurting investor conidence in platinum. Increasingly negative sentiment and policies towards the technology seem to be accelerating this process. Next year, diesel’s share in Europe is forecast to drop to 41%, compared Silver Supply & Demand Moz 2016 2017F 2018F Supply Mine Production 888 857 867 Recycling 161 161 162 Government Sales 1 1 1 Net Hedging Supply - 5 15 Total Supply 1,051 1,024 1,045 Demand Industrial 487 502 509 Photography 38 36 34 Jewellery & Silverware 234 244 251 Physical Investment 212 170 184 Net Hedging Demand 12 - - Total Demand 985 952 979 Net Market Balance 66 72 66 Silver Price (US$/oz) 17.14 17.60 20.60 Source: Metals Focus Platinum Supply & Demand Koz 2016 2017F 2018F Supply Mine Production 6,209 6,153 6,026 Recycling 1,826 1,898 1,981 Total Supply 8,035 8,051 8,007 Demand Autocatalyst 3,334 3,305 3,217 Jewellery 2,308 2,302 2,311 Industrial 1,713 1,795 1,821 Physical Investment 628 266 209 Total Demand 7,983 7,668 7,557 Net Market Balance 51 383 450 Platinum Price (US$/oz) 989 970 1,090 Source: Metals Focus

Chapter 2: Price & Market Forecast 14 Precious Metals Investment Focus 2017/2018 to over 55% at the start of this decade. Turning to jewellery, the second biggest demand component, this has also failed to beneit much from soft prices, as demand in China continues to struggle with a structural change in consumer preferences and a shift to lighter platinum pieces. Retail investment, the other sizeable price sensitive area, is expected to continue easing, relecting disappointment over platinum’s persistently signiicant discount to gold. Against this backdrop, the platinum market is expected to see a growing surplus, which will push stocks to around 9Moz (280t) by end-2018, equivalent to almost 15 months of fabrication demand.

Palladium Palladium has been the best performer among the precious metals during 2017-to-date, rising by over 30% from the start of the year, as it rallied to touch $1,000. In spite of a pull-back thereafter, it has been trading above $900 at the time of writing. Palladium’s spectacular gains can be attributed to improvements in its already favourable supply/demand fundamentals, growing conidence in the general commodity sector following Trump’s election win and investors’ fading memories of painful losses in palladium in 2014-15. More importantly, even though above-ground inventories are still sizeable, they have been falling since 2012.

In addition, strong speculative demand for physical metal in China has seen a sizeable part of the above-ground stockpile removed from the terminal markets and thus the pool of liquidity available to the OTC market. Since late 2016, this has been accompanied by persistent backwardation in palladium futures, a typical response to tightening supplies.

Going forward, given our doubts about the US economy, there is a good chance that investor sentiment towards risky assets will weaken, which will inevitably afect palladium. With this in mind, we expect further proit taking to emerge in late 2017 and early 2018, although the scale of such liquidations should be limited. In addition, after notable gains this year, the palladium price may well need a period of consolidation before moving higher. From mid-2018 onwards, however, the price is anticipated to pick up again before trading above $1,000 later in the year. This in turn will send the annual average to a new record of $880 next year, up by 6% y/y.

This renewed rally is largely premised on assumptions that palladium autocatalyst oftake will continue to post decent gains next year due to growth in gasoline car sales in emerging markets as well as Europe where palladium should beneit from rising gasoline penetration. To some extent, its price strength and tightening supplies have already become major concerns for OEMs, yet any measure to reduce loadings would take time to implement and so it is unlikely that this would materially afect demand in the next couple of years. On the supply side, the total is expected to rise, but not by enough to outweigh forecast gains in fabrication demand.

The palladium market is therefore expected to remain in a sizeable deicit next year, a trend that started in 2012. Above-ground stocks of palladium as a result are expected to fall to around 12Moz (380t) by end-2018, equivalent to some 14 months of fabrication demand. This marks the irst time that palladium’s demand cover drops below platinum. Platinum:Palladium Ratio Source: Bloomberg 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 Jan-10 Jan-12 Jan-14 Jan-16 Ratio Palladium Supply & Demand Koz 2016 2017F 2018F Supply Mine Production 6,766 6,675 6,685 Recycling 2,373 2,401 2,524 Total Supply 9,139 9,076 9,210 Demand Autocatalyst 7,980 8,229 8,339 Jewellery 283 287 284 Industrial 2,039 2,080 2,006 Physical Investment 11 24 24 Total Demand 10,313 10,619 10,654 Net Market Balance -1,174 -1,543 -1,444 Palladium Price (US$/oz) 615 830 880 Source: Metals Focus

16 Precious Metals Investment Focus 2017/2018 Chapter 3: Price Review Introduction The precious metals have, so far in 2017, all enjoyed year-to-date gains. The most eye-catching has been palladium’s stellar surge of 37% to 27th September (and it achieving a premium to platinum). Few would see that as a major shock as strength at some point was always expected due to its physical tightness, including strong speculative interest. Gold’s rise of 11% to late September was still noteworthy, especially the rally above $1,350 as North Korea kicked the market out of any summer slumber. That platinum managed any rise (2%) could be viewed as a modest success, given its unsupportive market fundamentals, but that highlights how platinum can track the gold in the short to medium term.

Silver, however, is perhaps this year’s surprise underperformer as a year-to-date rise barely greater than platinum’s has occurred at a time when a cross-metal rally should generate more signiicant price gains due to its less liquid market. Silver’s sluggishness has left the gold:silver ratio at a high of around 75:1 - a level that does not sit well with bull market conditions. More interest has been shown in the platinum-palladium spread as the gulf in their fundamentals and bouts of investor buying of that story were widely expected to push palladium to a premium. This was realised on 27th September, which marks a radical change from early 2017’s platinum premium of over $200.

As for the gold-platinum spread, most market participants look to have adjusted to the new reality of a platinum discount of well over $300.

Gold With recent prints in the $1,350s, it is easy to forget how weak prices were at the beginning of the 12 months under review; from a high in September 2016 of $1,353, prices fell to a 10-month low of $1,123 by mid-December. The market, however, soon perked back to life this year, with levels back over $1,250 by late February. After largely rangebound conditions to mid-August, vigour then returned, with a decisive break out to a 13-month high of $1,358 on 8th September. Prices may have since eased, but gold’s year-to-date gain of 11%, as of late September, remains impressive. Key to the big picture has been dollar weakness; gold in euro terms has been lacklustre, being a fraction down on January 2017.

The initial price slide was partly down to growing expectations of a rate hike in December, which also helped trigger a rally in the dollar. Much of the early push came from Comex longs being closed out and this was joined later by selling in other arenas such as ETPs. This change was itself largely driven by the US presidential election on 8th November, as Trump’s victory was seen as decisively pro-growth, leading to marked gains in US equities. This was underpinned by talk of higher inlation, faster rate rises and hawkish Fed commentary. That and the growing likelihood of monetary Price Review Chapter 3 Precious Metal Prices’ Relative Performance, 2017* * Index: 2nd January 2017 = 100 Source: Bloomberg – Palladium, gold, silver and platinum saw respective intra-year price rises to 27th September of 37%, 11%, 5% and 2%.

– Palladium’s gains emerged as its tight fundamentals fed through to its irst real world liquidity scare this decade. – The other three, especially gold, were more driven by dollar weakness, sluggish US rate rises and geopolitics. – Investors were the prime driver of price gains, although interest from hedge funds and retail investors was generally limited 90 100 110 120 130 140 150 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Gold Silver Platinum Palladium Index*

18 Precious Metals Investment Focus 2017/2018 Chapter 3: Price Review policy divergence with other key economies meant further dollar strength. The price underside was also poorly defended by physical markets. Chinese demand for example was lacklustre, with irming SGE premiums more due to import licence restrictions. Indian demand also had to cope with the demonetisation of high value notes announced on 8th November. The turnaround in the market early this year was mainly due to a slide in the US dollar and receding expectations of three US rate hikes in 2017. A curbing of “Trump trade” exuberance was also apparent; equities did little more than tread water in January.

Politics elsewhere came to the fore as fears grew of market-unsettling victories for populists in Europe, in particular France. Physical demand in Asia was also supportive as Chinese buying was boosted by seasonal factors and trade optimism. Indian bullion imports also saw early gains on the back of low stocks and year-on-year comparisons being against a strike-hit 2016.

Prices then tried to push higher, but rallies into the $1,290s stalled in both April and June. Key to upward pressure was the return of dollar weakness and the inter-linked falling perceived chance of a September rate hike and the slide in US inlation from March. Falling inlation, however, also acted as a negative for gold, as did the actual, if expected, rate rises in March and June. Other factors were more actively bearish, including an equities rally in mid-May and a slide in oil prices from mid-April to late June. In addition, victories for mainstream parties in France and the Netherlands, and the apparent resolution of problems in Italian banking removed some uncertainty.

Those negatives for gold, however, never led to a rout, partly as strong y/y gains in Indian bullion imports helped defend the underside. More important though was the absence of aggressive shorting, outside of a brief window in July. This is thought to be largely down to concerns that, even if equities were trending ever higher, valuations were only getting more overblown in an era of endless turmoil in US politics and repeated failures to pass legislation. Others feared the market complacency implicit in the VIX’s record lows, and also important was the continuance of negative real rates for the medium term despite the fall in inlation.

Geopolitics then gave gold a shot in the arm with North Korea’s irst missile launch over Japan on 29th August. Gold received a further boost from fears of a retaliatory overreaction by the US, and the emergence of the debt ceiling issue in that country, an outcome made more complex by the cost of Hurricane Harvey’s damage. The rally was given extra fuel by Fed commentary that cast doubt on a rate rise in December and led to a fall in bond yields and the dollar. As a result, gold shot up to the earlier noted 13-month high of $1,358 on 8th September. Prices have since eased, which is understandable given easing geopolitical tensions and dollar strength.

Gains could have been stronger and more resilient, however, if there had been greater participation during the year from professional investors, particularly still equity-focused hedge funds. As normal, the fundamentals were more of a footnote for prices, if on balance mildly positive. The press and investors certainly noted that mine Probability of Fed’ Rates Being Unchanged by December 2017 * Percentage probability inferred by bond prices Source: Bloomberg Gold Prices & the US Dollar, 2017 Source: Bloomberg 1,000 1,100 1,200 1,300 1,400 20 40 60 80 100 Jan-17 Apr-17 Jul-17 Probability(%) Gold Prices Probability (%) US$/oz 90 92 94 96 98 100 102 104 1,100 1,150 1,200 1,250 1,300 1,350 1,400 Jan-17 Apr-17 Jul-17 Gold Price US Dollar Index(Inverted) US$/oz Index

Chapter 3: Price Review 19 Precious Metals Investment Focus 2017/2018 Gold Price High, Low, Close (London, US$/oz) and Key Events in 2016/2017 NB: Black line indicates daily trading range; Source: Metals Focus, Bloomberg 1,100 1,150 1,200 1,250 1,300 1,350 1,400 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 50 - Day Moving Average 100 - Day Moving Average 200 - Day Moving Average Donald Trump’s inauguration as President Fed raises rates by 0.25% to upper bound target of 1.00% S&P 500 Index passes 2,500 WTI at ytd low of $42 Emmanuel Macron elected President of France Comex net long positions fall to an 18-month low of 7.4Moz Gold's posts its 2017 low of $1,146 on the second trading day of the year North Korea’s irst missle launch over Japan Gold hits ytd high of $1,358 Angela Merkel wins a fourth term as Chancellor of Germany Indian Goods & Services Tax (GST) introduced Russian central bank added almost 800koz to gold reserves in March FOMC Meeting FOMC Minutes Fed raises rates by 0.25% to upper bound target of 1.25% DXY at ytd high of 103.8 DXY at ytd low of 91.0 Euro at 6-month high over $1.10 Populist PVV beaten in Dutch elections ETPs at 2016 high of 64.5Moz ETPs see largest daily outlow since July 2013 of 569koz Donald Trump elected President of the US Demonetisation initiative begins in India Fed raises rates by 0.25% to upper bound target of 0.75% Shanghai Gold Exchange Premium Index at 2016 high of 74.2 China producer price index at ive-year high Taiwan jets scrambled after Chinese navy enters Taiwan’s waters US 10-year treasury bond yields at 2016 high of 2.64% Uncertainty in EU politics spurs safe-haven buying S & P up 6% ytd to record high over 2,400 News of US inlation (CPE, March) falling to 1.6% VIX at record low US Senate rejects ACA repeal proposal Italy & EU Commission agree Monte Paschi bank rescue

20 Precious Metals Investment Focus 2017/2018 Chapter 3: Price Review production is set to fall for the irst time this decade. Mining also made headlines through output-curbing resource nationalism in places such as Indonesia. It also cannot have hurt sentiment that environmental matters will trim China’s output and hedging has stayed minimal. In addition, some comfort has been taken from global jewellery oftake running broadly lat y/y despite higher prices. However, central bank buying has eased and the market is aware of its growing reliance on just one country, Russia. Silver Similar to gold, silver had a tough time in late 2016 as it fell from over $20 in September to an 8-month low of $15.63 in December.

It managed a fair recovery to back over $18 as the new year began but since then it has underperformed its yellow cousin. After a rally to $18.65 in mid-April, silver trended down, rather than sideways, hitting a 15-month low of $15.19 in July. A rally then emerged but ran out of steam at the $18 mark in early September, leaving April with the current year-to-date high. This meant that, having oscillated in a rough range of 68-72 from September 2016 to April, the gold:silver ratio has risen to a new normal of around 75. Silver’s slide in late 2016 to below $16 was largely down to forces similar to those hitting gold, such as a rising dollar.

Of interest was that, even if the market was bearish, the gold:silver ratio did not soar, as might be expected given silver’s typically higher gearing. This was thought due to silver beneiting from the pro-growth hopes from the new Trump administration; not only could that directly boost silver demand (mainly in infrastructure projects), but prices also saw a boost from base metal strength, especially for copper. There was certainly scant support from the physical markets; Indian bullion imports in Q4.16 were down over 60% y/y for example. The drivers of the February rally over $18 were again similar to gold but, with prices so strong, it was of note that the gold:silver ratio only narrowed to an unexceptional 68.

This was due in part to reappraisals of Trump’s ability to boost US GDP growth (and so lift silver oftake). Some US retail investor interest also waned as “their” man was now in the White House, and Indian bullion imports were weak, down 16% y/y in January-February. Another characteristic favouring gold over silver concerns the impact of the wealth management sector. When these investors have been active in the precious metals space they have favoured gold over silver. Silver’s behaviour mid-year deserves analysis as prices weakened steadily, despite largely rangebound conditions in gold. This was in part down to silver’s industrial linkages, which left it vulnerable to the general slide in commodity prices from mid-April to late June.

The funds certainly were on the attack, with silver aggressively shorted from mid-April. In other arenas however, price dips below $16.50 and even more so $16.00 encouraged bargain hunting. ETP holdings for instance rose fairly steadily to a historic high in mid-July and US Eagle sales that month were up 69% y/y. It was other agents, however, that sparked of the late August rally over the $18 mark. The key driver was again gold’s own rally, on the back of such drivers Silver Prices and the Gold:Silver Ratio, 2017 Source: Bloomberg 66 68 70 72 74 76 78 15 16 17 18 19 Jan-17 Apr-17 Jul-17 Silver Price Gold:Silver Ratio US$/oz Ratio Gold Investment *Combined non-commercial and non-reportable positions.

Source: CFTC, Bloomberg 50 55 60 65 70 75 80 10 20 30 40 Jan-16 Jul-16 Jan-17 Jul-17 Comex Net Long Positions* (LHS) ETP Holdings(RHS) Moz Moz

Chapter 3: Price Review 21 Precious Metals Investment Focus 2017/2018 Silver Price High, Low, Close (London, US$/oz) and Key Events in 2016/2017 NB: Black line indicates daily trading range; Source: Metals Focus, Bloomberg 15 16 17 18 19 20 21 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 50 - Day Moving Average 100 - Day Moving Average 200 - Day Moving Average Donald Trump’s inauguration as President Fed raises rates by 0.25% to upper bound target of 1.00% S&P 500 Index passes 2,500 Dow Jones Index closes above 22,000 for the irst time Silver hits ytd high of $18.66; highest since mid-November 2016 Angela Merkel wins a fourth term as Chancellor of Germany Indian Goods & Services Tax (GST) introduced FOMC Meeting FOMC Minutes Fed raises rates by 0.25% to upper bound target of 1.25% US Mint Eagle Sales Q1.17 8.0Moz (-46% y/y) US Mint Eagle Sales Q2.17 4.3Moz (-63% y/y) US Mint Eagle Sales Q4.16 7.1Moz (-35% y/y) US Mint Eagle Sales Q3.16 4.3Moz (-70% y/y) North Korea’s irst missle launch over Japan Fed raises rates by 0.25% to upper bound target of 0.75% Donald Trump elected President of the US Demonetisation initiative begins in India US dollar strengthens, GBP falls to 31-year low Au:Ag ratio at ytd low of 67.4 Copper prices at a 5-month low Au:Ag ratio at ytd high of 79.4 Copper prices at 3-year high ETP holdings at record high Comex gross short positions at record reporting low US Mint Eagle Sales +69% y/y in July Indian bullion imports in May at near 2-year high of 771t Operations suspended at the Escobal silver mine in Guatemala

22 Precious Metals Investment Focus 2017/2018 Chapter 3: Price Review as the jump in geopolitical tensions over North Korea, a slide in the dollar and expectations for slower US rate rises. Much of this push came from heavy short covering on Comex, whereas gross longs barely moved. As with gold, silver fundamentals’ price impact was slight, although in this case mildly bearish. As intimated above, the main negative has been retail investment. Its weakness in the US has also had a multiplier efect as reports on the slump in Eagle sales have rarely been followed by talk of the compensating shift to 1oz rounds.

Investors have been aware of the surge in Comex stocks, which has been attributed to this weak retail investment in the US and also India. As suggested by still decent premiums on four 9s silver, industrial oftake has been good and there were supportive developments elsewhere. Mine output for instance is set to fall this year and resource nationalism (for example in Guatemala) has been in the news. Platinum The year so far may have seen moments of strength, in the form of rallies over $1,000 in February and early September. However, this was usually just on the back of gains elsewhere in the precious metals complex.

The metal’s already poor fundamental outlook also tended to deteriorate as the year progressed. This helps explain the ease with which prices were knocked back in May and July towards December 2016’s 11-month low of $890. That also lies behind the marked widening in its discount to gold and the evaporation of its premium over palladium. As we go to press, platinum has again been pushed back (to around $920), virtually wiping out any year- to-date gain and making it the year’s worst performing precious metal. Prices today may seem soft, but losses were greater in the second half of 2016 as they fell from over $1,190 in August to below $900 in December.

There were many real world reasons for this, including the absence of voluntary supply cuts in South Africa, successful wage negotiations with that country’s trade unions, concerns about diesel following announcements of future diesel bans in certain European cities, and soft jewellery demand in China. All that helped trigger the heavy shorting on Nymex seen in late 2016. Weakness in gold and silver prices were scarcely a help either, although it is worth noting that the discount to gold narrowed from over $330 in October to the low $200s by December. This interplay between platinum’s sizable and growing market surpluses and gold’s macro-dominated price moves have then come to characterise price behaviour so far this year.

Platinum certainly began 2017 in quite a positive manner as it rallied to what proved to be the high for the year so far of $1,045 in late February. This phase was very much down to strength in gold, itself due to such factors as a weak dollar, and it was of note that platinum’s discount to gold held fairly steady at the time. There was certainly a perception too that platinum had moved into oversold territory, triggering decent short covering on Nymex. These opening months were also the only time in the 12 months under review when platinum’s premium to palladium did not weaken notably. This we ascribe in part to faltering Platinum Prices & Their Gold Diferential Source: Bloomberg -400 -350 -300 -250 -200 -150 850 900 950 1,000 1,050 Jan 17 Apr 17 Jul 17 Platinum Price (LHS) Gold - PlatinumDifferential(RHS) US$/oz US$/oz Silver Investment *Combined non-commercial and non-reportable positions.

Source: CFTC, Bloomberg 575 600 625 650 675 700 100 200 300 400 500 600 700 Jan-16 Jul-16 Jan-17 Jul-17 Comex Net Long Positions* (LHS) ETP Holdings(RHS) Moz Moz

Chapter 3: Price Review 23 Precious Metals Investment Focus 2017/2018 Platinum & Palladium Price High, Low, Close (London, US$/oz) and Key Events in 2016/2017 NB: Black line indicates daily trading range; Source: Metals Focus, Bloomberg 50 - Day Moving Average 100 - Day Moving Average 200 - Day Moving Average Platinum Palladium S&P 500 Index at record high of 2,500 Northam Platinum buys Glencore’s Eland mine for US$175M South African President ires Finance Minister USD:ZAR strengthens to 12.3 China Car Sales Q4.16 +15.7% y/y Palladium’s discount to platinum below US$50/oz, lowest level in 15 years US Car Sales Q4.16 +0.6% y/y European Car Sales Q3.16 +1.8% y/y London mayor announces charge for older vehicles entering the city centre, efective October this year China Car Sales Q1.17 +5.1% y/y US Car Sales Q1.17 -1.0% y/y European Car Sales Q1.17 +7.2% y/y Toyota announces new model of catalyst, designed to use 20% less precious metal Platinum fall to ytd low of $891; lowest since December 2016 Palladium gets within 5¢ of $1,000; highest since level February 2000 Platinum’s discount to gold widens over $350 Platinum ETP holdings hit 2.54Moz, their highest level since November 2015 Platinum ETP holdings fall to a three-month low of 2.36Moz Nymex net long positions fall to an eight-year low of 513koz Net long positions on Nymex hit a three- year high of 2.57Moz Palladium ETP holdings fall to a seven and a half year low of 1.42Moz China Car Sales Q3.16 +27.7% y/y US Car Sales Q3.16 -1.3% y/y China Car Sales Q2.17 -0.9% y/y US Car Sales Q2.17 -2.8% y/y European Car Sales Q4.16 +3.3% y/y European Car Sales Q2.17 +1.4% y/y Sibanye completes acquisition of the Rustenberg mine Platinum holdings in ETPs fall to a 3-year low of 2.25Moz AMCU sign 3-year wage deal Mayors of Paris, Athens, Madrid and Mexico City pledge to ban diesel vehicles from city centres by 2025 Donald Trump elected president of United States China lifts auto purchase tax to 7.5% instead of 10% for 2017 Palladium prices at a premium to platinum for the irst time in 16 years Volvo announces no new pure internal combustion engine models launched from 2019 onwards French Government announces ban on internal combustion engine sales from 2040 UK Government announces ban on internal combustion engine sales from 2040 Pt:Pd ratio at ytd high of 1.36 Yen platinum price falls below 3,300/g LMC: June diesel share in Europe at 45% versus 50% in June 2016 800 900 1,000 1,100 1,200 500 600 700 800 900 1,000 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17

24 Precious Metals Investment Focus 2017/2018 Chapter 3: Price Review conidence in Trump’s ability to deliver higher GDP growth, which buoyed gold and with it platinum, but hit industrial metals, including palladium. Platinum’s subsequent slide back below $900 by early May was of note as it was in this two-month window that the discount to gold blew out to what now seems to be the new normal of $300-$350. With gold trending sideways to higher at the time, platinum-speciic drivers were needed and here we would single out downgrades to diesel’s forecast share of the European car market. Japanese investors, for a long time some of platinum’s most ardent supporters, also appear to have become sorely disillusioned with platinum’s persistent and growing discount to gold.

The sustenance given to South Africa’s platinum sector from the price strength of its palladium and rhodium by-products was also seen as postponing the cuts in output needed to balance the platinum market. Prices then saw a brief rally in May, due partly to rand resilience despite the iring of South Africa’s inance minister, which raised talk of output cuts. However, this quickly unwound in June, partly through news from Volvo and the French government on moves away from pure internal combustion engines to hybrids and electric vehicles. A greater rally then began in July that took prices briely back over $1,000 in early September.

This was almost entirely down to gold-tracking as that metal powered ahead on the back of such events as rising tensions over North Korean actions and the reappearance of the US debt ceiling problem. There was certainly nothing of substance in platinum’s fundamentals at the time, with it becoming clearer then that Chinese jewellery demand was far softer than had been expected and that autocatalyst scrap was on the rebound. With this background story in play, it came as little surprise that platinum followed gold lower during the last few weeks as it reacted to drivers such as the easing of geopolitical tensions and hawkish talk at the September FOMC.

Palladium Unlike the other precious metals, palladium only saw temporary weakness in late 2016, as it fell from over $700 in late September to a 3-month low of $611.52 by the end of October. From that point, however, palladium barely looked back, rallying this year to an intra-day high of $999.95 on 4th September - levels last seen in February 2001. (For the record, the market actually saw ofers at just over the $1,000 mark at that peak.) Also dramatic was the disappearance of the platinum:palladium premium; it fell fastest (from over $370 to under $150) in November 2016 but more eye-catching has been its move to a slight premium on 27th September.

The fact that prices marched upwards with only brief retreats en route is largely down to the metal’s yawning and growing market deicits (this stood at 1.2Moz in 2016 and is forecast to reach 1.5Moz this year). Both investors and end users are aware of this general situation and also the fact that the deicit is likely to persist at high levels for the next few years as both supply and demand remain relatively price inelastic. However, this situation has been in existence for some time and so, if this broad outlook was already Palladium Prices & Their Platinum Diferential Source: Bloomberg Platinum Investment *Combined non-commercial and non-reportable positions.

Source: Bloomberg 2.2 2.3 2.4 2.5 2.6 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Jan-16 Jul-16 Jan-17 Jul-17 NYMEX Net Long Positions* (LHS) ETP Holdings(RHS) Moz Moz -50 50 100 150 200 250 300 650 700 750 800 850 900 950 1,000 Jan 17 Apr 17 Jul 17 PalladiumPrice (LHS) Platinum - PalladiumDifferential(RHS) US$/oz US$/oz

Chapter 3: Price Review 25 Precious Metals Investment Focus 2017/2018 factored into prices on 1st January, we need to unearth reasons as to why prices were still able to motor ahead. One issue is that several investors had had their ingers burnt as the price slumped from over $900 in September 2014 to almost $450 in January 2016.

Understandably, it took a while for such players to renew their faith in this illiquid market, and the solid 21% intra-year price gain that 2016 enjoyed did much for this. Another factor was the surprise of Trump’s victory in the US presidential election as the pro-growth sentiment unleashed helped pro-cyclical assets, including the base metals and, to a degree, palladium. It was also useful that this managed to occur in conjunction with strength in the other precious metals as all were in a position to beneit from a weaker dollar and slower forecast US rate rises. There were also speciics to palladium’s supply/demand that intensiied pressure.

On the supply side, news mid-year on poor numbers for Canada meant that initial estimates of slight growth in global output in 2017 swung to mild losses. There were also various diesel scares; while more important for platinum, there was an implicit lift for palladium due to the beneit of European drivers switching to gasoline-engined cars. Furthermore, initial fears that Chinese car sales could fall sharply due to tax changes eased as the year progressed, with the country’s light vehicle sales up 2.6% y/y for January-August 2017. The market also digested a fall in US sales with ease as the dip was only modest and from a record high, and sales of larger cars and trucks (with their heavier PGM loadings) tended to perform well.

Another consideration is that the year began with many taking a fairly calm view of real world availability of metal due to comparatively generous above-ground stocks. However, the market was shocked out of this complacency as the theoretical situation of constrained liquidity was made real. This was most marked in June when lease rates spiked and the price went back over $900 intra-day. In large measure, this early warning was down to semi-speculative purchases by industrial end-users in excess of annual requirements, especially in China. This was illustrated by the trade data for Hong Kong, whose palladium bullion imports were up 12% y/y for January-July 2017, with inlows particularly robust in February and June.

Price direction in the 12 months under review was not all one way, with periods centred on October and December 2016 seeing losses of over $100. The former was chiely down to investor nerves towards pro-cyclical assets in advance of the US election, and also the wage deals in South African mining. December’s weakness was in turn largely due to notes of caution in the “Trump Trade” plus year-end book squaring and proit taking. This year has mostly avoided falls as large, with more modest corrections the norm (as a result of proit taking and the market taking a pause for breath). That said, September did see a retreat of almost $100 but a bounce of the $1,000 mark was understandable given the speed of earlier gains and other precious metals’ losses.

The end-September move to a premium over platinum also scarcely leaves the market looking weak. Palladium Investment *Combined non-commercial and non-reportable positions.

Source: Bloomberg. 1.2 1.4 1.6 1.8 2.0 2.2 2.4 0.0 0.5 1.0 1.5 2.0 2.5 3.0 Jan-16 Jul-16 Jan-17 Jul-17 NYMEX Net Long Positions* (LHS) ETP Holdings(RHS) Moz Moz

Chapter 4: Mining Equities 26 Precious Metals Investment Focus 2017/2018 Performance of Mining Equities in 2017 *Index 3rd Jan 2017 = 100, and performance in US$ terms Source: Metals Focus, Bloomberg Introduction In this chapter, we present an equity analysis of some 100 of the world’s largest precious metal mining companies. This includes details on market capitalisation, annual production, average production costs, company reserves and share price performance.

We have also added details of the largest precious metal mining focused mutual funds and exchange traded funds (ETFs). Gold mining forms the dominant part of the chapter given its substantially larger value compared to the other precious metals. In 2016, the value of global gold mine production totalled US$131.3Bn, while silver, platinum and palladium values together were just US$25.5Bn. During the irst eight months of 2017, gold mining equity prices have in the main been in a period of consolidation. This followed an impressive performance in 2016 when prices increased by an average of 53% (using the NYSE Arca Gold Miners Index as a proxy) versus gold bullion’s 9% gain.

This strong 2016 performance was driven by investors aggressively buying back into the sector, as gold prices recovered and after many stocks had retested their 2008 lows in January 2016. However, as is often the case, this buying pushed many stocks beyond their underlying value, and as a result, they have been consolidating this year. Over the opening eight months of 2017, the benchmark equity indices of silver and platinum producers underperformed relative to gold stocks. This was due in part to the weaker price performance of the underlying metals; gold +15%, versus +11% for both silver and platinum.

Although palladium has been the top performing metal in 2017 (8M YTD +38%), the vast majority is mined as a by-product of nickel and platinum. Following recent M&A, there is now just one primary palladium producer globally. Mining Equities Chapter 4 Value of Global Mine Production* * Annual production multiplied by average 2016 prices. Source: Metals Focus 20 40 60 80 100 120 140 Gold Silver Platinum Palladium US$ Bn 80 90 100 110 120 130 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Gold Silver Platinum Index* – Gold mining equities rose by 18% over the irst eight months of 2017 compared to a 15% gain in the gold price.

This followed a stellar 53% rise in 2016 for equities. – Silver miners posted a lesser gain of 8% over the irst eight months of 2017. This was due to the weaker performance of silver prices (+11%) and the negative impact the recovery in the peso has had on Mexican production costs. – Platinum miners’ valuations rose by 5% in rand terms, which only matched the gain in rand platinum prices.

Chapter 4: Mining Equities 27 Precious Metals Investment Focus 2017/2018 , and also to the fact that the shipping of the inal mine site product (predominantly high value doré) to the market is feasible from less accessible locations. he largest Mining Equities Proile Mining equities are one of the principal and most popular vehicles for investors to gain exposure to the precious metals (especially for those funds not mandated to deal directly in commodities), and are listed on all major stock exchanges around the world. Furthermore, these equities are in general highly liquid and, unlike investing in the physical metal, can provide leverage to the underlying precious metal price (a negative factor if prices decline) and return a yield through dividends.

Perhaps of more importance is the optionality that mining equities ofer. This is through both the in-ground reserves and resources that companies hold and the potential for future exploration success. However, as with investing in any equity, there are many factors that must be considered. Below we have highlighted some of the more relevant ones for the precious metals mining sector. Portfolio Development Stage - Established mining companies will generally own a range of assets from producing mines through to exploration projects, with the earlier stage projects intended to grow production or replace mined ounces.

However, when you look at companies with smaller market capitalisations, you encounter an array of early stage exploration and prospecting companies. These early stage companies are focused on initial discovery and development of a mineral resource. Following initial discovery, should the deposit warrant it, further exploration takes place and if all goes well a mineral reserve is deined and feasibility studies are undertaken. However, only a few initial discoveries ever make it through to actual production.

Should a project prove to be economic and a decision to proceed to production be taken, companies are then classed as being at the development or construction stage. These companies will then seek to raise capital to build the project. This has traditionally been achieved through equity and debt with the ratio usually being around 30:70. Geographic Distribution - The geographic location of a company’s assets has a signiicant bearing on its valuation, given the social and political risk attributed to the country or region where its mines and/or projects are located. These factors mainly impact security of personnel, tenure of operating permits, ease of working with local trade unions and stability of future royalty and tax structures.

Furthermore, an asset’s location can have a signiicant impact on its construction and operating costs.

Revenue Split - Precious metals miners generally focus on a single commodity. However, the geological nature of many deposits means the primary metal is commonly found in association with other precious and base metals. Leverage to prices - With a company’s proit directly related to the margin between their asset’s revenue and the cost of mining the metal, all mining companies represent a leveraged play on the underlying commodity price. Companies with a narrow margin are considered a more leveraged investment. A company’s leverage to the metal price can be evaluated by their cost of production, and compared to peers by looking at their position on the industry cost curve.

For example, if we take a look at the last major bull market for gold equities, we can see that, from the low in early 2001 of $256/oz, gold rose to over $1,900/oz by September 2011, an increase of around 640%. In comparison, the NYSE Arca Gold Miners Index (GDM Index) rose by over 800%. However, this also works in reverse; between September 2011 and January 2016, the GDM Index lost 81% of its value compared to a 43% drop in gold prices. Company History - A miner’s or management team’s track record can have a signiicant bearing on its valuation. Those that consistently deliver new ounces on or below budget, and mine at a low operating cost often trade at a premium.

Stock Exchanges - The majority of precious metals mining companies are listed on the Toronto (TSX) and New York (NYSE) exchanges, with a smaller subset traded on the Australian (ASX), Johannesburg (JSE) and London (LSE) markets. As such, access to these markets is important to gain a balanced portfolio of mining stocks. Debt Levels (Leverage) - In recent years company debt has been attracting increasing attention, as deteriorating metal prices brought into questions miners’ ability to repay loans and deliver appropriate returns to investors.

Hedging & Streaming - The high use of hedging of future production impacted a number of mining companies’ ability to beneit from the rising price of gold through much of the 2000s. Because of this the practice fell out of favour for many years, but has made a modest comeback recently. Furthermore, the recent growth of metal streaming (the sale of future production for an upfront payment) can also curtail a miner’s ability to beneit from rising metal prices.

Chapter 4: Mining Equities 28 Precious Metals Investment Focus 2017/2018 Gold Producer All-In Sustaining Cost Margins * Highlighting the efect of leverage, this graph shows the margin between the daily gold price and producers’ all-in sustaining cost of production at the industry median (50th percentile) and 90th percentile of the industry cost curve.

Source: Metals Focus Gold Mine Cost Service, Bloomberg -100 100 200 300 400 500 600 Jan-17 Apr-17 Jul-17 AISC 50th AISC 90th US$/oz Global Average Gold Mine Production Costs Source: Metals Focus Gold Mine Cost Service Geographic Breakdown of Gold Mine Supply in 2016 (104.9Moz/3,264t) Source: Metals Focus Gold Mining Gold mining as a sector is by far the largest of the precious metals both in terms of the number and the combined value of the companies listed. In this section, we have included those companies which receive the majority of their revenue from gold. However, given their commonality, companies that also receive a signiicant portion of their revenue from silver have been included within a separate section entitled Gold-Silver & Silver Mining.

During the opening eight months of 2017, gold mining equities have only yielded a small premium to the underlying gold price, with the NYSE Arca Gold Miners Index (GDM) up 18%, versus a 15% gain in gold. The reason for this modest diference is due to a number of factors. Firstly, equity prices are consolidating following some stellar gains in 2016. Overall, the GDM rose 53% last year, while gold only posted a 9% increase. Secondly, the proitability of mining companies is also of paramount importance. Looking at the industry as a collective group, the average cost of production on an all-in sustaining basis during H1.17 was US$893/oz.

This represented a 4% y/y rise, curtailing some of the gains that an increasing gold price brings. In addition to operating costs, capital expenditure on projects has also increased markedly in 2017 (following two years of limited spending). This impacted free cash low and potential returns to investors. Furthermore, there has been a number of equity raises this year (which generally have a negative impact on share price), as companies looked to fund acquisitions and new development projects, or to bolster their working capital. Another key trend has been the continued impetus of some companies to reduce their debt.

Barrick Gold, for instance, has cut its debt by a further US$2.0Bn over the last year. This has been achieved through asset sales and from free cash low.

N America (16%) C&S America (17%) Europe (>1%) CIS (14%) Africa (20%) Asia (22%) Oceania (11%) 200 400 600 800 1,000 1,200 2010 2012 2014 2016 US$/oz Total Cash Total Production All-In Sustaining

Chapter 4: Mining Equities 29 Precious Metals Investment Focus 2017/2018 Barrick Gold in 2016 Breakdown by Metal Value Breakdown by Region (gold only) Revenue Reserves Production Gold Reserves N America C&S America Europe CIS Africa Asia Oceania Gold Silver Copper Other Market Cap. (end-Aug 17) 2016 Gold Production Total Cash Cost All-In Sust. Cost Gold Reserves Gold Resources US$21.0Bn 5.52 Moz $546/oz $730/oz 86.0 Moz 106.0 Moz Newmont Mining in 2016 Breakdown by Metal Value Breakdown by Region (gold only) Market Cap.

(end-Aug 17) 2016 Gold Production Total Cash Cost All-In Sust. Cost Gold Reserves Gold Resources US$20.4Bn 4.90 Moz $682/oz $912/oz 68.5 Moz 47.6 Moz Newmont Mining (NYSE: NEM) Headquartered in Colorado and founded in 1916, Newmont trades on the New York stock exchange. In 2016, it was the second largest gold producer by volume and had a majority stake in three of the top ten largest gold mines globally. It has producing mines in the US, Australia, Peru, Ghana and recently Suriname. It sold its stake in the Batu Hijua (Indonesia) copper mine in November 2016. 2017 gold production is guided at 5.00-5.40Moz.

Barrick Gold (NYSE:ABX / TSX:ABX) Barrick is the world’s largest gold producer, and trades on the Toronto and New York exchanges. The company is headquartered in Toronto and has gold and copper operations in Argentina, Australia, Canada, Chile, the Dominican Republic, Papua New Guinea (PNG), Peru, Saudi Arabia, the US and Zambia. In recent years, Barrick has sold a number of assets to help reduce its net debt. Gold production is guided at 5.30-5.60Moz in 2017. Revenue Reserves Production Gold Reserves N America C&S America Europe CIS Africa Asia Oceania Gold Silver Copper Other Newcrest Mining in 2016 Breakdown by Metal Value Breakdown by Region (gold only) Zijin Mining in 2016 Breakdown by Metal Value Breakdown by Region (gold only) Gold Silver Copper Other Market Cap.

(end-Aug 17) 2016 Gold Production Total Cash Cost All-In Sust. Cost Gold Reserves Gold Resources US$14.2Bn 2.46 Moz $574/oz $762/oz 65.0 Moz 65.0 Moz Newcrest Mining (ASX: NCM) Newcrest is the largest gold producer listed on the Australian Stock Exchange and in 2016 was the sixth largest globally. The company is headquartered in Melbourne, and has mines located in Australia, PNG, Indonesia, and the Ivory Coast. In September 2016, it sold its 50% stake in Hidden Valley (PNG) to JV partner Harmony Gold, As of June 2017, Newcrest held 14.5% of the issued equity in SolGold. Revenue Reserves Production Gold Reserves Market Cap.

(end-Aug 17) 2016 Gold Production Total Cash Cost All-In Sust. Cost Gold Reserves Gold Resources US$12.8Bn 1.37 Moz N/A N/A 43.3 Moz N/A Zijin Mining (SSE: 601899 / HK: 02899) Listed on the Shanghai and Hong Kong stock exchanges, Zijin produces many diferent metals including gold, copper, lead, zinc, silver, tungsten and iron ore. The company also operates smelting and reining complexes. Zijin has operating gold mines in China, Australia, PNG, Tajikistan and Kyrgyzstan. Zijin is China’s second largest copper producer, and has a signiicant copper resource in China.

N America C&S America Europe CIS Africa Asia Oceania Gold Silver Copper Other Revenue Reserves Production Gold Reserves N America C&S America Europe CIS Africa Asia Oceania

Chapter 4: Mining Equities 30 Precious Metals Investment Focus 2017/2018 Goldcorp in 2016 Breakdown by Metal Value Breakdown by Region (gold only) Revenue Reserves Production Gold Reserves Market Cap. (end-Aug 17) 2016 Gold Production Total Cash Cost All-In Sust. Cost Gold Reserves Gold Resources US$11.9Bn 2.87 Moz $573/oz $856/oz 41.8 Moz 65.4 Moz Goldcorp (TSX: G / NYSE: GG) Goldcorp trades on both the Toronto and New York stock exchanges, and all of its mines are located in the Americas including Canada, Mexico, Argentina and the Dominican Republic.

In 2016, Goldcorp’s Peñasquito mine in Mexico was the ifth largest silver producer in the world, and the company itself was ranked fourth in gold production and ifth in silver production.

N America C&S America Europe CIS Africa Asia Oceania Gold Silver Copper Other Agnico Eagle Mines in 2016 Breakdown by Metal Value Breakdown by Region (gold only) Gold Silver Copper Other Revenue Reserves Production Gold Reserves Market Cap. (end-Aug 17) 2016 Gold Production Total Cash Cost All-In Sust. Cost Gold Reserves Gold Resources US$11.9Bn 1.66 Moz $573/oz $824/oz 19.9 Moz 32.2 Moz Agnico Eagle Mines (TSX: AEM / NYSE: AEM) Agnico Eagle owns eight operating mines, six in Canada, one in Mexico and one in Finland. The company also has exploration projects in these regions and additionally in the US and Sweden.

Agnico Eagle is headquartered in Toronto and trades on the Toronto and New York stock exchanges. The company was the tenth largest gold producer globally in 2016, and obtained over 95% of its revenue from gold.

N America C&S America Europe CIS Africa Asia Oceania Polyus in 2016 Breakdown by Metal Value Breakdown by Region (gold only) Market Cap. (end-Aug 17) 2016 Gold Production Total Cash Cost All-In Sust. Cost Gold Reserves Gold Resources US$10.5Bn 1.97 Moz $389/oz $572/oz 71.0 Moz 122.0 Moz Polyus (MOEX: PLZL) Polyus is the largest gold producer in Russia and ranked eighth globally in 2016. The company also holds the world’s fourth largest gold reserves. Polyus has six operating mines (all in Russia), including Olimpiada, the ifth largest gold mine by production in the world. Polyus recently commissioned its Natalka mine, and in February 2017 they (along with JV partner Rostec) won the tender to develop the Sukhoi Log deposit.

N America C&S America Europe CIS Africa Asia Oceania Gold Silver Copper Other Randgold Resources in 2016 Breakdown by Metal Value Breakdown by Region (gold only) Gold Silver Copper Other Revenue Reserves Production Gold Reserves Market Cap. (end-Aug 17) 2016 Gold Production Total Cash Cost All-In Sust. Cost Gold Reserves Gold Resources US$9.6Bn 1.25 Moz $639/oz N/A 14.0 Moz 11.9 Moz Randgold Resources (LSE: RRS / NASDAQ: GOLD) Randgold is an African focused company, and operates ive gold mines in three countries – Mali, the Ivory Coast and the Democratic Republic of the Congo (DRC). It also has a development project in Senegal and exploration properties in Mali and the DRC.

In 2016 it was the fourteenth largest gold producer globally. The company is headquartered in Jersey, and trades on the London and NASDAQ stock exchanges.

N America C&S America Europe CIS Africa Asia Oceania Revenue Reserves Production Gold Reserves

Chapter 4: Mining Equities 31 Precious Metals Investment Focus 2017/2018 Kinross Gold in 2016 Breakdown by Metal Value Breakdown by Region (gold only) Revenue Reserves Production Gold Reserves N America C&S Americ Europe CIS Africa Asia Oceania Market Cap. (end-Aug 17) 2016 Gold Production Total Cash Cost All-In Sust. Cost Gold Reserves Gold Resources US$5.7Bn 2.70 Moz $696/oz $975/oz 31.0 Moz 36.8 Moz Kinross Gold (TSX: K / NYSE: KGC) Founded in 1993, Kinross Gold has a portfolio of nine mines and additional projects in the US, Brazil, Chile, Ghana, Mauritania, and Russia.

Kinross was the ifth largest gold miner in the world by production in 2016 and is headquartered in Toronto. Their Kupol asset in Russia was the tenth largest gold producer by volume in 2016; and Kinross is currently undertaking extensive drilling to extend the mine’s operating life. Zhongjin Gold in 2016 Breakdown by Metal Value Breakdown by Region (gold only) Revenue Reserves Production Gold Reserves N America C&S Americ Europe CIS Africa Asia Oceania Market Cap. (end-Aug 17) 2016 Gold Production Total Cash Cost All-In Sust. Cost Gold Reserves Gold Resources US$6.0Bn 0.83 Moz N/A N/A 17.7 Moz N/A Zhongjin Gold (SSE: 600489) Guangxi Zhongjin Mining operates as a non-ferrous metal production company in China.

Headquartered in Nanning, China, it trades on the Shanghai Stock Exchange. The company produces a number of metals, including gold, silver, manganese, tin, vanadium, tungsten, antimony, zinc, lead and aluminium. Although many diferent metals are produced, 90% of the company’s revenue is derived from gold. AngloGold Ashanti in 2016 Breakdown by Metal Value Breakdown by Region (gold only) Revenue Reserves Production Gold Reserves N America C&S Americ Europe CIS Africa Asia Oceania Market Cap. (end-Aug 17) 2016 Gold Production Total Cash Cost All-In Sust. Cost Gold Reserves Gold Resources US$4.2Bn 3.63 Moz $744/oz $986/oz 50.1 Moz 146.0 Moz AngloGold Ashanti (JSE: ANG / NYSE: AU / ASX: AGG) Headquartered in Johannesburg, AngloGold Ashanti has 17 operating mines across nine countries (Argentina, Australia, Brazil, the DRC, Ghana, Guinea, Mali, South Africa and Tanzania) and three projects in Colombia.

In 2016, it was the third largest gold mining company in the world, based on production. Anglogold Ashanti trades on the Johannesburg, New York and Australian stock exchanges.

Gold Silver Copper Other Gold Silver Copper Other Gold Silver Copper Other Shandong Gold Mining in 2016 Breakdown by Metal Value Breakdown by Region (gold only) Revenue Reserves Production Gold Reserves N America C&S Americ Europe CIS Africa Asia Oceania Market Cap. (end-Aug 17) 2016 Gold Production Total Cash Cost All-In Sust. Cost Gold Reserves Gold Resources US$9.4Bn 0.96 Moz N/A N/A N/A N/A Shandong Gold Mining (SSE: 600547) Shandong Gold is headquartered in Jinan, China, and is the country’s largest gold producer. After being established in 1996, it was converted into a state-owned capital investment company in 2015.

In April 2017, the company purchased a 50% stake in Barrick Gold’s Veladero gold mine (Argentina). In partnership with Barrick, Shandong are looking to help develop the nearby Pascua-Lama project on the Chile-Argentine border. Gold Silver Copper Other

Chapter 4: Mining Equities 32 Precious Metals Investment Focus 2017/2018 Gold - Producers & Developers Gold Production, Costs & Reserves 1 (2016) Share Price Performance 3 Market Valuation 3 Company Primary Exchange, Ticker & Currency Gold Prod. (Koz) All-In Sust. Cost (US$/oz) Revenue from gold 2 Gold Reserve (Koz) Share Price Since 1 st Jan 2017 Since 1 st Jan 2016 52 Week High 52 Week Low Market Cap. (US$M) Enterprise Value (EV) (US$M) EV/ Gold Reserve (US$/oz) Barrick Gold NYSE:ABX (USD) 5,517 730 92% 85,950 17.99 13% 146% 20.50 14.00 20,976 25,077 292 Newmont Mining NYSE:NEM (USD) 4,898 912 96% 68,460 38.34 13% 115% 42.09 30.91 20,446 19,842 290 Newcrest Mining ASX: NCM (AUD) 2,465 762 87% 65,000 23.27 15% 81% 25.35 16.75 14,163 13,416 206 Zijin Mining Group HK: 2889 (HKD) 1,368 NA 58% 43,307 3.01 24% 57% 3.17 2.32 12,829 12,615 291 Goldcorp TSX: G (CAD) 2,873 856 82% 41,830 17.16 -6% 9% 23.11 15.89 11,925 13,847 331 Agnico Eagle Mines TSX: AEM (CAD) 1,663 824 96% 19,943 64.01 14% 79% 73.87 48.62 11,903 10,833 543 Polyus PJSC MICEX: PLZL (RUB) 1,968 572 100% 71,000 4,555 7% 67% 4,648 3,884 10,481 11,741 165 Randgold Resources LSE:RRS (GBp) 1,253 NA 100% 14,000 7,915 25% 95% 8,015 5,470 9,615 8,035 574 Shandong Gold Mining SSE: 600547 (CNY) 964 NA 100% NA 33.29 -9% 59% 46.06 27.52 9,399 9,453 NA Zhongjin Gold SSE: 600489 (CNY) 883 NA 75% 17,700 11.35 -6% 22% 14.67 9.70 5,955 7,245 409 Kinross Gold TSX: K (CAD) 2,698 975 97% 30,965 5.69 36% 127% 6.26 3.93 5,688 5,768 186 AngloGold Ashanti JSE: ANG (ZAr) 3,628 986 97% 50,060 13,237 -12% 26% 24,664 11,800 4,200 6,239 125 Gold Fields JSE: GFI (ZAr) 2,146 980 88% 48,100 5,805 35% 41% 7,919 3,680 3,679 4,311 90 Sibanye Gold JSE: SGL (ZAr) 1,512 954 72% 28,694 2,073 26% 44% 3,842 1,455 3,400 4,242 148 Evolution Mining ASX: EVN (AUD) 849 761 89% 6,990 2.46 19% 88% 2.58 1.61 3,303 3,420 489 IAMGOLD TSX: IMG (CAD) 813 1,057 100% 7,798 8.29 60% 321% 8.29 4.25 3,088 2,080 267 Zhaojin Mining Industry HK: 1818 (HKD) 655 NA 91% 17,645 6.87 4% 59% 8.74 6.08 2,827 4,940 280 Yamana Gold TSX: YRI (CAD) 1,269 911 82% 16,680 3.69 -2% 47% 6.23 2.88 2,805 3,981 239 Kirkland Lake Gold TSX: KL(CAD) 314 923 100% 3,702 16.27 132% 473% 16.27 6.47 2,729 1,784 482 B2Gold TSX: BTO (CAD) 550 794 100% 7,281 3.43 8% 147% 4.54 2.74 2,686 3,251 446 Northern Star Resources ASX: NST (AUD) 508 777 100% 3,506 5.33 51% 104% 5.33 2.98 2,551 1,889 539 Alamos Gold TSX: AGI (CAD) 392 1,010 100% 7,696 10.40 12% 130% 11.78 7.99 2,506 1,998 260 Detour Gold TSX: DGC (CAD) 538 1,007 100% 16,460 17.48 -4% 21% 33.00 13.44 2,448 2,221 135 Centamin LSE: CEY (GBp) 551 694 100% 8,820 153.5 20% 164% 190.5 114.9 2,284 2,023 229 New Gold TSX: NGD (CAD) 382 692 69% 14,704 4.67 -1% 45% 7.25 3.47 2,157 2,509 171 Endeavour Mining TSX: EDV (CAD) 592 884 100% 7,074 24.80 24% 225% 27.90 17.73 1,919 1,865 264 OceanaGold TSX: OGC (CAD) 417 708 82% 5,040 3.88 0% 50% 4.93 3.30 1,913 2,099 417 Minera Frisco BVM: MFRISCO (MXN) 381 NA 66% NA 12.33 -21% 50% 17.27 11.09 1,754 3,188 NA

Chapter 4: Mining Equities 33 Precious Metals Investment Focus 2017/2018 Gold - Producers & Developers (continued) Gold Production, Costs & Reserves 1 (2016) Share Price Performance 3 Market Valuation 3 Company Primary Exchange, Ticker & Currency Gold Prod. (Koz) All-In Sust. Cost (US$/oz) Revenue from gold 2 Gold Reserve (Koz) Share Price Since 1 st Jan 2017 Since 1 st Jan 2016 52 Week High 52 Week Low Market Cap. (US$M) Enterprise Value (US$M) EV/ Gold Reserve (US$/oz) Centerra Gold TSX: CG (CAD) 599 682 97% 15,978 7.50 19% 16% 8.24 5.66 1,751 1,925 120 Regis Resources ASX: RRL (AUD) 309 690 100% 2,182 4.20 46% 98% 4.20 2.34 1,672 1,364 625 Eldorado Gold TSX: ELD (CAD) 486 900 93% 19,263 2.57 -40% -37% 5.55 2.32 1,636 1,774 92 Pretium Resources TSX: PVG (CAD) NA NA 8,700 10.36 -7% 49% 16.20 9.54 1,506 2,372 273 Novagold Resources TSX: NG (CAD) NA NA 19,650 5.43 -12% -7% 8.04 5.06 1,400 1,258 64 Torex Gold Resources TSX: TXG (CAD) 280 733 99% 3,300 21.08 1% 67% 35.10 17.52 1,348 1,850 561 St Barbara ASX: SBM (AUD) 375 691 100% 4,312 2.90 42% 104% 3.24 1.77 1,181 988 229 Acacia Mining LSE: ACA (GBp) 830 958 96% 7,625 207.2 -44% 18% 549.5 157.8 1,097 1,498 197 Real Gold Mining HK: 0246 (HKD) NA NA NA NA 8.81 0% 0% 8.81 8.81 1,023 904 NA SEMAFO TSX: SMF (CAD) 240 720 100% 3,004 3.52 -20% 0% 6.50 2.71 917 607 202 Saracen Mineral Holdings ASX: SAR (AUD) 234 968 100% 2,114 1.40 41% 130% 1.51 0.81 903 702 332 Harmony Gold Mining JSE: HAR (ZAr) 1,067 1,068 100% 23,171 2,650 -14% 75% 5,627 2,068 899 798 34 Resolute Mining ASX: RSG (AUD) 333 796 100% 5,600 1.23 -5% 396% 2.27 0.97 719 467 83 Osisko Mining Inc TSX: OSK (CAD) NA NA 4.74 94% 298% 5.59 2.13 719 489 NA China Gold Int.

Res. TSX: CGG (CAD) 211 NA 67% 5,100 2.26 14% 9% 3.59 1.83 718 1,799 353 Seabridge Gold TSX: SEA (CAD) NA NA 45,300 15.34 39% 34% 17.09 10.00 705 609 13 SolGold LSE: SOLG (GBp) NA NA 35.75 50% 1582% 46.50 7.88 700 377 NA Guyana Goldields TSX: GUY (CAD) 152 738 100% 3,537 5.00 -18% 62% 9.25 4.10 694 813 230 Highland Gold Mining LSE: HGM (GBp) 261 652 99% 3,515 159.0 18% 207% 191.5 113.0 667 766 218 Premier Gold Mines TSX: PG (CAD) 112 366 99% 2,809 3.92 53% 48% 4.63 2.00 634 375 134 Klondex Mines TSX: KDX (CAD) 141 1,335 87% 689 4.20 -33% 48% 7.72 3.64 598 582 845 TMAC Resources TSX: TMR (CAD) NA NA 3,607 8.85 -42% 48% 19.20 8.18 596 1,061 294 1 All igures relate to results for CY 2016, not a FY ending within that period.

2 Revenue split by metal relects a stated split where available, else it has been calculated from stated production and the average annual metal price. 3 Share price and market valuations are as of 31 st August 2017. Source: Bloomberg, Company Reports, Metals Focus

Chapter 4: Mining Equities 34 Precious Metals Investment Focus 2017/2018 Gold-Silver & Silver Mining In this section, we have highlighted precious metal mining companies that gain over 30% of their revenue from silver, whether this be secondary to gold (making them a gold-silver producer) or as the principal revenue stream (a primary silver producer). In recent years, there has been a trend of silver miners acquiring or developing silver-rich gold assets as a means growing their production base. As such, a number of companies that would have historically been classed as silver miners, in fact now gain a greater portion of their revenue from gold.

Highlighting this, collectively the companies analysed in this section that gain their principal revenue from silver (a primary silver producer) contributed less than 10% of silver mine production in 2016. This factor, coupled with the lower relative value of annual silver mine supply (just 12% of gold in 2016), means that compared with the gold sector, options are a lot more limited when looking for or to mining equities to gain exposure to silver.

In comparison to their gold peers, gold-silver and silver miners, in general, underperformed over the opening eight months of 2017. Highlighting this, the Solactive Global Silver Miners (SOLGLOSI) Index rose just 8% over this period, versus an 18% gain in the GDM Index. This lesser performance was due to the weaker gains of silver (+11%) versus gold (+15%), and the strong recovery in the Mexican peso which has pushed production costs higher (Mexico accounted for 40% of primary silver production and 30% of silver produced as a by-product of gold mining in 2016). As such, the companies in this section generally have a high exposure to the country.

As was the case with the gold sector, the weak performance relative to the underlying metal this year relects some consolidation following the strong gains in 2016 when the SOLGLOSI Index rose by 80% versus a 15% gain in silver. Breakdown of Silver Mine Supply in 2016 (888.3Moz/27,628t) * The chart illustrates the geographic distribution of silver production from each of the primary and by-product metal sectors. Base metal includes lead, zinc, copper and other sectors. Source: Metals Focus Primary Silver (31%) Copper (23%) Gold (16%) Lead/Zinc (29%) Other (>1%) Silver Production by Metal Sector N America C&S America Europe CIS Africa Asia Oceania Primary Silver Base Metal Geographic Distribution of Key Metal Sectors* Gold Global Average Primary Silver Mine Production Costs* * Costs shown on a by-product accounting basis.

Source: Metals Focus Silver Mine Cost Service 3 6 9 12 15 18 2010 2012 2014 2016 US$/oz Total Cash Total Production All-In Sustaining

Chapter 4: Mining Equities 35 Precious Metals Investment Focus 2017/2018 Polymetal International in 2016 Breakdown by Metal Value Breakdown by Region (gold only) Revenue Reserves Production Gold Reserves Polymetal International (LSE:POLY) Polymetal produces gold and silver from operations throughout Russia, Kazakhstan and Armenia. The company’s shares are listed on the London and Moscow stock exchanges. In 2016, its Dukat operation was the second largest silver producing mine (and the largest primary silver mine) in the world, and the company was as a whole the fourth largest silver producer by volume.

Fresnillo in 2016 Breakdown by Metal Value Breakdown by Region (gold only) Revenue Reserves Production Gold Reserves Fresnillo (LSE: FRES / BMV:FRES) Fresnillo is the world’s largest silver producer by volume, with three silver mines and four gold mines (which produce some silver as a by-product) based solely in Mexico. In addition, the company is currently developing a number of projects to increase its production and has several earlier stage projects (with signiicant potential ) also in Mexico. Fresnillo trades on the London and Mexican stock exchanges.

Market Cap. 2016 Production Reserves / Resources (Moz) (end-Aug 17) Gold Silver Gold Silver US$15.4Bn 0.94 Moz 45.7 Moz 9.54 / 10.24 530.3 / 1,035.5 Market Cap.

2016 Production Reserves / Resources (Moz) (end-Aug 17) Gold Silver Gold Silver US$4.9Bn 0.89 Moz 29.2 Moz 17.56 / 14.43 163.0 / 87.5 N America C&S America Europe CIS Africa Asia Oceania Gold Silver Copper Other Gold Silver Copper Other N America C&S America Europe CIS Africa Asia Oceania Buenaventura in 2016 Breakdown by Metal Value Breakdown by Region (gold only) N America C&S America Europe CIS Africa Asia Oceania Gold Silver Copper Other Revenue Reserves Production Gold Reserves Buenaventura (NYSE: BVN / LM: BUE) Buenaventura operates solely in Peru. Headquartered in Lima, and has been listed on the Lima Stock Exchange since 1971, and on the New York Stock Exchange since 1996.

It wholly owns four Peruvian mines and has an interest in a further three, including Yanacocha the largest gold mine in South America. In 2016, Buenaventura was the seventh largest silver producer in the world.

Market Cap. 2016 Production Reserves / Resources (Moz) (end-Aug 17) Gold Silver Gold Silver US$3.7Bn 0.63 Moz 24.7 Moz 3.54 / 16.28 130.6 / 256.7 Pan American Silver in 2016 Breakdown by Metal Value Breakdown by Region (silver only) Revenue Reserves Production Silver Reserves Pan American Silver (TSX: PAA / NASDAQ: PAAS) Founded in 1994, Pan American Silver is headquartered in Vancouver. In 2016, it was the sixth largest silver producer in the world by volume, although it was the largest primary silver producer (i.e. the sale of silver contributed its largest source of revenue). The company has six operating mines, in Mexico, Peru, Bolivia and Argentina, as well as a number of development stage assets in the US, Mexico, Peru and Argentina.

N America C&S America Europe CIS Africa Asia Oceania Gold Silver Copper Other Market Cap. 2016 Production Reserves / Resources (Moz) (end-Aug 17) Gold Silver Gold Silver US$2.9Bn 0.18 Moz 25.4 Moz 2.04 / 2.15 285.8 / 932.4

Chapter 4: Mining Equities 36 Precious Metals Investment Focus 2017/2018 Hecla Mining in 2016 Breakdown by Metal Value Breakdown by Region (silver only) Revenue Reserves Production Silver Reserves Hecla Mining (NYSE: HL) Established in 1891, Hecla is headquartered in Coeur d’Alene (Idaho, US) and has been traded on the NYSE for over 50 years. Hecla has four operating mines (three primary silver and one gold) located in the US, Canada and Mexico, two development projects in the US and a number of exploration ventures across North America.

N America C&S America Europe CIS Africa Asia Oceania Gold Silver Copper Other Hochschild Mining in 2016 Breakdown by Metal Value Breakdown by Region (gold only) Revenue Reserves Production Gold Reserves Hochschild Mining (LSE: HOC) Hochschild is listed on the London Stock Exchange and is headquartered in the city.

The company currently operates four underground mines, three located in Peru and one in Argentina. Two are primary silver mines and two are primary gold (one of these gold mines is a JV with McEwen Mining). Hochschild also has a number of primary silver projects. In 2016, the company was the 12th largest silver producer globally. N America C&S America Europe CIS Africa Asia Oceania Gold Silver Copper Other Market Cap. 2016 Production Reserves / Resources (Moz) (end-Aug 17) Gold Silver Gold Silver US$1.9Bn 0.25 Moz 17.3 Moz 1.12 / 11.61 71.9 / 280.0 Coeur Mining in 2016 Breakdown by Metal Value Breakdown by Region (gold only) Revenue Reserves Production Gold Reserves Coeur Mining (NYSE: CDE / TSX: CDM) Coeur Mining is listed on both the New York and Toronto stock exchanges, but is headquartered in Chicago, US.

The company was established in 1928 to mine silver in the Coeur d’Alene region (Idaho, US), and now operates three mines in the US, one in Mexico and one in Bolivia. In September 2017, Coeur acquired the Silvertip mine in Canada. In 2016, the company was the 16th largest silver producer globally. N America C&S America Europe CIS Africa Asia Oceania Gold Silver Copper Other Market Cap. 2016 Production Reserves / Resources (Moz) (end-Aug 17) Gold Silver Gold Silver US$1.6Bn 0.36 Moz 14.8 Moz 2.53 / 2.66 174.0 / 235.0 Tahoe Resources in 2016 Breakdown by Metal Value Breakdown by Region (gold only) Revenue Reserves Production Gold Reserves Tahoe Resources (TSX: THO / NYSE: TAHO) Tahoe Resources trades on both the New York and Toronto stock exchanges.

The company has two gold mines in Peru and two in Canada. It also owns the Escobal silver mine in Guatemala, which in 2016 was the fourth largest silver producing mine in the world. However, mining at Escobal was halted between July and September 2017 after Guatemala’s Supreme Court suspended the mine’s operating licence. N America C&S America Europe CIS Africa Asia Oceania Gold Silver Copper Other Market Cap. 2016 Production Reserves / Resources (Moz) (end-Aug 17) Gold Silver Gold Silver US$1.5Bn 0.39 Moz 21.3 Moz 3.96 / 6.10 291.7 / 176.3 Market Cap. 2016 Production Reserves / Resources (Moz) (end-Aug 17) Gold Silver Gold Silver US$2.1Bn 0.23 Moz 17.2 Moz 2.02 / 6.69 172.3 / 635.5

Chapter 4: Mining Equities 37 Precious Metals Investment Focus 2017/2018 Gold-Silver & Silver - Producers & Developers Gold & Silver Production & Reserves 1 (2016) Share Price Performance 3 Market Valuation 3 Company Primary Exchange, Ticker & Currency Gold Prod. (Koz) Silver Prod. (Moz) Revenue Split 2 % Au/Ag Gold Reserve (Koz) Silver Reserve (Moz) Share Price Since 1 st Jan 2017 Since 1 st Jan 2016 52 Week High 52 Week Low Market Cap. (US$M) Enterprise Value (US$M) EV/AuEq. Reserve (US$/oz) 4 Fresnillo LSE: FRES (GBp) 936 45.7 55/35 9,540 530.3 1,623.0 35% 134% 1,827.0 1,091.0 15,444 14,206 845 Polymetal International LSE: POLY (GBp) 890 29.2 68/32 17,558 163.0 879.0 4% 58% 1,095.0 731.5 4,876 6,399 323 Buenaventura NYSE: BVN (USD) 627 24.7 35/31 3,536 209.6 13.43 20% 216% 15.25 10.11 3,702 3,999 624 Pan American Silver TSX: PAAS (CAD) 184 25.4 27/50 2,040 285.8 23.28 15% 160% 27.63 19.06 2,858 2,423 407 Hecla Mining NYSE: HL (USD) 234 17.2 37/37 2,019 172.3 5.28 1% 180% 7.24 4.66 2,107 2,353 537 Hochschild Mining LSE: HOC (GBp) 246 17.3 51/48 1,117 71.9 287.3 37% 503% 331.6 186.9 1,882 2,060 980 Coeur Mining NYSE: CDE (USD) 358 14.8 62/38 2,531 174.0 8.75 -4% 253% 14.94 7.33 1,588 1,580 321 Tahoe Resources TSX: THO (CAD) 385 21.3 56/40 3,955 291.7 5.96 -52% -48% 19.06 5.50 1,494 2,546 352 SSR Mining TSX: SSRM (CAD) 252 10.4 65/35 3,490 16.8 13.04 9% 82% 17.55 10.74 1,250 876 236 First Majestic Silver TSX: FR (CAD) 62 11.9 21/67 246 89.5 8.82 -14% 96% 17.28 7.69 1,170 1,275 866 MAG Silver TSX: MAG (CAD) 0.0 N/A 0.0 15.68 6% 60% 23.09 12.87 1,016 926 N/A McEwen Mining NYSE: MUX (USD) 102 3.3 67/33 621 13.3 2.57 -11% 144% 4.28 2.19 803 752 936 Fortuna Silver Mines TSX: FVI (CAD) 47 7.4 27/50 1,977 45.8 6.03 -21% 94% 11.67 5.50 771 631 242 Soc.

Métallurgique D'imiter CSE: SMI (MAD) 7.1 N/A 140.9 3,395 28% 52% 3,395 2,507 594 445 231 Silvercorp Metals TSX: SVM (CAD) 3 6.2 2/55 113.5 3.90 25% 495% 5.73 2.83 525 492 317 Endeavour Silver TSX: EDR (CAD) 57 5.4 45/55 346 37.6 3.09 -35% 56% 7.32 2.65 316 339 394 Great Panther Silver TSX: GPR (CAD) 22 2.0 41/51 3.1 1.73 -22% 147% 2.92 1.49 233 158 N/A Bear Creek Mining TSX: BCM (CAD) 0.0 N/A 228.0 2.64 12% 355% 3.69 1.76 218 143 46 Americas Silver TSX: USA (CAD) 2.4 0/51 28.3 5.33 52% 344% 5.33 2.88 171 102 262 Excellon Resources TSX: EXN (CAD) 0.8 0/58 0.0 2.04 24% 558% 2.17 1.29 125 85 N/A 1 All igures relate to results for CY 2016, not a FY ending within that period.

2 Revenue split by metal relects a stated split where available, else it has been calculated from stated production and the average annual metal price. 3 Share price and market valuations are as of 31 st August 2017. 4 EV/Gold Equivalent Reserve Ounce has been calculated for gold and silver reserves only, with silver reserves being converted to gold equivalent ounces using a Au:Ag ratio of 73.0. Source: Bloomberg, Company Reports, Metals Focus

Chapter 4: Mining Equities 38 Precious Metals Investment Focus 2017/2018 Breakdown of PGM Mine Supply by Metal Sector in 2016 Source: Metals Focus Geographic Breakdown of PGM Mine Supply in 2016 Source: Metals Focus Primary Platinum Primary Palladium Base/Minor Metal South Africa Russia Zimbabwe Canada United States Other Platinum Palladium Platinum Palladium Platinum Group Metal (PGM) Mining In this section, we have included those companies where revenue from PGMs forms a dominant portion of their income. Production of PGMs itself is geographically much more concentrated than for many other metal sectors.

In 2016, out of total production of 6.21Moz (193t), South Africa accounted for 70% of platinum mine supply, with the remainder largely being made up by Russia (11%), Zimbabwe (8%) and Canada (5%). Palladium production is a little more spread, with Russia accounting for 38%, South Africa 37%, Canada 11%, the US 6% and Zimbabwe 6% of the total 6.77Moz (210t).

The operations in South Africa and Zimbabwe are predominately primary platinum mines, with circa 60% of revenue from platinum and around 20% from palladium. In Russia and Canada, the majority of platinum and palladium production is generated as a by-product of nickel mining. In the US, two of the world’s largest primary palladium mines are now owned by Sibanye following its takeover of Stillwater Mining in May 2017. Sibanye (now known as Sibanye Stillwater), although a large PGM producer (Pt - 239koz and Pd - 136koz in 2016), is not covered in this section because the majority of the company’s revenue is still sourced from gold.

Norilsk Nickel (which is based in Russia) is now included within this report. The company produced a signiicant amount of palladium and platinum (2,618koz and 644koz respectively) in 2016 and its revenue contribution from PGMs has increased signiicantly this year as palladium prices have rallied. The following is a brief introduction to the four largest PGM mining companies by market capitalisation. Combined, these companies respectively produced 59% and 66% of global platinum and palladium mine supply in 2016.

South African 4E Basket Price * 4E rand based basket price based on a typical South African metal split, comprising 56.5% Pt, 33.2% Pd, 7.7% Rh & 2.6% Au. Source: Bloomberg, Metals Focus 500 1,000 1,500 2,000 2 4 6 8 10 12 14 Jan-10 Jan-12 Jan-14 Jan-16 US$/oz Platinum Palladium Rhodium Gold US$ Basket Price 000 ZAR/oz

Chapter 4: Mining Equities 39 Precious Metals Investment Focus 2017/2018 Norilsk Nickel in 2016 Revenue by Metal Breakdown by Country (4E PGM) Northam Platinum in 2016 Revenue by Metal Breakdown by Country (4E PGM) Impala Platinum in 2016 Revenue by Metal Breakdown by Country (4E PGM) Anglo American Platinum in 2016 Revenue by Metal Breakdown by Country (4E PGM) Production 4E PGM Reserves South Africa Russia Zimbabwe Canada United States Other Platinum Palladium Rhodium Other Production 4E PGM Reserves South Africa Russia Zimbabwe Canada United States Other Platinum Palladium Rhodium Other South Africa Russia Zimbabwe Canada United States Other Platinum Palladium Rhodium Other Production 4E PGM Reserves South Africa Russia Zimbabwe Canada United States Other Platinum Palladium Rhodium Other Norilsk Nickel (MOEX: GMKN) Norilsk Nickel was the world’s largest producer of nickel and palladium in 2016, and the fourth largest of platinum.

The company is headquartered in Russia and its primary listing is on the Moscow Stock Exchange (MICEX). The company’s key assets are the Kola and Polar operations in Russia. During H1.17, palladium was the largest (30%) contributor to Norilsk’s metals revenue, followed by nickel (27%), copper (26%) and platinum (8%). Northam Platinum (JSE: NHM) Northam was the ifth largest platinum producer globally in 2016. It has undertaken a number of acquisitions in the past year. In October 2016, it acquired the Tumela resource (adjacent to its Zondereinde mine) for US$70M. In February 2017, it purchased the Eland platinum mine for US$13M, and in July 2017, it entered the PGM recycling industry via the US$11M purchase of the former A1-Specialized Services facility in the US.

Impala Platinum (JSE: IMP) Impala Platinum was founded in 1973, employs some 53,000 workers and is listed on the JSE in South Africa. During 2016, it was the world’s second and third largest producer of platinum and palladium respectively. The company’s ive main operations are Impala, Marula, Mimosa, Two Rivers (all located on the Bushveld complex in South Africa), and Zimplats, on the Great Dyke in Zimbabwe.

Anglo American Platinum (JSE: AMS) Anglo American Platinum was the largest platinum and second largest palladium producer globally during 2016. The company’s headquarters are in South Africa as is its primary listing on the Johannesburg Stock Exchange (JSE). The company has in recent years been rationalising its portfolio of mines, with the largest deal being the sale of its Rustenburg assets to Sibanye during November 2016 for an initial R1.5Bn (US$110M). Market Cap. 2016 Production Reserves (end-Aug 17) Platinum Palladium Platinum Palladium US$7.5Bn 1,688 koz 1,091 koz 75.7 Moz 79.0 Moz Market Cap.

2016 Production Reserves (end-Aug 17) Platinum Palladium Platinum Palladium US$2.3Bn 1,068 koz 656 koz 21.6 Moz 13.1 Moz Market Cap. 2016 Production Reserves (end-Aug 17) Platinum Palladium Platinum Palladium US$2.0Bn 271 koz 128 koz 10.1 Moz 5.4 Moz Market Cap. 2016 Production Reserves (end-Aug 17) Platinum Palladium Platinum Palladium US$27.3Bn 644 koz 2,618 koz 25.0 Moz 93.5 Moz Production 4E PGM Reserves

C o m m e m o r a t i n g 5 0 y e a r s o f b e n e f i c i a t i o n o f A f r i c a ’s g o l d .

Chapter 4: Mining Equities 41 Precious Metals Investment Focus 2017/2018 PGM Producers & Developers PGM Production & Reserves 1 (2016) Share Price Performance 3 Market Valuation 3 Company Primary Exchange, Ticker & Currency Platinum Prod. (Koz) Palladium Prod. (Koz) Revenue Split 2 % Pt/Pd Platinum Reserve (Moz) Palladium Reserve (Moz) Share Price Since 1 st Jan 2017 Since 1 st Jan 2016 52 Week High 52 Week Low Market Cap. (US$M) Enterprise Value (US$M) Platinum Producers & Developers Norilsk Nickel MOEX: GMKN (RUB) 644 2,618 8/23 25.0 93.5 9,807 2% 22% 11,070 7,791 27,278 27,227 Anglo American Platinum JSE: AMS (ZAr) 1,688 1,091 55/21 75.7 79.0 35,213 33% 90% 41,915 25,250 7,325 6,580 Impala Platinum Holdings JSE: IMP (ZAr) 1,068 656 63/20 21.6 13.1 4,046 -5% 62% 6,952 3,391 2,294 2,713 Northam Platinum JSE: NHM (ZAr) 271 128 59/18 10.1 5.4 4,923 22% 87% 5,800 3,700 1,936 1,007 African Rainbow Minerals JSE: ARI (ZAr) 156 140 23/13 2.3 1.3 11,010 12% 161% 12,303 7,127 1,858 1,870 Royal Bafokeng Platinum JSE: RBP (ZAr) 196 81 64/18 7.4 3.3 3,100 -13% 16% 5,160 2,727 468 704 Zimplats Holdings 4 JSE: ZIM (ZAr) 296 242 51/26 5.6 4.4 4.50 NA 29% 6.99 3.60 389 495 Tharisa JSE: THA (ZAr) 74 21 19/5 2.0 0.6 1,625 -20% 228% 2,800 1,239 327 405 Lonmin 5 LSE: LMI (GBp) 704 318 64/18 19.2 9.0 84.50 -40% 1% 225.0 63.0 308 -34 Platinum Group Metals NYSE: PLG (USD) 10 4 64/27 6.1 8.4 0.81 -58% -58% 3.87 0.65 96 222 Wesizwe Platinum JSE: WEZ (ZAr) 2 1 - 5.4 2.4 54.0 -29% 32% 93.0 50.0 68 348 Jubilee Platinum LSE: JLP (GBp) - - - 0.0 0.0 3.93 11% 18% 6.45 3.35 57 47 Sylvania Platinum LSE: SLP (GBp) - - - 0.0 0.0 11.50 42% 51% 13.88 7.25 43 20 Eastern Platinum TSX: EPS (CAD) - - - 0.0 0.0 0.30 -32% -64% 0.85 0.25 22 -47 Palladium Producers & Developers North American Palladium TSX: PDL (CAD) 10 150 8/75 0.3 2.8 5.57 4% 39% 6.27 4.65 260 294 1 All igures relate to results for CY 2016, not a FY ending within that period.

2 Revenue split by metal relects a stated split where available, else it has been calculated from stated production and the average annual metal price. 3 Share price and market valuations are as of 31 st August 2017. 4 Zimplats production is in matte sold. 5 Lonmin palladium reserve is an estimate. Source: Bloomberg, Company Reports, Metals Focus

Chapter 4: Mining Equities 42 Precious Metals Investment Focus 2017/2018 Streaming & Royalty Companies Streaming and royalty companies have also beneited from the gain in precious metal prices over the irst eight months of 2017. In US dollar terms, their collective gain of 32% was strongly ahead of the 18% rise in the NYSE Arca Gold Miners Index. The volume of both the gold and silver covered by royalty and streaming agreements saw another strong up tick in 2016, driven by a number of deals struck in a depressed market in 2015 and early 2016. That said, the overall volumes of production covered by these contracts remain low at just 1% and 4% respectively of global gold and silver production.

Historically, streaming of silver has proved more popular than gold, given the greater proportion that comes as a by-product of mining other metals. Streaming & Royalty Companies Production in 20161 Share Price Performance (as of 31st August 2017) Company Primary Exchange, Ticker & Currency Au (Koz) / Ag (Moz) Revenue from PM2 Share Price 1st Jan 2017 1st Jan 2016 52 Week High 52 Week Low Mkt. Cap. (US$M) Franco-Nevada TSX: FNV (CAD) 341 / 6.3 94% 102.2 28% 65% 102.7 73.1 14,628 Wheaton Precious Metals TSX: WPM (CAD) 354 / 30.4 100% 25.9 1% 54% 37.8 22.8 9,191 Royal Gold NASDAQ: RGLD (USD) 290 / 1.6 94% 93.3 49% 163% 93.3 61.4 6,095 Osisko Gold Roy.

TSX: OR (CAD) 38 / 0.0 100% 17.5 34% 30% 17.5 12.1 2,197 Sandstorm Gold TSX: SSL (CAD) 50 AuEq 73% 5.9 13% 65% 8.4 4.4 877 For footnotes please see page 41 Source: Bloomberg, Company Reports, Metals Focus Streaming & Royalty Companies’ Proile Streaming and royalty companies do not generally operate mines, develop properties or conduct exploration. Instead, they own the right to a share of current or future revenue from an asset through streams, royalties and, in some cases, a working interest in properties.

Streaming agreements are a inancial arrangement where a mining company receives upfront capital in exchange for the right to future production from a mine or project. Further to the upfront payment, there is generally a ixed, per ounce price for each unit of production covered by the deal. Streaming agreements are usually created to help inance the construction of a mine, but have been more recently used to reduce debt. Also, they typically relate to a mine’s by-product metal revenue. Royalty deals are slightly diferent, and generally involve the right to receive a percentage of production, or future production, from an asset.

These generally take the form of a revenue or proit based royalty, generally tied to a mine’s primary revenue stream (rather than by-product), and are often set up at the exploration stage.

Streaming and royalty companies ofer a number of advantages. - Relative to a mining company of the same market size, these companies own a smaller share of a larger number of assets. This gives them greater portfolio diversiication, and hence a greater spread of risk. - Receiving a ixed share of revenue or a stream at a predetermined price means there is minimal risk of cost inlation eroding margins. - The nature of these deals means they often get to beneit in exploration upside, without having to foot the capital cost. Furthermore, given their cost structure they are leveraged to metal prices, but generally not to the same degree as mining companies.

Production under Streaming & Royalty Agreements 2015 2016 Y/Y Gold (Koz) Streaming & Royalty 908 1,085 +20% % Global Mine Supply 0.9% 1.0% +18% Silver (Moz) Streaming & Royalty 29.6 37.0 +25% % Global Mine Supply 3.3% 4.2% +27% Source: Metals Focus

Chapter 4: Mining Equities 43 Precious Metals Investment Focus 2017/2018 , and also to the fact that the shipping of the inal mine site product (predominantly high value doré) to the market is feasible from less accessible locations. he largest Precious Metal Mining Indices In inancial markets, equity indices consist of a hypothetical portfolio of securities representing a particular market or a segment of it.

These provide a useful benchmark for comparing a company’s share price performance to its peers. Each index has its own calculation methodology, and the composition of its portfolio is based on a deined set of ground rules. In most cases, the relative change of an index is more important than its actual numerical value. There are many precious metal mining indices, particularly in the gold mining sector. Below we outline some of the most commonly used by the industry and the major ETF providers. NYSE Arca Gold Miners Index (GDM) The GDM is a modiied US$ market-capitalisation index of 50 companies primarily involved in the mining for gold and silver.

However, the weight of companies whose revenues are more signiicantly exposed to silver mining will not exceed 20% of the index.

NYSE Arca Gold BUGS Index (HUI) The HUI is a portfolio of 15 major gold mining companies weighted by their US$ market capitalisation. The index was designed to provide signiicant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years; BUGS stands for “basket of unhedged gold stocks”. Philadelphia Gold and Silver Index (XAU) The XAU is an index of 30 companies involved in the mining of gold and silver weighted by their US$ market capitalisation. Along with the HUI, the XAU is one of the most watched gold mining indices.

MVIS Global Junior Gold Miners Index (MVGDXJ) The GDXJ (as it is commonly referred to) is an index of the most liquid 70 junior companies (miners and developers) that generate at least 50% of their revenues from gold or silver mining, or own assets with the potential to generate at least 50% of their revenue in this way.

The index is weighted by the companies’ US$ market capitalisation. S&P/TSX Global Gold Index (SPTSGD) The SPTSGD is an index of companies involved in the exploration and production of gold. It is a subset of the S&P/TSX Global Mining Index. The index is weighted by the companies’ C$ market capitalisation.

Solactive Global Silver Miners Index (SOLGLOSI) The SOLGLOSI includes companies active in the exploration, mining, streaming and/or reining of silver (but it may not comprise their primary revenue source.) The index includes a minimum of 20 and a maximum of 40 members which are weighted by their freeloat US$ market capitalisation. FTSE/JSE Platinum & Precious Metals Index (JPLAT) The JPLAT is an index of South African companies within ICB sub-sector 1779 (companies engaged in the exploration and production of platinum, silver and other precious metals excluding gold) of the FTSE/JSE All-Share Index.

Within this index, companies are weighted by their rand market capitalisation.

Major Precious Metal Mining Indices Price Performance (as of 31st August 2017) Index Bloomberg Ticker & Currency Base Value & Date Price Since 1st Jan 2017 Since 1st Jan 2016 Since 1st Sept 2016 52 Week High 52 Week Low NYSE Arca Gold Miners GDM (USD) 500 (20/12/02) 192.5 18% 82% -3% 792.9 529.1 NYSE Arca Gold BUGS HUI (USD) 200 (15/03/96) 212.5 17% 94% -3% 250.6 163.5 Philadelphia Gold and Silver XAU (USD) 100 (19/01/79) 90.1 15% 101% 1% 101.6 73.0 MVIS Global Junior Gold Miners MVGDXJ (USD) 1000 (31/12/03) 847.3 11% 95% -11% 1105.3 672.6 S&P/TSX Global Gold SPTSGD (CAD) 100 (29/09/00) 210.2 9% 64% -7% 252.2 174.3 Solactive Global Silver Miners SOLGLOSI (USD) 100 (26/02/10) 98.1 8% 94% 0% 133.1 84.1 FTSE/JSE Platinum & Precious Metal JPLAT (ZAR) 34.5 (21/06/02) 20.7 5% 59% -23% 30.1 17.2 Source: Bloomberg, Metals Focus

Chapter 4: Mining Equities 44 Precious Metals Investment Focus 2017/2018 Performance of the largest Precious Metal Mining Funds, ETFs & Physically Backed ETPs * Index 1st Jan 2010 = 100, with the performance of the instruments in US dollars. Source: Bloomberg, Metals Focus 20 40 60 80 100 120 140 160 180 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Index* Precious Metal Mining Funds & ETFs’ Proile As an alternative to investing directly in the equities of precious metal mining companies, mutual and exchange traded funds are available which are tailored to the sector. As well as ease of access and leverage to underlying commodity prices, these funds ofer the added beneits of diversiication either through active management of stock selection or passive index replication.

This does come at an extra cost in the form of added fees. These fees are not directly payable, but instead are taken from the investment in the fund or ETF. Mutual funds tend to be actively managed by an investment team that invests in instruments that meet the speciications set out in the fund’s ground rules. These funds will primarily invest in companies which derive a signiicant proportion of their income from precious metal mining (and can include royalty and streaming companies). These funds may also have the lexibility to invest outside of these asset classes or have a portion of their holdings in cash or metal.

Index mutual funds work in a similar manner, except the portfolio is generally managed by a computer that aims to match the composition of the fund to a benchmark index (such as one of those discussed on page 43). Because of this structure, index funds generally have lower management fees. Similar to index funds, precious metal mining exchange traded funds (ETFs) are passive in nature and their portfolio aims to replicate the performance of a given benchmark index. As a result, they also generally incur reduced management fees compared to actively managed funds. Furthermore, given that the products trade in a similar manner to equities, they can be bought and sold throughout the trading day.

In comparison, mutual funds can only be traded at the end of each day, once the daily price has been set. ETFs generally have signiicant tax-eicient beneits over mutual funds, due to the diferences in structure between the two products and the way in which they are traded. Some ETF products are set up to include added functionality. For instance, an inverse ETF (or reverse equity, bear or short ETF) is set up to deliver the inverse performance of the base index, i.e. if the value of the base index goes down 1%, the ETF will deliver a return of +1%. ETFs can also be structured to deliver leverage to the base index.

These products aim to keep a constant amount of leverage during the investment time frame, such as a 2:1 or 3:1 ratio. These funds enter into swap agreements, futures contracts, short positions and other inancial instruments to deliver these characteristics. As a result, they are high-risk and high-cost, and generally not used as a long-term investment vehicle.

The ETFs described here are those based on the equities of precious metal mining companies. These are distinct from exchange traded products (ETPs) which are instead based on the underlying physical precious metal in the form of reined allocated bullion (for commentary on these see Chapter 6). SPDR Gold Shares ETP VanEck Vectors Junior Gold Miners ETF VanEck Vectors Gold Miners ETF BlackRock - World Gold Fund Vanguard Precious Metals & Mining Fund

Chapter 4: Mining Equities 45 Precious Metals Investment Focus 2017/2018 Major Precious Metal Mining Funds Price Performance (as of 31st August 2017) Fund Bloomberg Ticker & Currency Price Since 1st Jan 2017 Since 1st Jan 2016 Since 1st Sept 2016 Total Asset Value (US$M) BlackRock Global Funds - World Gold MIGGMFI LX (USD) 31.74 8% 62% -7% 4,869 Vanguard Precious Metals and Mining VGPMX US (USD) 11.10 18% 78% 5% 2,592 Fidelity Advisor Gold FGDAX US (USD) 21.64 16% 70% -4% 1,460 First Eagle Gold SGGDX (USD) 18.07 15% 58% -3% 1,304 Tocqueville Gold TGLDX US (USD) 39.74 18% 65% -4% 1,303 BlackRock Gold and General MRCGLDA LN (GBp) 1,011 4% 86% -6% 1,225 Oppenheimer Gold & Special Minerals OPGSX (USD) 17.52 21% 80% -2% 1,153 Franklin Gold and Precious Metals FKRCX (USD) 16.73 6% 65% -12% 1,079 Van Eck International Investors Gold INIVX (USD) 10.22 19% 82% -3% 735 CF Rufer Gold RFBSGCA LN (GBp) 153.3 5% 86% -5% 684 USAA Precious Metals and Minerals USAGX (USD) 13.81 14% 67% -7% 596 Falcon Gold Equity UCITS FGLDIUA LX (USD) 60.10 15% 65% -6% 475 Wells Fargo Precious Metals EKWAX (USD) 38.67 16% 67% -7% 408 American Century Global Gold ACGGX (USD) 9.02 16% 77% -5% 392 Invesco Gold & Precious Metals IGDAX (USD) 4.49 11% 72% -5% 339 Source: Bloomberg, Metals Focus Major Precious Metal Mining Exchange Traded Funds (ETFs) Price Performance (as of 31st August 2017) Exchange Traded Fund Bloomberg Ticker & Currency Base Index Price Since 1st Jan 2017 Since 1st Jan 2016 Since 1st Sept 2016 Market Cap.

(US$M) VanEck Vectors Gold Miners GDX US (USD) GDM 24.72 18% 81% -3% 8,264 VanEck Vectors Junior Gold Miners GDXJ US (USD) MVGDXJ 36.08 14% 98% -9% 4,246 Direxion Daily Gold Miners Index Bull X3 NUGT US (USD) GDM 39.90 31% 105% -44% 1,500 Direxion Daily Junior Gold Miners Index Bull X3 JNUG US (USD) MVGDXJ 22.55 1% 82% -65% 806 iShares S&P/TSX Global Gold Index XGD CN (CAD) SPTSGD 13.10 8% 62% -8% 675 iShares MSCI Global Gold Miners RING US (USD) MXWDS1MI 20.08 17% 86% -4% 394 Direxion Daily Gold Miners Index Bear X3 DUST US (USD) GDM 21.19 -56% -97% -50% 389 Global X Silver Miners SIL US (USD) SOLGLOSI 35.03 9% 96% -16% 387 ComStage ETF NYSE Arca Gold BUGS CD91 GR (EUR) HUI 17.80 -2% 73% -11% 275 ETFS DAXglobal Gold Mining GO UCITS ETLX GR (EUR) DXGOLDUT 20.55 2% 60% -8% 210 Sprott Gold Miners SGDM US (USD) ZAXSGDM 22.16 17% 74% -5% 197 Sprott Junior Gold Miners SGDJ US (USD) ZAXSGDJ 36.97 16% 96% -4% 174 Direxion Daily Junior Gold Miners Index Bear X3 JDST US (USD) MVGDXJ 47.50 -66% -99% -66% 170 BetaPro Canadian Gold Miners 2x Daily Bull HGU CN (CAD) SOLCGM 15.59 7% 91% -28% 98 Global X Gold Explorers GOEX US (USD) SOLGOEX 24.10 16% 107% -8% 48 Source: Bloomberg, Metals Focus

47 Precious Metals Investment Focus 2017/2018 Introduction As explained in the focus box below, commodity exchanges’ derivatives ofer investors exposure to precious metal prices. The relatively high entry level for trading on the key Western commodity exchanges (for example the main gold contract size on the Comex is 100 ounces) means that they are primarily used by institutional and high-net-worth investors. 2017-to-date has seen a further increase in precious metals trading on commodity exchanges. In essence, this relects ongoing macroeconomic uncertainties as well as rising geopolitical risks, both of which have continued to raise investor interest in safe haven assets.

While gold has been the main beneiciary, silver and platinum have also enjoyed positive spill-overs. Interestingly, despite being the best performer (in terms of price) so far this year, palladium has recorded the smallest increase in trading volumes on commodity exchanges. This supports our view that the palladium rally has also been boosted by robust purchases in the physical and OTC markets. This stands in contrast to the other three metals, where price gains so far have been largely driven by institutional investment. Exchanges & OTC Market Chapter 5 Commodity exchanges are platforms that allow the trading of commodity derivatives.

Among these, futures are standardised contracts to buy or sell an asset at a set price and on a speciied date. Options give the right, rather than the obligation, to buy or sell the underlying asset. A key advantage of such products is the ability to enter a position by putting up a cash margin, rather than committing the full amount, thus enabling leveraged investments. They are commonly centrally cleared, minimising counterparty risk. Futures and options usually commit to physical delivery at a predetermined future date, but they are usually settled for cash prior to maturity. Investors will often enter into these contracts with little intention of ever owning the underlying asset, but are simply placing a bet on future prices.

The most liquid precious metals futures contracts are those within the CME Group, namely the gold and silver Comex contracts and platinum and palladium Nymex contracts. Weekly reports issued by the CFTC on open interest in precious metals futures provide a useful insight into commercial and speculative activity in these contracts. Non- commercial and non-reportable positions are used as a guide to the level of investors’ net positions. However, this can only ever be a rough proxy, as there may often also be a degree of investment activity included in the commercial positions. In recent years, there has been a rise in precious metals derivatives trading, for gold in particular, in emerging markets, notably China and India.

To a large extent, this has been assisted by a general increase in interest in precious metals among the general public during the previous bull market. The relatively limited range of investable assets for retail investors, compared to those available in western markets, has also made the trading of precious metals attractive. Commodity Exchanges Proile – All four precious metals recorded higher trading volumes on commodity exchanges in the irst eight months of 2017. – Growth this year has been dominated by Western markets. By contrast, China and India have posted weaker turnover. – 2017 has seen a number of exchanges launch new precious metals contracts.

Chapter 5: Exchanges & OTC Market 48 Precious Metals Investment Focus 2017/2018 Gold 2017-to-date has seen a rise in total gold trading volumes on commodity exchanges, but individual performances have varied considerably. Meanwhile, the competition among exchanges has also grown this year, relected in the launch of new products by several major exchanges. Starting with Comex, total turnover has grown by15% y/y in the irst eight months of the year. At end-August, open interest was 30% higher than the level at end-2016, while net investor long positions (the sum of non- commercial and non-reportable long positions reported by the CFTC) more than doubled over the same period.

As impressive as it appears to be, this increase hides some marked intra-year luctuations in investor activity. Following a sharp sell-of in late 2016, net longs saw a major recovery in early 2017. By late April, net longs, at 21.5Moz (667t), were already 77% higher than the end-2016 level, recovering a large part of the ground they had lost in the wake of the US election result. In part, this should be viewed against oversold levels in late 2016 when Trump’s win and a more hawkish tone from the Fed fuelled expectations of faster interest rate hikes. Also of importance, though, was the fading euphoria surrounding the Trump win, which started to put downward pressure on the dollar.

Additional support came from some safe haven buying amid growing worries ahead of the French election. From that point, however, this recovery came to an abrupt end, before net positions slumped 66% to 7.4Moz (230t) by mid-July. During this time, record high equity prices discouraged institutional investors from returning to the yellow metal. Even though investors have become less impressed about Trump administration’s economic programme, low inlation numbers also reduced their expectations of interest rate rises. This has helped stocks to continue rising. Moving to Europe, still fragile economic conditions and an absence of inlationary pressure in the near term saw ECB maintain its ultra-loose monetary stance.

Meanwhile, market friendly election results, the rescue plan for the troubled Italian banking sector and the Greek debt deal all undermined gold’s appeal across much of the institutional investor community.

Investor sentiment towards gold then recorded notable improvements over the summer. Rising political turmoil in Washington, Yellen’s speech at the Jackson Hole meeting, concerns about Hurricane Harvey’s impact on the US economy and rising expectations of the ECB tapering all weighed on the US dollar. An escalation of geopolitical tensions concerning North Korea provided an additional catalyst. While the recovery was initially driven by short covering, fresh long-side interest expanded quickly after gold prices eventually broke out to the upside.

By mid- September, net longs amounted to 27.2Moz (846t), their highest level since July 2016.

Despite this recovery, it is worth stressing that net positions were around 20% and 25% below their previous peak in value and volume terms respectively. This leaves room for a recovery in gold Gold Turnover on Major Commodity Exchanges Moz 2016 Jan-Aug 2017 Jan-Aug Y/Y Comex 3,910 4,514 15% SHFE1 1,689 916 -46% SGE T+D1 400 414 4% SGE Spot1 143 144 1% Tocom 201 136 -32% MCX 101 53 -48% LME2 na 21 na Borsa Istanbul 4 11 142% 1. Both the SGE and SHFE record each transaction twice, from the point of view of the buyer and the seller. As such, to compare the above volume igures with other exchanges, such as the Comex, one needs to divide them by two.

2. 10th July-August 2017 Source: Bloomberg, respective exchanges Comex Gold: Net Futures Positions* *Combined non-commercial and non-reportable positions Source: CFTC -30 -20 -10 10 20 30 40 50 2009 2011 2013 2015 2017 Moz Gross Long Gross Short Net Long

© The London Metal Exchange (the “LME”), 2017.The London Metal Exchange logo is a registered trademark of The London Metal Exchange. All rights reserved.All information contained within this document (the“Information”) is provided for reference purposes only. While the LME endeavours to ensure the accuracy,reliability and completeness of the Information, neither the LME, nor any of its ailiates makes any warranty or representation, express or implied, or accepts any responsibility or liability for, the accuracy, completeness, reliability or suitability of the Information for any particular purpose.

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All persons in receipt of the Information should obtain independent investment, legal,tax and other relevant advice before making any decisions based on the Information. LME contracts may only be ofered or sold to United States foreign futures and options customers by irms registered with the Commodity Futures Trading Commission (CFTC), or irms who are permitted to solicit and accept money from US futures and options customers for trading on the LME pursuant to CFTC rule 30.10. LMEprecious–thefutures ofpreciousmetals SETTING THE GLOBAL STANDARD When you’re searching for opportunities in precious metals look no further than the London Metal Exchange.

Traded on-exchange,physically settled and centrally cleared,LMEprecious contracts combine spot pricing with daily and monthly futures out to ive years. Our LME Gold and LME Silver futures provide the market with reliable,liquid tools for price discovery,trading and risk management with loco London delivery. You’ll beneit from all the experience and transparency you’d expect from the world’s leading metals exchange. lmeprecious@lme.com www.lme.com/lmeprecious

Chapter 5: Exchanges & OTC Market 50 Precious Metals Investment Focus 2017/2018 Another area which accounts for a signiicant portion of precious metals investment is the over-the-counter (OTC) market.

This includes unallocated/allocated metal accounts and a wide range of forward and derivative contracts, commonly ofered by banks active in precious metals. There are a number of advantages inherent in dealing in the OTC market. First, there can be a cost advantage compared to trading on commodity exchanges. Second, there is a higher level of lexibility, as the contracts are not standardised (as futures are) and can be made to it the client’s investment strategy. Finally, the limited requirement for reporting positions and activity in OTC products results in a relative opacity, which is desirable to certain investors.

These advantages come at the cost of a higher entry level, resulting in the market being dominated by institutional and high-net-worth investors. Moreover, acquiring positions in the OTC market by deinition means that there is an exposure to counterparty risk. In contrast, allocated accounts are often preferred by investors that use precious metals as a safe haven and store of value. Such players are often prepared to bear increased costs, in order to minimise counterparty risk. The latter group tends to include many high-net-worth investors and the private wealth management sector. It is worth noting that ever tightening regulatory and funding requirements have limited the banks’ ability to ofer OTC products to clients.

This is due to the fact that these products tend to “live” on issuers’ balance sheets. Meanwhile, following the 2008 inancial crisis and in particular the failure of a handful of major inancial institutions, many investors are now placing a far bigger focus on counterparty risk. All these factors have resulted in a gradual shift of positions from the OTC market to allocated metal accounts as well as exchange- listed futures and options over the past eight years or so. Turning to 2017, the clearing statistics published by the LBMA point to higher trading volumes in both gold and silver. It was interesting to note though that feedback from our contacts suggested that, while institutional investors were net buyers, their appetite for gold (and silver) was nowhere near as marked as it had been during the 2009-11 bull market.

The number of active institutional investors was far lower and, among those that were involved, volumes were not as high as they had been previously.

Indeed, even though market participants seem to agree that the macroeconomic and geopolitical backdrop has been on balance positive for precious metals, it was hard to make a case for a full-scale rally, such as that of 2009-11. More importantly, healthy equity markets made it diicult to justify an aggressive rotation into gold, particularly in light of the falling volatility in the yellow metal. In terms of the private wealth community, interest has been low throughout the year. There have been some fresh inlows, but the vast majority of institutions maintained a zero recommendation and weighting within their mainstream managed products.

Finally, anecdotal evidence from our ield trips points to slightly higher interest in gold in Europe than North America within the private wealth management space. Precious Metals in the Over-the-Counter and Allocated Metal Account Markets London Bullion Market Clearing - Average Daily Gold Transfer Source: London Bullion Market Association 5 10 15 20 25 30 35 2008 2010 2012 2014 2016 Moz

Chapter 5: Exchanges & OTC Market 51 Precious Metals Investment Focus 2017/2018 investment and hence prices, given that we expect the macroeconomic and political backdrop to remain broadly supportive. The LME launched its irst ever gold and silver futures contract on 10th July this year in an attempt to draw investors from the of-exchange trading that currently dominates the London gold market. Turnover of LME gold futures totalled 9.2Moz (285t) and 12.1Moz (337t) in July and August respectively. While it is too early to predict future trading volumes based on two months’ data, feedback from the market suggest that liquidity has so far been relatively decent on the exchange for the futures contract.

In China, given that local gold mine production and imported bullion are required to be sold via the Shanghai Gold Exchange (SGE), volumes on the exchange relect investor activity in gold and also provide an indication of physical demand in the country.

Following a 19% decrease in 2016, combined turnover of spot contracts on the SGE rose by 1% y/y in January-August this year. At irst sight, this growth seems modest, but it marks a turnaround in the local underlying gold demand following heavy losses over 2014-16. In the irst half of 2017, Chinese gold consumption is estimated to have grown by some 8% y/y, as robust investment demand outweighed a further slide in jewellery sales. The limited growth in spot trading was also related to tight physical supply on the SGE, a result of tougher regulations on gold bullion imports imposed by the Chinese central bank since late 2016.

This in turn led to a sharp rise in premia in the inal few weeks of 2016. While premia have slipped back this year, they have remained relatively high, averaging $11/oz in the irst eight months, compared to almost $3 for the same period in 2016. Meanwhile, restrictions on gold imports also saw the trading of four 9s gold bars (which account for almost all gold bullion imports) ease slightly this year in favour of 9995 purity bars.

Over the same period, the T+D contract, where investor activity accounts for the bulk of transactions, recorded a 4% increase. In recent years, interest in the T+D contract has also enjoyed the beneit of a growing institutional investor base in China, as more inancial institutions have started to ofer precious metals products to their clients. Moreover, as discussed below, the cost advantage of the T+D contract has also seen it win market share from the SHFE. Turning to the Shanghai Futures Exchange (SHFE), total turnover dropped by a hefty 46% y/y. This partly relects a shift of trading from the SHFE to the SGE T+D contract.

More speciically, improving conidence in gold has seen speculative long-side interest exceed short-side over much of 2017. Basis the structure of T+D contracts, this means that holders of long positions are required to pay a deferred fee to shorts. This therefore provides a strong incentive for certain players to hold short positions on the SGE, especially for commercial hedging-motivated transactions. SGE Gold: Turnover & Premium Source: Shanghai Gold Exchange -10 10 20 30 40 50 400 800 1,200 1,600 2,000 Jan-14 Jan-15 Jan-16 Jan-17 US$/oz Koz Spot DailyTurnover Premium over London AM Price SGE & SHFE Gold: Monthly Turnover Source: Shanghai Gold Exchange, Shanghai Futures Exchange 50 100 150 200 250 300 350 400 10 20 30 40 50 60 70 80 2008 2010 2012 2014 2016 Moz Moz SGE T+D (LHS) SHFE (RHS)

Chapter 5: Exchanges & OTC Market 52 Precious Metals Investment Focus 2017/2018 On 19th April 2016, the Shanghai Gold Exchange (SGE) launched the irst yuan-denominated gold benchmark price. The new benchmark, or Shanghai Gold, is the result of an auction held twice daily on trading days by the SGE, at 10:15am and 2:15pm, Beijing Time. Intended to represent a price where supply and demand reach a balance, the benchmark is quoted in RMB per gram, and based on the auction of physical lots of 1kg of gold, with a purity of four 9s or higher, to be delivered to certiied SGE vaults. This development marked the country’s latest eforts to have a greater inluence over pricing of the yellow metal.

Despite being the world’s largest gold producer and consumer, the daily trading of gold prices has traditionally been dominated by western institutions. As shown in the table on Page 48, combined turnover on the two Chinese commodity exchanges is still well below that seen on the Comex, let alone the London OTC market.

The SGE benchmark is not the only new competitor to the current incumbents on the horizon. Following the launch of gold (and silver) futures in July this year, the LME late announced that it will start to publish intra-day reference prices based on the trading of its gold and silver contracts. At the moment, the LBMA Gold Price, which started in 1919, is regarded as the benchmark for gold and is widely used by miners, central banks, jewellers and the inancial industry to trade the yellow metal. In 2015, the LBMA Gold Price moved to an electronic auction system, after critics charged that the “ix” was opaque and vulnerable to market abuse.

At present, the LBMA gold price continues to be set twice daily (at 10:30am and 3:00pm London GMT BST) in US dollars. Sterling and Euro prices are made available, but these are indicative prices for settlement only. The LBMA Gold Price is operated and administered by an independent third party provider, ICE Benchmark Administration.

All this comes at a time when the EU is developing a regulatory framework, namely the European Benchmark Regulation (EBR) for overseeing benchmarks. The new framework is likely to have implications for gold and silver benchmarks. There are six diferent types of EU regulated benchmarks, intended to cover every type of inancial benchmark. A key determinant of classiication relates to the size of the underlying contract or OTC instrument. Other factors relate to the size of the market in related products or indices, the existence of alternatives, the importance of the benchmark to inancial stability as well as the type of market it relates to.

As far as precious metals are concerned, the classiication of the LBMA Gold & Silver Prices by the regulator (in this case the FCA) will be the key determinant of the level of regulation that is placed on the prices. The crucial question is whether the two benchmarks will fall under the “Critical Benchmark” classiication of the EBR, which comes with the highest level of regulatory oversight. The possible outcomes and their implications are discussed in detail in the latest edition of Metals Focus’ Regulatory Review Service. Given estimates of volumes traded through them, the LBMA prices fall out of the quantitative criterion for critical benchmarks.

On the other hand, one could argue there is a lack of market-led substitutes to the two benchmarks, deeming them worthy of the “Critical” classiication. In Metals Focus’ view, this is a likely outcome, not least due to the fact that LBMA prices are both in the list of eight benchmarks that the FCA currently regulates.

The other key concern for the precious metals market is how participants in the LBMA auctions are categorised. Under the current FCA regime, they are seen as participants to an auction rather than contributors to a benchmark. If this were to change under the EBR regime it would have major implications for participants. The New Era for Gold Benchmarks

Chapter 5: Exchanges & OTC Market 53 Precious Metals Investment Focus 2017/2018 With its market share exceeding 95%, the Multi Commodity Exchange of India (MCX) is by far the largest oicial platform for gold futures trading in India.

Following a modest recovery in 2016, total trading volumes have nearly halved y/y in the irst eight months of the year. We attribute this fall to several factors. First, the introduction of a commodity transaction tax has continued to afect volumes, as it has raised the cost of trading, especially for high frequency traders. Second, a lack of clear price trend in gold for several months has also encouraged speculative investors to shift to other commodities such as base metals and crude oil. Finally, with the Indian equity market posting a series of all-times this year, it has been diicult to convince investors to return to the yellow metal.

Borsa Istanbul remains the only oicial exchange for Turkish institutions to source physical gold bullion (with a minimum purity of 995). Turnover on the exchange therefore also provides a gauge as to the health of local gold consumption. Turkish physical gold demand has improved 2017-to-date, thanks to accommodating government policies towards gold investment as well as a pull-back in prices from record highs in Turkish lira terms. As a result, gold transactions on the Borsa surged by 142% y/y during the irst eight months of the year.

On the Tocom, trading volumes of its standard 1kg gold futures contract have dropped by 32% from an already low base in 2016. In essence, this relects a lack of clear price direction over much of January-August, which deterred investor interest. Silver As shown in the table opposite, 2017-to-date has seen sizeable changes in silver trading on commodity exchanges. Comex has further enhanced its position as the world’s largest exchange for silver trading, with volumes up by 27% y/y to end-August. At that point, open interest was 9% above the level at end-2016, compared to a decline of 11% for net investor longs reported by the CFTC.

Investor activity in silver has continued to shadow gold over much of 2017. For instance, net longs grew 58% to 584.2Moz (17,793t) by late April, as factors cited in the gold sector also stimulated a sharp expansion of gross long positions in silver.

From mid-April, as investors started to unwind their long positions in gold, silver also came under heavy pressure. By mid-July, net investor longs had already lost 81% to 109.6Moz (3,408t), a level last visited in September 2015. Of course, given silver’s high volatility, it may not seem surprising that the scale of investor sell-of was larger for silver than gold, with the latter seeing a 66% drop in net positions over the same period. More importantly, falling metal prices failed to revive retail investors’ interest in physical silver in the US and India, the only sizeable price sensitive Silver Turnover on Major Commodity Exchanges Moz 2016 Jan-Aug 2017 Jan-Aug Y/Y Comex 61,256 77,753 27% SHFE1 56,425 37,777 -33% SGE T+D1 21,527 27,170 26% MCX 3,841 2,596 -32% LME2 na 142 na SGE Spot1 13 6 -50% Tocom 15 5 -67% 1.

Both the SGE and SHFE record each transaction twice, from the point of view of the buyer and the seller. As such, to compare the above volume igures with other exchanges, such as the Comex, one needs to divide them by two.

2. 10th July-August 2017 Source: Bloomberg, respective exchanges MCX Gold: Monthly Turnover Source: MCX 10 20 30 40 50 60 70 80 2008 2010 2012 2014 2016 Moz

Chapter 5: Exchanges & OTC Market 54 Precious Metals Investment Focus 2017/2018 demand component. Without strong support from silver’s supply/demand fundamentals, this encouraged speculative investors to aggressively add short positions in silver from late April to mid-July. Thereafter, net longs recorded a healthy recovery through to mid- September. The key driver once again was the renewed strength of gold prices.

However, it is worth stressing that this safe-haven buying since August has been skewed to the beneit of gold. The recovery in silver’s net longs therefore has been largely driven by short covering, while fresh additions to gross longs have been rather restrained. This also helps to explain why the gold:silver ratio has remained relatively high. In China, the SGE and the SHFE have posted divergent results for the third year in a row. Starting with the SHFE, total volumes fell by a third in the irst eight months, although it has retained its leading position within the country in terms of silver trading.

This steep decline also marked a contrast to other industrial metals trading on the exchange, such as lead (+771%), zinc (+123%) and copper (-12%).

To some extent, such a sizeable reduction in trading volumes relects silver’s price underperformance over much of the year. By contrast, increasing risk appetite and positive supply/demand fundamentals have seen several base metals record healthy price gains this year. Over the same period, the SHFE has also sufered from a growing preference for the SGE among silver investors. This in turn relates to two factors. First, the smaller size of the SGE contract (3kg on the SGE for the T+D product versus 15kg on the SHFE) also means that its entry level is lower for smaller ticket investors. Second, similar to gold, silver trading on the SGE has also enjoyed cost advantages this year (due to the deferred fees received by short holders of the T+D contract).

Turning to the SGE, total turnover of the T+D contract jumped 26% y/y to end-August, with the annual total likely to hit a new record. In addition to the shift away from the SHFE, the silver contract has also beneited from a general rise in investor interest, after more inancial institutions have started to recommend silver to their clients. In India, silver turnover on the MCX has slumped by 32% y/y to end-August. As mentioned in the gold section, the commodity transaction tax and the heavy reduction in high frequency trading have been the key drivers behind such a notable drop. Moreover, the reduced price diference between spot and futures silver prices has led to lower arbitrage trading and also an increase in volumes delivered onto the exchange.

That said, as silver prices have started to improve since July, trading volumes have improved noticeably, with turnover in August hitting its highest level since September 2016.

Finally, as shown in the table, turnover totalled 142Moz (4,431t) in the irst two months of trading on the LME. Comex Silver: Net Futures Positions* *Combined non-commercial and non-reportable positions Source: CFTC SGE & SHFE* Silver: Monthly Turnover *Silver futures contracts launched on SHFE in May 2012. Source: Shanghai Gold Exchange, Shanghai Futures Exchange -600 -400 -200 200 400 600 800 1,000 2009 2011 2013 2015 2017 Moz Gross Long Gross Short Net Long 10,000 20,000 30,000 40,000 50,000 1,000 2,000 3,000 4,000 5,000 6,000 2012 2014 2016 Moz Moz SGE T+D (LHS) SHFE (RHS)

Chapter 5: Exchanges & OTC Market 55 Precious Metals Investment Focus 2017/2018 Nymex Platinum: Net Futures Positions* *Combined non-commercial and non-reportable positions Source: CFTC Platinum 2017-to-date has seen a divergent performance among commodity exchanges for platinum trading.

After hitting successive all-time highs over 2015-16, platinum turnover has continued to strengthen in 2017 on the Nymex, rising 24% y/y in the irst eight months. At end-August, open interest was 20% higher than the level at end-2016, while the increase in net investor long positions recorded by the CFTC rose by a more impressive 42% over the same period. Looking at investor activity in detail, 2017 started on a positive note, with net longs on Nymex recording a 73% increase to 2.5Moz (78t) by end- February. Similar to silver, much of this growth was down to platinum’s positive link to gold.

Thereafter, however, platinum sufered a steep fall through to mid-July, with net longs slumping almost 80% over the period to 513koz (16t), a level last seen in 2009.

Leaving aside easing investor interest in gold, platinum’s lacklustre fundamentals also took their toll on the white metal. In particular, a lack of meaningful production cuts in South Africa and doubts over the future of light duty diesel cars in Europe boosted expectations that palladium prices would eventually surpass platinum. This in turn encouraged aggressive additions of short positions by speculative investors, driving gross shorts to all-time highs of 2.2Moz (70t) mid-July. After gold regained momentum in late summer, it was not surprising that net longs in platinum also improved.

By mid-September, net long positions had recovered almost all of the ground they had lost in July. That said, this latest upturn was largely driven by short covering. Furthermore, the likelihood of further market surpluses for platinum appeared to undermine investor conidence in the metal.

Following a hefty decline in trading volumes over the last decade or so, the Tocom exchange introduced a new rolling spot contract in March 2017 in order to revive investor interest in platinum. While this new contract generated some fresh interest, total turnover remained subdued by historical standards. In essence, this relects a lack of investor conviction in platinum, especially in light of the metal’s widening discount to gold. Turning to the SGE, it is worth stressing that, in contrast to Nymex and Tocom, where investor activity accounts for a signiicant share of total turnover, the absence of a selling-back channel means that platinum trading on the SGE is primarily driven by end-users in China.

Indeed, even though the premium on the SGE over the loco-London price, which averaged 7% over January-August 2017, is relatively high, the exchange is the only place to source VAT-free platinum in China. (The alternative for fabricators is to import platinum and pay 17% VAT.) In the irst eight months of the year, turnover on the SGE slipped by 22% to 893koz (28t), with the annual total on track for the fourth consecutive year -3,000 -2,000 -1,000 1,000 2,000 3,000 4,000 2009 2011 2013 2015 2017 Koz Gross Long Gross Short Net Long PGM Turnover on Major Commodity Exchanges Moz 2016 Jan-Aug 2017 Jan-Aug Y/Y Platinum Nymex 122.6 151.4 24% Tocom 31.2 30.9 -1% SGE1 1.1 0.9 -22% Palladium Nymex 94.4 100.9 7% Tocom 0.3 0.3 2% 1.The SGE records each transaction twice, from the point of view of the buyer and the seller.

As such, to compare the above volume igures with other exchanges, such as the Nymex, one needs to divide the SGE igures by two. Source: Bloomberg, respective exchanges

Chapter 5: Exchanges & OTC Market 56 Precious Metals Investment Focus 2017/2018 of losses. In line with the trend seen in recent years, this weakness is partly due to a further decline in platinum jewellery demand, by far the biggest component of platinum consumption in China. Appetite from industrial end-users has also been notably weaker this year. While a soft Chinese economy has certainly afected industrial output, platinum industrial demand has also been further curtailed by high inventories held by end-users at the start of 2017. A widely held view that platinum prices would eventually recover had resulted in strong bargain hunting (via the SGE) on major price dips in previous years.

However, with platinum prices struggling to regain momentum, such bargain hunting has waned and these stockpiles accumulated in recent years have also reduced the need for newly imported platinum bullion. Palladium In contrast to the other three precious metals, trading of palladium on commodity exchanges is overwhelmingly dominated by Nymex. Although palladium prices have posted a spectacular rally so far this year, growth in trading volumes on Nymex has been rather limited. Total turnover, for instance, rose by only 7% in the irst eight months of the year (the lowest among the precious metals complex), with volumes still some 10% below the level seen in 2014.

Another interesting development worth noting is that palladium futures have at times this year been trading in a deep backwardation, a situation that is currently unique among the precious metals. Palladium inventories held at Nymex warehouses also fell to multi-year lows of 40koz (1.3t) by August. As cited earlier, this supports our view that, in addition to institutional investors, the palladium rally year-to-date has also been assisted by robust purchases from speculative industrial end-users.

Looking at CFTC data, net investors’ long positions did record a decent rise through to mid-September. Earlier this year, investor sentiment was fuelled by the bullish outlook for the US economy and the rally in industrial commodities following the US election. Even though market exuberance soon dissipated, palladium’s solid growth in autocatalyst demand and signs of market tightness prompted fresh long-side interest. As discussed earlier, the contrast between palladium and platinum’s fundamentals had resulted in growing expectations that palladium prices would eventually trade above platinum, which clearly helped the former.

That said, despite notable gains, net longs by mid-September were still some 29% below their peak seen in September 2014 when prices last topped $900. Finally, turning to Tocom, palladium turnover grew 2% y/y in the irst eight months of 2017, albeit in comparison to a very low base. Similar to the rest of precious metals, palladium turnover has also sufered a sustained decline since the start of the new millennium. This left total turnover by 2016 a mere 0.5% of its peak in 1999. Leaving aside regulatory change, this collapse in investor interest also partly relects palladium’s volatile trading during the late 1990s, a time when many investors were badly hurt.

Nymex Palladium: Net Futures Positions* *Combined non-commercial and non-reportable positions Source: CFTC SGE Platinum Turnover & Premium Source: Shanghai Gold Exchange -3,000 -2,000 -1,000 1,000 2,000 3,000 4,000 2009 2011 2013 2015 2017 Koz Gross Long Gross Short Net Long 20 40 60 80 100 120 10 20 30 40 50 Jan-14 Jan-15 Jan-16 Jan-17 US$/oz Koz Daily Turnover Premium over London AM Price

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Chapter 6: Exchange Traded Products 58 Precious Metals Investment Focus 2017/2018 Introduction Of all precious metals exchange traded products (ETPs), those backed by physical metal are by far the most popular and liquid.

For this reason, this chapter mainly focuses on products of this nature. For the sake of convenience, unless speciied otherwise, references to ETPs throughout only relate to physically-backed ETPs. This year has so far been marked by quite varying performances across the four precious metals’ ETPs. The most signiicant increase in holdings has occurred in gold, where year-to-date gains of 6% (4.2Moz, 132t) to 73.8Moz (2,295t) by end-August lowed through from a supportive macro environment and safe haven purchases. Even so, the total was still some 19% below the end-2012 high of 91.2Moz (2,838t).

The drivers behind the growth in gold also help explain the rise in silver ETP holdings. Although the 2% lift to 665Moz (20,675t) for silver is slight, it is worth remembering that its ETP holdings touched a record high this July of 682Moz (21,216t) and so the end-August total was only 3% below that record. Exchange Traded Products Chapter 6 Precious metals exchange traded products (ETPs) or exchange traded commodities (ETCs) are securities listed on stock exchanges that provide exposure to precious metals prices. They are often also referred to as precious metals exchange traded funds (ETFs).

It should be noted, however, that strictly speaking ETPs are not ETFs, as they normally fail to meet ETFs’ diversiication requirements. Precious metals ETPs are fully collateralised, thus eliminating counterparty risk. While they are not Undertakings for Collective Investment in Transferable Securities (UCITS) compliant (as they are not suiciently diversiied), they are often UCITS eligible, meaning a UCITS fund is allowed to invest in them.

ETPs can track metal prices through holding physical, futures or OTC positions. By far the most popular and liquid precious metals ETPs are backed by physical metal. Physically backed ETPs are normally backed by allocated positions (which are not on the balance sheet of the custodian and also cannot be leased out) and are stored in a recognised vault. Storage and administrative costs are passed on to investors through fees which vary across metals and products. Finally, ETP owners can often request physical delivery, subject to certain restrictions.

Key advantages of ETPs include safety, transparency, liquidity and ease of access.

In addition, ETPs enable those institutional investors whose mandate precludes them from holding futures or physical commodities to gain exposure to precious metals. As ETP shares are normally equivalent to a fraction of one ounce, they also ofer a cost efective, low entry threshold avenue to precious metals investments. For some players, ETPs’ transparency can also be seen as a disadvantage, given reporting requirements of large holders. Cost is another disadvantage, when it comes to larger players, who may have access to more competitive storage rates. Finally, for those retail investors who are holding gold as a hedge against a major geopolitical crisis, the metal’s vault storage and physical delivery restrictions can make ETPs seem unattractive.

Precious Metals ETPs Proile – Total holdings of gold ETPs increased by 6% y/y (to end-August) to 73.8Moz (2,295t). In value terms, the rise was a more dramatic 16%. – Silver ETP holdings rose by a modest 2% to 665Moz (20,675t) to end-August, having touched a record high the previous month. – Platinum ETP holdings grew by 3% to 2.4Moz (76t), while palladium ETPs fell by 9% to 1.6Moz (49t).

Chapter 6: Exchange Traded Products 59 Precious Metals Investment Focus 2017/2018 Moving to the PGMs, this year has seen contrasting fortunes for platinum and palladium ETP holdings.

The former gained 3% (70koz, 2.2t) over the irst eight months to 2.4Moz (76t), although it still remained some 16% below the July 2014 high of 2.9Moz (90t). The growth in investor demand this year has been in response to three main drivers. First, there was a positive spillover from the strength of gold investment. However, the only modest rise in platinum ETP demand relected investor concern towards platinum’s unsupportive supply/demand fundamentals. Finally, platinum’s surplus ultimately means that these excessive supplies need to be adsorbed by institutional investors, which was relected in, not only rising ETP holdings, but also over-the-counter purchases, as well as growth in net investor long Nymex positions.

Meanwhile, palladium holdings posted the only year-to-date decline, of around 8% (148koz, 5t) to an end-August total 1.6Moz (49t). To put this trend into perspective, this means that palladium holdings at this time were around half the August 2014 record level of 3.1Moz (96t). This occurred even though it enjoys healthy fundamentals, backed up by strong price gains so far this year. It appears as though positive investor interest has been concentrated in the futures markets. This was relected in a jump in net long Nymex positions of 58% to 607koz (19t) over the same time frame. However, palladium has recorded signiicant physical deicits, which this year is forecast to reach 1.5Moz (48t).

This implies that, with Nymex positioning in palladium up strongly, and ETP demand only marginally lower, the over-the-counter market must have seen substantial selling this year in order to help ill the deicit.

Global Gold ETP & Other Physi- cally Backed Product Holdings Note: Totals also include holdings of products that are not ETPs (e.g. they are closed-ended funds) but are still physically backed and listed on exchanges. Source: World Gold Council 20 40 60 80 100 2003 2006 2009 2012 2015 Moz Other SPDR Gold Shares iShares Gold Trust Key US Gold ETP Price Spreads* *Bid-ask over mid; Source: Bloomberg, Metals Focus 2 4 6 8 10 12 14 16 18 20 May-17 Jun-17 Jul-17 Aug-17 Sep-17 SPDR Gold Shares iShares Gold Trust ETFS Physical Swiss Gold Basis points Key European Gold ETP Price Spreads* *Bid-ask over mid; Source: Bloomberg, Metals Focus 5 10 15 20 25 30 May-17 Jun-17 Jul-17 Aug-17 Sep-17 ETFS Physical Gold ETFS Gold Bullion Securities ZKB Gold ETF Basis points

Chapter 6: Exchange Traded Products 60 Precious Metals Investment Focus 2017/2018 Gold Following heavy redemptions during the inal few weeks of 2016, gold ETPs have recorded a healthy recovery in 2017-to-date. According to data collected by the World Gold Council, total holdings posted an increase of 6% or 5.1Moz (160t) to 73.8Moz (2,295t) by end-August, recovering almost all of their ground lost in late-2016. This year, most ETP buying has been concentrated in two periods, the irst quarter and August. During the former period, buying coincided with changing perceptions of US monetary policy and the emerging diiculties of policy implementation within the newly elected Trump administration.

Rising political uncertainties ahead of key European elections provided an additional boost. In August, the strength of investor buying relects the yellow metal’s improving appeal as a safe asset, in the wake of rising US political turmoil, heightened geopolitical tensions over North Korea and the prospect of slower US rate hikes. Meanwhile, as prices eventually broke through the psychologically important $1,300 mark, this also prompted some fresh interest.

That said, it is worth noting that ETP inlows so far this year fell short of the one-third jump seen in 2016. In part, this relects the impact of record equity valuations which have attracted investor funds at the expense of precious metals and gold in particular. Looking at the regional trends, this year has seen notable inlows (4.0Moz, 125t) into products listed in Europe, accounting for almost 80% of total inlows worldwide so far this year. This in turn relects two factors. First, the impact of political uncertainty amid elections in key countries this year. Second, negative interest rates in both nominal and real terms also encouraged buying, principally from institutional investors.

North American listed funds also saw gains, albeit a far more modest (514koz, 16t). In contrast, ETPs listed in Asia saw slight outlows at 330koz (10t), led by the Chinese funds. This needs to be put into context as Chinese funds had realised a ive-fold rise during 2016, albeit from a very low base. Silver While holdings of silver ETPs have recorded a 2% increase during the irst eight months of the year, the growth has not been consistent. Inlows this year were concentrated in two windows, late-April/early-May and then during the irst half of July, during which total holdings jumped by 32Moz (981t) and 15Moz (476t) respectively.

For both periods, these inlows were driven by bargain hunting in response to notably weaker silver prices as well as a rising gold:silver ratio. This left total holdings at an all-time high of 682Moz (21,216t) on 18th July. Part of these gains, however, were soon unwound, leaving the global total at 665Moz (20,675t) by end-August, with further losses seen in the irst half of September. That said, total holdings in absolute terms have remained historically high.

Key US Gold ETP Volumes* *20-day moving average; note that the nominal gold equivalent of each SPDR Gold share is 10 times that of each iShares Gold share Source: Bloomberg, Metals Focus Key European Gold ETP Volumes* *20-day moving average Source: Bloomberg, Metals Focus 5 10 15 20 25 30 35 40 2010 2012 2014 2016 SPDR Gold Shares iShares Gold Trust Mill. Shares 100 200 300 400 500 600 2010 2012 2014 2016 ETFS Physical Gold Gold Bullion Securities ZKB Gold ETF Th. Shares

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Chapter 6: Exchange Traded Products 62 Precious Metals Investment Focus 2017/2018 Comparing the trend in silver ETPs with those discussed for gold, two themes stand out. First, the timing of inlows into silver ETPs was rather diferent. Second, silver ETP holdings’ rise of around 2% through to end- August was notably smaller than gold’s increase of 6%. To some extent, this was related to the growth in demand for safe haven assets which is skewed towards gold. As discussed earlier, rising safe haven demand has encouraged inlows in gold ETPs since August.

By contrast, silver ETPs have eased back over the same period.

The diference in trends between gold and silver ETP holdings can also be explained by the varying investor proiles. Speciically, institutional investors account for a large share of gold ETPs, but only a modest one in silver. As can been seen in the chart below, at end-June 2017, institutional holdings with reporting requirements accounted for around 40% of SPDR Gold Share’s outstanding shares, which is the world’s biggest gold ETP and accounted for 36% of global ETP holdings. This compares to 18% for iShare Silver Trust, the biggest silver ETP with a market share of 50%. In other words, retail investors make up a far larger portion of silver ETPs.

It is worth noting that retail investors often see falling prices as an opportunity to buy metal. Meanwhile, proit taking from such players at higher prices can be restrained and the process is likely to be gradual. These factors help to explain the resilience of silver ETP holdings during 2013-15. This also means that they have not beneited as much from the improving sentiment towards precious metals among institutional investors since 2016.

With silver ETPs in volume terms near record highs, it is natural to question the extent to which fresh inlows may occur. In our view, the greater involvement of retail players is likely to support a long-term uptrend and hence global holdings are likely to remain irm. At the same time, we do not expect to see holdings dramatically rise through to year-end. In addition, in value terms combined holdings of silver ETPs to end-August are less than half the historical peak seen in 2011. Even if we make a comparison against end-2012 levels (to avoid the distortion of 2011’s silver price spike), the nominal value of current holdings are still 37% lower.

This also means that a fair portion of these silver ETP holdings are still way out of money as we write. Without any major price gains, we doubt there will be sizeable redemptions in the near future.

Platinum & Palladium Platinum and palladium ETP holdings have recorded divergent performances so far in 2017. Combined platinum ETP holdings rose 70koz (2.2t) or 3% during the year through to end-August, ending the period at 2.4Moz (76t). By contrast, palladium was the only precious metal to record a drop in holdings; these fell by 148koz (4.6t) or 9% (over the same period) to 1.6Moz (49t). Global Silver ETP & Other Physi- cally Backed Products’ Holdings* *Totals also include holdings of products that are not ETPs (e.g. they are closed-ended funds) but are still physically backed and listed on exchanges.

Source: Bloomberg, ETP issuers Percentage of Outstanding Shares Held by Institutions with Reporting Requirements* *end-June 2017 Source: Bloomberg 100 200 300 400 500 600 700 2003 2006 2009 2012 2015 Moz Other iShares Silver ZKB Silver ETF Securities 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% SPDR Gold Shares iShares Silver Trust

Chapter 6: Exchange Traded Products 63 Precious Metals Investment Focus 2017/2018 The limited growth in platinum holdings is in line with our ield research, which points to an ongoing lack of investor conviction. As discussed in Chapter 3, the prospects of uninterrupted surpluses going forward has been a key headwind to sentiment in the platinum market, especially among institutional investors with a medium to longer-term time horizon.

Regionally, growth this year has been dominated by the two largest ETPs, the South African-listed NewPlat whose total holdings at end-August were 829koz (26t) and the New York Stock Exchange listed product issued by ETF Securities (with 559koz, 17t). For the former, net inlows were fairly modest at 48koz (1.5t) over January-August. This followed heavy redemptions in 2015-16 and so at end-August, total holdings were still 34% below their previous peak in September 2014. It is worth stressing that the marked luctuations in the South African ETP in recent years should be viewed against its signiicantly higher concentration among institutional holders.

For instance, at end-June 2017, the top 10 holdings accounted for almost half of NewPlat’s outstanding shares, compared to 18% for the US- listed product (by ETF Securities). This has made NewPlat more vulnerable to a change in investor sentiment. Turning to ETF Securities, their US-listed product achieved a similar 36koz (1.1t) lift over the same period. Excluding the two, the global total was little changed.

Moving to palladium, after peaking at 3.1Moz (96t) in August 2014, palladium ETPs have sufered a steep decline, although the pace of redemptions has slowed this year. At irst sight, it may seem surprising that palladium’s solid fundamentals and its impressive price performance have failed to generate investor interest in palladium ETPs. This relects both a lack of understanding towards palladium among retail investors and also that the size of the market is too small for many institutional investors. As discussed earlier in this Chapter, ETP outlows have been an important source of supply to help ill deicits in the palladium market.

On a regional basis, the overwhelming majority of redemptions was accounted for by European listed products issued by ETF Securities, whose holdings dropped by 177koz (6t) through to end-August.

Non-physically Backed & Basket ETPs In addition to the above-discussed physically backed single metal products, there are a large number of other ETPs and ETCs (exchange traded commodities) that are linked to precious metals prices. Futures- backed products tracked the futures prices of precious metals. Currency- hedged ETPs “ix” the currency exposure for investors who are based in, for example, the Eurozone, the UK or Switzerland. Short ETPs allow investors to gain exposure to the downside of a metal’s price, without having to enter an actual short position themselves (the transaction is still counted as a share purchase).

As their name suggests, precious metals basket ETPs, whether physically-backed or not, ofer a packaged portfolio of precious metals. Leveraged ETPs, whether long or short, ofer a leveraged “bet” on a metal. We have included a list of all ETPs we have identiied, whether physically backed or not, in the Appendices. Global Platinum ETP & Other Physically Backed Products’ Holdings* *Totals also include holdings of products that are not ETPs (e.g. they are closed-ended funds) but are still physically backed and listed on exchanges.

Source: Bloomberg, ETP issuers Global Palladium ETP & Other Physically Backed Products’ Holdings* *Totals also include holdings of products that are not ETPs (e.g. they are closed-ended funds) but are still physically backed and listed on exchanges. Source: Bloomberg, ETP issuers 500 1,000 1,500 2,000 2,500 3,000 2007 2009 2011 2013 2015 2017 Koz Other ETFs Physical Platinum NewPlat ETF ZKB Platinum ETF 500 1,000 1,500 2,000 2,500 3,000 3,500 2007 2009 2011 2013 2015 2017 Koz Other ETFs Physical Palladium Standard Bank Palladium Newpall Physical Palladium

Chapter 7: Physical Investment 64 Precious Metals Investment Focus 2017/2018 Introduction Physical investment across the precious metals has struggled recently.

Although global gold coin and bar demand is forecast to rise by 5% in 2017, this follows two years of sluggish purchases (+1% in 2015, followed by -2% a year later). Although our 2017 forecast of 34.8Moz (1,081t) will still fall short of volumes achieved at the start of this decade (2010-12 averaged 40.8Moz or 1,269t), it still far exceeds the poor level of investor demand that characterised markets during the early to mid-2000s. In contrast, silver bar and coin demand is going through a very challenging period. Following a sharp fall in demand two year ago, 2017 is expected to see a 20% drop to 170.3Moz (5,297t).

This will translate into lost volume of 137.2Moz (4,267t) over just two years. At the same time though, it is worth remembering how much silver physical investment has risen in a just a few years. Compared with a 2010 total of 196.6Moz (6,115t), the global total reached record highs in 2013 and 2015, on each occasion comfortably surpassing 290Moz (9,000t).

Physical investment in the PGMs is dominated by activity in platinum. The dramatic upturn in 2015-16 relected a surge in investor interest in Japan and, to a lesser extent, the US. In both markets, investor interest Physical Investment Chapter 7 Physical investment covers demand for bullion coins, non- oicial coins and medals, and small bars. Numismatic coins, where premia bear no relation to the metal content, are not included here. Physical investment also captures secondary market activity, where selling back by investors, to book proits or during times of uncertainty, can ofset sales of newly minted bars or coins.

Retail investors dominate physical investment for several reasons. First, there is the low entry price point, given the availability of, for example, fractional coins. Second, a safe haven motive makes it attractive to take delivery, although this introduces security concerns or storage costs (if using a safe deposit box). Finally, portability and the ability to use these products for transactions (should the inancial system collapse) makes them attractive to some, despite their high premia. The absence of counterparty risk can also appeal. Physical investment covers weights of up to one kilo.

Purchases of larger bars, such as a London Good Delivery 400oz (gold) or 1,000oz (silver) bars, are captured in the market balance. Small bars come in a range of minted and cast sizes, although weights over 100g tend to be cast. The purity also varies, from 995 to 9999. Overall, the preference for a brand, weight (metric or imperial) or purity varies by market. For example, 10g, 20g and 50g minted pieces are popular in China, compared with 1oz bars in the US. Elsewhere, non-standard weights relect local traditions, such as the tael bar in Hong Kong (traditionally a minimum 99 purity, 37.4g).

Premiums also vary, with cast bars less expensive than minted. There is also an inverse relationship between weight and premium.

Turning to bullion coins, these are available in 1oz and fractional sizes for gold, platinum and palladium, while silver (given its low value) is minted as a 1oz piece. In keeping with bars, premiums are lowest for 1oz coins. Purities vary for gold coins, from 916 for a Krugerrand up to 9999 for the Maple Leaf for example. In contrast, silver coins are struck in 999 metal, while PGMs are often issued in a 9995 ineness. Physical Investment Proile – Physical investment in gold is forecast to rise by 5% this year to 34.8Moz (1,081t), its strongest performance since 2013. – By contrast, silver coin and bar demand is on course to deliver another hefty decline in 2017, with a 20% drop leaving the global total at just 170.3Moz (5,297t).

– Following two years of historically high demand, physical investment in platinum is forecast this year to post a 58% drop to 266koz (8t). Palladium demand will beneit from a new coin issue, but remain trivial.

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Chapter 7: Physical Investment 66 Precious Metals Investment Focus 2017/2018 was initially sparked by platinum prices moving to a discount to gold. At irst, investors expected platinum to return to a premium and, even as the discount grew, interest remained strong on expectations of the spread at least narrowing. However, this year, as the discount has continued to grow, retail investors have become increasingly disillusioned. Also, with little prospect of platinum prices outperforming gold next year, we expect retail demand to weaken further. Palladium retail investment should see a notable lift this year as the US Mint strikes a new palladium Eagle.

However, global coin and bar sales, at just 0.2% of total demand, remain trivial. Gold Following last year’s 1.7% drop in physical gold investment, the irst half of 2017 witnessed an 11% lift, taking the global total to 17.1Moz (532t). As robust as this appears, it would have achieved a much stronger result without the 45% slump in the US market and a return to disinvestment in Japan. Excluding these two markets, the global total would have posted a 20% rise. This strong upturn relected signiicant growth in two markets, China and Turkey, which together added 2.2Moz (70t). European physical investment rose by 5% y/y in the irst half of 2017.

Much of this growth came from buoyant demand in the irst few weeks of the year. To some extent, this relects the relatively low price levels at the start of the year (following the sharp retreat in late 2016), negative interest rates in both nominal and real terms as well as ongoing macroeconomic uncertainties. Worries ahead of elections in key European countries, France in particular, also helped investor sentiment. In the second quarter, however, bar and coins sales slowed dramatically. A lack of fresh catalyst was the key driver behind this fall, as market-friendly election results, along with easing concerns about the Italian banking sector reduced the desire for safe haven assets.

Meanwhile, healthy gains in equity prices also made it diicult for retail investors to return to gold, especially in light of a directionless metal price mid-year. Following a summer lull, we expect retail investment to pick up some steam later this year. After all, the economic backdrop is expected to continue favouring gold investment. Moreover, after prices eventually broke out to the upside recently, this should provide an additional boost to investor conidence. In sharp contrast to Europe, US gold coin and bar demand slumped by 45% y/y during the irst six months to 0.9Moz (27t), a two-year low.

Two issues accounted for much of the decline. First, the record performance of US equities, which has shown no sign of reversing, attracted retail investors who did not want to miss out on further gains. Second, gold’s largely rangebound trading for much of this year had two outcomes. First, it discouraged investors from buying coins and bars and, second, it led to outright liquidations. At times, this selling back reached multi-year highs, which reduced the need to buy newly minted coins. Looking ahead, although the rate of selling back may ease back, given how weak third quarter sales have been, there seems little reason to expect a sharp year- end rise, hence our forecast for a 47% drop to 1.6Moz (50t).

Value of Physical Investment Source: Metals Focus Physical Gold Investment Source: Metals Focus 15 30 45 60 75 90 2010 2012 2014 2016 US$ Bn Gold Silver Platinum 10 20 30 40 50 60 2010 2012 2014 2016 Moz China India Other Emerging Markets IndustrialisedCountries

Chapter 7: Physical Investment 67 Precious Metals Investment Focus 2017/2018 The Indian economy has made rapid progress over the last two and half decades, in the wake of the liberalisation introduced in 1991. In spite of this strong economic growth, gold continues to play an important role in Indian society as the yellow metal is deeply rooted in the country’s culture. As such, gold purchases are often driven by festivals and other important family and cultural traditions. In spite of the progress the country has made during this time, there is still limited access to traditional banking products and inancial instruments, as well as a lack of social security.

Together, these have boosted demand for gold.

It is interesting to note that purchases of jewellery are driven by diferent consumer groups, compared with typical buyers of bullion investment products. Jewellery consumption is dominated by rural areas, while retail investment in gold is largely the preserve of urban investors. This, to some extent, also helps to explain why retail investment sufered a sustained decline after 2013. After peaking at 337t that year, demand for bars and coins almost halved to 162t in 2016, compared with an 18% drop for jewellery. We attribute this sharp drop in investment to two factors, the government’s clampdown on unaccounted money and gold’s underperformance compared to the Indian equity market.

Taking each in turn, the Indian government has adopted an increasingly tough stance in its ight against unaccounted money. This money historically tended to low to safe haven assets such as physical gold and the real estate market. However, the government has now made it compulsory for the public to declare Permanent Account Number (PAN) cards on purchases above Rs.200,000 (around $3,000). The authorities have also banned cash sales above Rs.200,000. The government’s move to demonetise high value currency notes in late 2016 was another important step in the ight against unaccounted money. All these measures have made it diicult for consumers who prefer to park large sums of money into gold using banknotes.

Aside from these steps, the government recently brought the gems and jewellery sector under the Prevention of Money Laundering Act, which requires businesses to maintain records of purchases above Rs.50,000 (roughly $750). Furthermore, the government is also considering extending the PAN card declaration to all gold purchases.

As for the comparative performance, gold prices in Indian rupee terms have generated negative returns since their peak in 2013. By contrast, the local stock market has recorded impressive gains over this period. By way of illustration, the NIFTY 50 index (the benchmark index in India) has hit successive highs in recent years, generating a return of around 71% since 2013. It is estimated that, every month, some Rs.40-50 billion are invested in equity markets by small investors in India through systematic investment plans. In fact, in August some Rs.203 billion was invested in this way. Further to this, over the last two inancial years (April-March), some 13 million mutual fund portfolios have been opened in India.

All this points towards a shift in domestic savings away from traditional asset classes in favour of higher risk investment products. In addition, over the last few years, Indian insurance companies have become more aggressive. Over the next few months insurance companies in India are likely to raise some Rs.400 billion from the Indian equity markets. The growing penetration of insurance products could also afect gold investment as investors may have access to a growing range of products to fulil their social security needs (a role often met by gold in India). The Changing Dynamics of Indian Physical Investment Performance of Indian Jewellery Stocks versus the Gold Price *Index, 1st January 2017 = 100, Source: Metals Focus 80 100 120 140 160 180 200 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Gold (INR) Titan PC Jewellers Index*

Chapter 7: Physical Investment 68 Precious Metals Investment Focus 2017/2018 In the Middle East, physical investment this year is expected to double to 3.3Moz (101t), led by Turkey. Following last year’s slump in bar and coin sales, 2017 has so far seen a resurgent Turkish market. As a result, we forecast demand will hit 1.8Moz (56t), partly as a result of lira gold prices coming of their recent highs. Another driver was the government’s credit incentive scheme, which aims to target job creation but some of the money is instead being channelled into gold and other investments. In Iran, the other key gold bar and coin market in the Middle East, the Central Bank’s policy not to mint coins last year (to help combat money laundering) continued for much of this year.

However, the start of the third quarter marked the release of newly minted coins, albeit in limited quantities to the beneit of retail investors who have so far depended on the secondary market or have purchased gold bangles as a form of investment. India, the second largest physical investment market after China, saw demand in the irst six months rise for the irst time in three years, with investment up 22% to 2.3Moz (73t). A key driver here was the comparative lack of news (chiely in the regulatory ield) that investors deemed harmful. A second boost came from the implicit rise in liquidity now that the physical scarcity of cash that followed demonetisation is behind us.

Thirdly, the gold sector viewed the government’s choice of 3% for the goods and services tax (GST) on gold as market neutral or favourable. However, the government’s recent move to bring the gems and jewellery industry under the Prevention of Money Laundering Act, which mandates businesses to keep records of transactions above Rs.50, 000, and a possible compulsory declaration of PAN (identity) card for all transactions could hamper demand during the key festive and wedding season (which started in September). Having said that, expectations of higher gold prices could help mitigate these issues.

As a result, we expect Indian physical investment to rise by 5% to 5.5Moz (170t) in 2017. The interplay of these issues also helps explain a similar 5% gain forecast for 2018 in India. Investment demand in East Asia has been mixed this year, mainly due higher and at times rangebound prices. The star performer has been China, with a 39% y/y rise in the irst six months. This underpinned much of the 16% rise in the East Asian total. However, a far weaker tone for the second half will see the full year regional total rise a more modest 6% . Looking at China in detail, the bar market saw a strong start to the year, with irst quarter sales up 30% to 3.3Moz (106t), the second time they have surpassed 3Moz (100t) since 2013.

This was mainly due to concerns about the outlook for the yuan and bargain hunting by high net worth clients as prices fell. However, this did not last long as the yuan stabilised, something that calmed investors’ nerves in the second quarter, when demand fell by 40% q/q. Even so, the second quarter still posted a 56% y/y jump, lattered by a low base the year before. It is also worth noting that, in the irst half, we continued to see bar sales from outside the banking sector gain market share (including SGE individual withdrawals and sales from non-banking institutions). The growing popularity of these channels relects a price advantage and their marketing eforts.

However, net investment was hit Physical Gold Investment Moz 2015 2016 2017F Europe 7.1 6.5 6.7 North America 2.5 3.2 1.8 Middle East 2.8 1.6 3.3 Indian Sub-Continent 6.9 5.8 6.1 East Asia 13.5 14.8 15.7 Others 0.9 1.2 1.2 Global Total 33.7 33.1 34.8 Source: Metals Focus Indian Physical Gold Investment Source: Metals Focus 2 4 6 8 10 12 2010 2012 2014 2016 Moz Bars Coins

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Chapter 7: Physical Investment 70 Precious Metals Investment Focus 2017/2018 through liquidations by investors that had bought gold during the price slump in 2013, as their holdings inally moved into break even territory. In July and August, sales remained subdued due to a lack of stimulus. For the rest of 2017, the uncertain outlook for the Chinese economy and the yuan will continue to have an impact on physical investment. As a result, after the outstanding 39% irst half rise, the full year total should see a more modest increase.

For next year, as the ongoing gold price recovery lends comfort to investors and, eventually, as the economic outlook becomes clearer, demand should improve. This will however be a gradual process and we forecast another only modest gain in 2018 of 8%. As for the Chinese coin market, irst half sales collapsed by around two- thirds y/y to 122koz (3.8t). Given the jump in bar demand, this may surprise. Two main drivers explain this. First, some purchases were brought forward to the fourth quarter of 2016, when coin sales hit 12t. Second, the irst half 2017 total was depressed by a lack of commemorative issues, which have instead been scheduled for later this year.

As a result, we forecast 2017 gold coin sales of 1.3Moz (42t), edging higher to 1.4Moz (45t) in 2018. Weakness was also to be found in Japan. There, the gold market had enjoyed barely 18 months of net investment, before swinging this year to disinvestment. High yen prices were the prime cause as they discouraged both new purchases and led to liquidations, especially at the start of the year. Even so, the rate of selling back was much lower than during late 2014/early 2015 and a fraction of what was often seen over 2008-11. Bar demand sufered too in Thailand, following the implementation of an e-payment system.

Designed to prevent tax evasion and money laundering, it has driven property transfer accounts abroad. Furthermore, September saw the launch of the “Gold-D” contract, which is a physical settlement futures contract based on a gold bar with a four 9s purity. As a new alternative for Thai investors, this also hit physical demand. Another country seeing irst half losses was Indonesia. The main cause was a new tax, introduced in April, of 0.45% on all gold purchases (excluding those with Bank Indonesia), both for consumers and across the supply chain. Although this immediately hit purchases by investors, they soon returned as the market looked to circumvent the government’s tracking system.

In contrast, the rising price encouraged investors in Vietnam to buy low premium four 9s gold rings. However, the second quarter saw this trend ease as investors shifted their focus to the stock market (which rose some 20% in the irst 8 months). Separately, the government introduced two new measures as part of its gold policy, Circular #39 and #3. The irst allows jewellery manufacturers to secure bank loans, and gives licensed bullion wholesalers the ability to expand. Circular #3 allows local branches of the State Bank of Vietnam (SBV) to grant bullion import quotas and permits for jewellery manufacturing.

This will help pave the way for the SBV to reopen gold imports. As such, we forecast a slight drop in full year bar demand, but a healthy recovery in 2018 if the SBV pursues its market liberalisation. East Asian Physical Gold Investment Source: Metals Focus -5 5 10 15 20 25 2010 2012 2014 2016 Moz China Thailand Vietnam Indonesia Japan Other Chinese Physical Gold Investment Source: Metals Focus 2 4 6 8 10 12 14 2010 2012 2014 2016 Moz Bars Coins

Chapter 7: Physical Investment 71 Precious Metals Investment Focus 2017/2018 First half investment in Malaysia also rose y/y, but that is largely just a product of a low base in 2016 and gains were modest as business is still recovering from the introduction in 2015 of GST. Full year physical investment, however, is forecast to fall, but only modestly, due to the ofsetting impact of safe haven buying linked to the expected general election later this year. North Korea’s actions, unsurprisingly, fed through to a rise in South Korean investment demand in the irst half of 2017. Silver This year, physical silver investment is forecast to drop by 20% to 170Moz (5,297t).

This follows a 31% decline in 2016, and so in just two years global silver bar and coin demand has fallen by a massive 137Moz (4,267t). This relects a downturn in the world’s two largest retail investor markets, the US and India. Both are discussed below, but looking ahead we do not expect either one to see a material recovery, in part because both countries are experiencing a degree of market saturation. Silver investment has historically accounted for a small portion of precious metal physical investment in Europe. In part, this should be taken in the context of historical preference for gold in Germany, by far the biggest market for physical investment.

More importantly, the imposition of VAT on silver coins and bars also makes the white metal less attractive. It is interesting to note that in contrast to gold, silver investment in Germany has been dominated by bullion coins as opposed to bars, due to a more favourable tax treatment for certain types of silver coins in the country. Looking at this year, demand has sufered a hefty drop, with a lacklustre silver price being the primary culprit.

Moving to the US, retail demand there is now perhaps a victim of its own success in recent years. During 2010-16, a combined total of almost 757Moz (23,540t) of silver coins and bars was bought by US retail investors. Furthermore, during this time the volume of product sold back by these investors into the secondary market remained relatively small. It therefore appears likely that the country is now sufering from an element of market saturation. Furthermore, the situation this year has been compounded by two issues. First, investors appeared discouraged by price action, both in terms of the limited periods in which prices were deemed low enough to trigger bargain hunting and also the lack of price strength.

The latter stood in sharp contrast to the performance of US equities; posting successive record highs, the media coverage that stock markets received proved a signiicant draw for retail investors who wanted to ensure they did not miss out on further gains. Second, although diicult to quantify, a large swathe of US investors felt considerable mistrust of the previous US administration (reinforced by Obama’s focus on gun control). This had beneited both irearm and silver (bar and coin) sales. Conversely, Trump’s win last November and his support for gun ownership has reassured many of those who also acquired bullion products.

US Physical Silver Investment Source: Metals Focus 20 40 60 80 100 120 140 2010 2012 2014 2016 Moz Coins Bars Physical Silver Investment Moz 2015 2016 2017F US 119.2 98.0 62.8 India 110.4 36.5 34.7 Germany 21.6 23.2 19.1 China 11.5 11.1 13.0 Others 44.7 43.3 40.8 Global Total 307.5 212.2 170.3 Source: Metals Focus

Chapter 7: Physical Investment 72 Precious Metals Investment Focus 2017/2018 Precious metals in general and gold in particular have long been viewed as a store of wealth and a hedge against economic and geopolitical uncertainty. As such, investors have sought to include these assets in their investment portfolios, particularly for retirement purposes.

However, pensions that focus on mainstream vehicles, such as stocks and bonds, still continue to be the primary vehicle to support a person’s retirement.

Over the years, alternatives to these traditional pension plans have emerged. However, what stands out is that these plans appear to be restricted to just a handful of markets. For example, it seems that none of the large emerging physical investment markets ofer these plans. However, two countries that do so are the US and UK. Through legislation, the US created the Individual Retirement Account (IRA) and the UK created the Self-Invested Personal Pension (SIPP). Both of these tax deferred retirement plans enabled individuals to direct the investments made for their personal retirement. Moreover, those holding IRAs and SIPPs have been able to add precious metals to their asset mix since 1986 and 2006, respectively.

The inclusion of precious metals in IRAs has outpaced those in SIPPs, which is perhaps not surprising, given the greater recognition of precious metals among retail investors in the US than in the UK. Although individuals in the US have been able to place investments in their IRA since 1974, the Tax Reform Act of 1986 allowed for the inclusion of the American Eagle gold and silver bullion coins; the catalyst to this change was the introduction in 1986 of the 22-carat Eagle bullion coin. Prior to this, all precious metals were classiied as collectables (along with, for example, antiques, artwork and stamps) and, therefore, were not eligible for IRAs.

The Taxpayer Relief Act of 1997 widened the selection to include all precious metal bullion meeting two broad requirements. First, the bullion must meet certain purity requirements (995 for gold, 999 for silver, and 9995 for platinum and palladium). Second, all precious metals held for an IRA must be in the physical possession of a trustee (a trustee is deined as a bank, credit union or trust company). If, for example, the metal is below purity requirements or stored at home, it is classiied as a collectable and, therefore, considered a distribution and subject to various taxes and penalties.

As a result of this broader choice of precious metals products, interest in self-directed IRAs grew markedly. In addition to American Eagle coins, bars of all sizes, and 24-carat coins, such as the Canadian Maple Leaf, Austrian Vienna Philharmonic, Australian Kangaroo, UK Britannia can be included. Interestingly, the 22-carat South African Krugerrand and UK Sovereigns were excluded (despite being the same purity as the Eagle), along with numismatic pieces and a number of US coins (as the US Mint lists them as collectables). American Eagle proof coins are the only acceptable proof coin for IRAs.

Newly minted in 2017, the palladium American Eagle 1-ounce coin will be acceptable for IRAs. Aside from a desire to hold a diversiied pension portfolio, any gains on precious metals purchased for an IRA are deferred until distribution upon retirement (presumably when individuals fall into a lower tax rate bracket). Finally, individuals can freely trade the metal in these accounts, an option which has become increasingly popular in recent years because gains within an IRA do not incur income or capital gains taxes until distribution at retirement.

Although precious metal IRAs have been available in the US since 1986, their popularity has grown steadily since 2000 and signiicantly since the 2008/09 inancial crisis. Despite the range of precious metals products that are IRA-compliant, gold and silver American Eagles account for a major portion of metal held in these accounts. Unfortunately, however, it is extremely diicult to quantify how much precious metal is held in IRAs in the US because there is no published data on these holdings. That said, qualitative analysis suggests that precious metals continue to be added to IRAs in the US.

It is estimated that, over the past year, the number of ounces of gold and silver held in IRAs increased by 8% and 5%, respectively. The total value of holdings increased approximately 11%, relecting the increased holdings and slightly higher market prices for the metals. Precious Metals Retirement Accounts

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Chapter 7: Physical Investment 74 Precious Metals Investment Focus 2017/2018 Indian Physical Silver Investment Source: Metals Focus 20 40 60 80 100 120 2010 2012 2014 2016 Moz Bars Coins We forecast 36% decline for full year investment, which while steep may appear too restrained, given that January to September Eagle coin sales were around half the level of a year ago. However, it is apparent that the generic 1oz silver round market has taken market share from government minted bullion coins, in part because of the lower mark-up that they sell for. In our physical investment series, 1oz rounds count as part of bar demand.

As a result, the contribution of government-struck coins to US retail demand has fallen from around a two-thirds share in 2016 to an estimated 55% this year.

India, one of the largest importers of silver, saw retail investment fall by a sharp 67% to 36.5Moz (1,136t), its lowest level in six years. This trend has continued into 2017, as investors looked to book proits and as the government’s continued clampdown on unaccounted money and restrictions on cash transactions afected demand. We estimate that irst half 2017 demand was down 5% at around 11.5Moz (356t). However, our expectation of an increase in silver prices later this year could lead to a recovery in demand in the coming months. As a result, we forecast demand to be only marginally down in 2017.

Within the bars segment, the demand for 15kg and 30kg bars fell sharply compared to the demand for small bars. This points towards lower purchases by larger buyers who in the past might have used these heavier bars as a home for undeclared incomes. Within the coin segment, demand has shown resilience, falling by just 2%, compared to a 71% drop in demand for bars. The strong cultural connect of coin demand has led to this outperformance. In contrast, silver bar demand in China during the irst half of 2017 saw a healthy recovery, driven by investors’ increasing conidence in rising silver prices.

However, it is more important to highlight the limited upside scale and the sustainability of this positive trend. Since 2013, bar demand has weakened almost without interruption, as a result of the government’s anti-corruption measures that were introduced that year. Furthermore, it is revealing to note that the sharp rise in demand for gold bars in 2016 and early 2017, as a hedge against yuan devaluation, has not been mirrored in silver. Leaving aside the VAT on physical silver bars, this also relects concerns over the silver’s underperformance of gold due to the metal’s lacklustre fundamentals and its industrial characteristics against a backdrop of a pessimistic economic outlook.

Demand for coins has again enjoyed a modest increase so far this year. Unlike bars however, this should carry on over the rest of the year due to stable demand in the collectibles market and a decent rise in the mintage plan announced by the Chinese central bank. As such, we forecast a double-digit rise in annual demand that would break the downtrend of the past few years. Looking ahead to 2018, the forecast 6% rise in physical investment is premised on another rise in the PBOC’s mintage circulation plan. Meanwhile, as the above negative factors look set to remain unchanged in 2018, bar demand is expected to continue easing, albeit modestly.

Global Silver Physical Investment Source: Metals Focus 50 100 150 200 250 300 2010 2012 2014 2016 Moz US India Germany China Others

Chapter 7: Physical Investment 75 Precious Metals Investment Focus 2017/2018 Gold jewellery has traditionally played an important role as an investment vehicle across much of Asia, principally acting as both a store of value and as an insurance against uncertain times. This helps explain why some 75-80% of all gold jewellery is purchased in the developing world. In some markets this also relects a lack of penetration by the banking system, a low awareness of other investment products and limited inancial knowledge. That said, the acquisition of gold jewellery in these markets is rarely just a function of its role as a form of investment; adornment motives also play an important part.

This helps explain why in some markets there has been a growing trend towards producing high-carat jewellery with a greater emphasis on design. Overall, two of the largest markets where jewellery is mainly bought as an investment are China and India, each of which is addressed below.

Looking irst at China, irst half 2017 jewellery consumption stood at 313t (down 4% y/y). Of this, around 15% was in the form of high (or higher) margin 18-carat jewellery, which is largely adornment-related. By extension, this means that around 85% of Chinese demand is investment-related, with the focus typically on using the piece as a savings vehicle rather than for overt speculative gain. Furthermore, the manner in which jewellery is often bought in China relects an investment mindset. For example, a sharp price decline will lead to bargain hunting. However, a rising (gold price) market will also encourage purchases as consumers are attracted by an appreciating asset.

However, for many retail investors in China, bars have been the preferred option. As a result, investor concern about yuan depreciation, an overheating property market and a slowing economy have boosted bar demand on the mainland, rather than jewellery purchases. The dual investment/adornment motive in China is afecting the product mix. In particular, the supply chain has been concerned about falling sales of heavier and/or low margin, three 9s, 24-carat (chuk kam) jewellery. A good example concerns the falling market share of necklaces and bracelets weighing more than 100g. As a result, higher margin four and ive 9s jewellery has been introduced over the last three to four years.

By deinition, this will have a greater bias to adornment. These high carat, designer products have already gained considerable traction, accounting for around 10-15% of the total market in China.

Moving to India and in keeping with China, gold jewellery often fulils both adornment and investment needs. As mentioned earlier, the lack of penetration of banks and inancial products and a strong cultural connect have led to the marked ainity of Indians towards gold. This helps explain why the majority of gold jewellery is bought in rural India. (Another reason for rural purchases concerns the use of gold as a collateral to help secure loans.) The majority of gold jewellery that is bought as an investment is in the form of chains or bangles, which attract low making charges (compared with, for example, jewellery sets or necklaces).

We estimate that some 25-30% of gold jewellery bought in India is primarily for investment. Interestingly, we are seeing a divergent trend between rural and urban consumers looking to buy gold as an investment. Recently, there has a some shift among urban consumers away from gold in favour of other investment products as gold has underperformed Indian equities and mutual fund investments. However, this shift is typically limited to educated urban investors.

Gold Jewellery as a Form of Investment Global Gold Jewellery Consumption Source: Metals Focus 10 20 30 40 50 60 70 80 90 2010 2012 2014 2016 Moz India China Others

Chapter 7: Physical Investment 76 Precious Metals Investment Focus 2017/2018 Global Physical Palladium Investment Source: Metals Focus 20 40 60 80 2010 2012 2014 2016 Koz North America Europe Other Platinum & Palladium This year, retail investor demand for platinum is expected to slump by around 60% y/y, to just 266koz (8.3t). Heavy losses are also forecast for 2018, when a 20% decline is expected to leave the global total at just 209koz (6.5t).

Returning to this year, in spite of a sizeable decline, this will represent just a three-year low. In other words, a market typically characterised by weak demand enjoyed a relatively short-lived burst of activity during 2015-16. At this time, a surge in platinum coin and bar demand in Japan and the US (which dominate the market) delivering a record high total of 727koz (22.6t) in 2015. In 2016, although demand had eased back to 628koz (19.5t), this was still comfortably the second highest total on record. Understanding the US and Japanese markets therefore helps explain this dramatic upturn and subsequent retreat.

Looking irst at Japan, 2015’s record high (for platinum coin and bar demand) was followed by very healthy retail purchases in 2016. In contrast to other markets, Japan has a long-held tradition of investing in platinum. Furthermore, there is a perception among retail investors that platinum should trade at a premium to gold. As a result, platinum’s substantial discount to gold, combined with a widely held view that platinum represented fair value, encouraged retail buying. Platinum also beneited from a trend in Japan towards investing in hard assets which fell short of reporting levels (to the beneit, in particular, of both 100 gram bars and bullion coins).

Turning to this year, lower price volatility, especially in yen terms, has discouraged retail purchases. In addition, there has been disillusionment at platinum’s inability to start closing the gap with the gold price, let alone return to a premium. As a result, we expect platinum coin and bar demand in Japan to fall to 130koz (4t) this year, compared with 430koz (13t) in 2016. Further losses are also forecast for 2018. A similar story has played out in the US. Although platinum investment is not as entrenched compared with Japan, the growing platinum-gold price diferential led to a healthy rise in bar and coin demand during 2015-16.

Although a widening gap appealed to some investors, for most, their interest in platinum quickly receded. This helps explain the forecast drop in physical demand this year to 113koz (4t), compared with an estimated 165koz (5t) in 2016.

With regards to palladium, retail buying has remained at trivial levels. This relects a lack of understanding or even awareness among retail investors of the metal. The supply chain has therefore focused on other major precious metals, rather than trying to develop this market. The only development of note will be the introduction of a 1oz palladium Eagle bullion coin this year in the US. This will have an issue limit of 15,000 coins. Given the timing of the 2017 release (this September), it seems unlikely that a second tranche will be made available this year, no matter how successful the issue is.

However, this could have a bearing on how many palladium Eagles are released in 2018.

Global Physical Platinum Investment Source: Metals Focus -200 200 400 600 800 2010 2012 2014 2016 Koz Japan North America Europe Other

Precious Metals Investment Focus 2017/2018 Chapter 8: Appendices 78 Appendices 79 Gold Forward Rates & Curves 80 Gold Option Volatilities 81 Comex Gold Activity & Inventories 82 Chinese Exchanges’ Gold Activity 83 Physically Backed Gold ETP Holdings 84 Comex Silver Activity & Inventories 85 Chinese Silver Exchanges’ Activity 85 Physically Backed Silver ETP Holdings 86 Nymex Platinum Activity & Inventories 87 Nymex Palladium Activity & Inventories 88 Physically Backed Platinum ETP Holdings 88 Physically Backed Palladium ETP Holdings 89 List of Major Precious Metals ETPs 92 Global Mine Production Cost Curves 93 Notes & Deinitions 78

Chapter 8: Appendices 79 Precious Metals Investment Focus 2017/2018 Gold Forward Curves* * Curves are based on the average rates over each year Source: Bloomberg Appendix 1 - Gold Forward Rates Source: Bloomberg -1 1 2 3 4 5 6 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 % 1 Month 3 Month 6 Month 1 Year 2 Year -0.3 0.0 0.3 0.6 0.9 1.2 1.5 1.8 1 Week 1 Month 2 Month 3 Month 6 Month 1 Year 2 Year % 2009 2011 2013 2015 2016 2017

Chapter 8: Appendices Precious Metals Investment Focus 2017/2018 80 Historic At-The-Money Gold Option Volatilities Source: Bloomberg Appendix 2 - Year-End One-Month Gold Option Volatility Skew *End-August 2017 Source: Bloomberg 10 12 14 16 18 20 22 24 % 2012 2014 2016 2017* 10 20 30 40 50 60 70 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 % 1-Month 3-Month 1-Year 5-Year

Chapter 8: Appendices 81 Precious Metals Investment Focus 2017/2018 Appendix 3 - Comex Gold Activity & Inventories Koz Futures Non-Commercial & Non-Reportable Positions in Comex Futures Year/Month Volume1 Open Interest2 Long2 Short2 Net2 Net Change3 Comex Inventories4 2001 680,186 10,115 5,311 4,114 1,198 1,826 1,220 2002 918,693 20,569 15,054 4,612 10,442 9,244 2,054 2003 1,260,890 27,864 21,171 5,180 15,991 5,550 3,122 2004 1,558,272 32,725 22,633 8,884 13,750 -2,242 5,796 2005 1,656,001 32,325 23,525 4,601 18,923 5,174 6,658 2006 1,800,851 34,492 15,834 5,527 10,307 -8,617 7,534 2007 3,240,606 54,185 26,176 4,023 22,153 11,846 7,375 2008 3,804,891 30,665 18,379 4,102 14,277 -7,876 8,535 2009 3,417,363 48,977 33,620 5,726 27,894 13,617 9,821 2010 4,457,845 58,511 33,086 7,109 25,977 -1,917 11,592 2011 4,917,532 41,915 22,474 6,081 16,393 -9,584 11,354 2012 4,387,760 42,798 26,264 7,497 18,766 2,373 11,059 2013 4,729,442 37,955 17,480 14,178 3,302 -15,464 7,828 2014 4,051,870 37,165 21,751 10,437 11,313 8,011 7,895 2015 4,183,847 41,522 18,674 17,141 1,534 -9,780 6,353 2016 5,756,484 42,335 25,570 13,474 12,097 10,563 9,159 Jan-16 410,198 37,343 20,901 14,918 5,983 4,450 6,427 Feb-16 436,953 45,047 27,683 11,368 16,315 10,332 6,785 Mar-16 572,024 47,356 31,151 10,354 20,796 4,482 6,851 Apr-16 390,246 54,952 33,520 9,510 24,011 3,214 7,250 May-16 588,012 49,432 32,194 10,790 21,404 -2,607 8,453 Jun-16 493,632 62,124 42,226 9,594 32,632 11,228 9,287 Jul-16 579,848 56,880 40,326 9,423 30,902 -1,730 10,719 Aug-16 438,786 55,473 39,425 9,304 30,121 -781 10,932 Sep-16 402,256 56,134 41,208 9,749 31,459 1,338 10,573 Oct-16 381,504 50,859 33,500 11,740 21,760 -9,700 10,565 Nov-16 710,869 40,110 27,530 10,748 16,782 -4,978 10,003 Dec-16 352,157 42,335 25,570 13,474 12,097 -4,686 9,159 Jan-17 597,889 39,843 25,164 11,984 13,180 1,084 8,986 Feb-17 439,236 44,608 29,149 11,158 17,991 4,810 8,942 Mar-17 611,937 41,755 26,985 11,774 15,211 -2,779 9,018 Apr-17 461,218 47,079 33,214 11,756 21,458 6,247 8,954 May-17 636,737 44,298 29,495 11,173 18,322 -3,136 8,750 Jun-17 490,663 46,056 28,399 13,413 14,986 -3,336 8,617 Jul-17 595,704 43,696 26,369 16,034 10,334 -4,652 8,661 Aug-17 680,881 55,017 36,586 11,784 24,803 14,469 8,694 1: Aggregate volume over the period, 2: Position at end-period, 3: Net change versus previous end-period, 4: Stocks at end-Period Source: CME Group, CFTC, Bloomberg

Chapter 8: Appendices Precious Metals Investment Focus 2017/2018 82 Appendix 4 - Chinese Exchanges’ Gold Activity Koz Shanghai Gold Exchange Shanghai Futures Exchange Year/Month 99.99 Volume1 99.95 Volume1 T + D Volume1 T + D Open Interest2 Deliveries1* Futures Volume1 Futures Open Interest2 2005 4,425 19,495 5,205 n/a n/a n/a n/a 2006 4,299 17,269 18,589 n/a n/a n/a n/a 2007 6,758 22,777 27,963 n/a n/a n/a n/a 2008 16,118 22,649 96,161 2,354 17,464 220,887 1,489 2009 13,898 26,315 104,785 3,055 19,143 211,629 3,258 2010 25,511 26,058 142,189 3,520 26,917 213,234 2,535 2011 36,006 24,811 172,678 4,306 33,534 454,121 3,289 2012 36,720 24,397 135,854 4,659 36,618 373,338 3,582 2013 102,512 26,315 215,239 5,438 70,634 1,291,667 5,498 2014 135,182 29,458 278,587 4,809 67,592 1,551,822 6,263 2015 222,777 31,593 363,201 6,401 83,475 1,627,917 8,329 2016 191,353 15,549 590,673 9,250 63,349 2,237,843 12,626 Jan-16 20,183 1,774 44,293 4,470 7,237 170,576 9,377 Feb-16 11,025 1,559 39,583 5,330 3,460 198,551 11,499 Mar-16 19,089 1,446 63,426 6,205 5,891 347,068 10,878 Apr-16 16,130 1,394 44,160 6,346 5,510 191,753 11,290 May-16 17,161 1,111 54,926 6,547 4,735 209,713 9,342 Jun-16 18,178 1,236 59,241 6,720 4,453 205,375 10,821 Jul-16 14,936 1,129 51,531 5,845 3,780 214,896 11,728 Aug-16 14,977 1,186 42,757 6,283 4,644 150,955 11,380 Sep-16 14,694 1,362 38,192 5,043 5,495 104,952 10,244 Oct-16 13,034 933 29,555 5,891 4,927 95,158 10,377 Nov-16 13,916 1,150 72,854 8,277 6,903 201,721 9,397 Dec-16 18,029 1,270 50,154 9,250 6,313 147,124 12,626 Jan-17 16,575 969 41,133 7,552 5,929 112,973 10,783 Feb-17 14,370 844 42,406 6,194 4,766 100,026 10,494 Mar-17 19,297 813 62,115 6,197 6,181 137,826 9,710 Apr-17 13,451 691 60,079 6,686 5,330 133,559 9,437 May-17 14,627 3,756 54,337 6,950 4,439 100,927 9,371 Jun-17 20,536 3,786 59,789 8,843 5,000 106,653 11,186 Jul-17 12,488 2,775 43,692 7,895 4,653 96,916 11,406 Aug-17 15,561 3,380 50,697 8,320 5,189 127,382 12,268 1: Aggregate volume over the period, 2: Position at end-period N.B.

Both the Shanghai Gold Exchange and Shanghai Futures Exchange record each transaction twice, from the point of view of the buyer and the seller. As such, to compare the above volume igures with other exchanges, such as the Comex, one needs to divide them by two. *Shanghai Gold Exchange changed the reporting methodology about delivery in January 2016. From January 2016 onwards, the “deliveries” refer to total bullion volumes that were withdrawn from the exchange’s vault.

Source: SGE, SHFE, Bloomberg

Chapter 8: Appendices 83 Precious Metals Investment Focus 2017/2018 Appendix 5 - Physically Backed Gold ETP Holdings (by weight)1 Koz Region/ETP Name 2010 2011 2012 2013 2014 2015 2016 20172 North America SPDR Gold Shares 41,177 40,336 43,430 25,664 22,796 20,653 26,434 26,240 iShares Gold Trust 3,783 5,499 7,000 5,220 5,182 4,906 6,308 6,983 Sprott Physical Gold Trust 821 1,222 1,617 1,560 1,337 1,164 1,786 1,767 Central Fund of Canada Ltd 1,504 1,695 1,695 1,695 1,695 1,695 1,673 1,672 ETFS Physical Swiss Gold Shares 821 1,065 1,160 866 784 737 807 810 Other 666 1,812 1,883 1,822 1,686 1,580 992 1,040 Subtotal 48,772 51,629 56,785 36,826 33,480 30,733 37,999 38,512 Europe Xetra-Gold 1,575 1,639 1,687 1,433 1,602 1,905 3,781 5,512 ETFS Physical Gold3 4,486 4,706 5,449 3,667 4,163 3,605 5,037 5,138 ZKB Gold ETF 6,052 7,213 7,577 5,744 4,423 4,073 4,677 4,772 Source Physical Gold P-ETC 657 1,399 2,295 1,224 1,393 1,533 2,744 3,742 Gold Bullion Securities (an ETF Securities product) 3,964 3,884 4,476 3,129 2,710 2,200 3,011 3,229 iShares Physical Gold ETC n/a 202 197 122 152 384 1,943 2,016 GAM Precious Metals - Physical Gold 2,650 3,373 3,593 2,218 1,640 1,393 1,481 1,501 db Physical Gold Euro Hedged ETC 277 630 966 547 448 398 736 1,326 UBS ETF CH-Gold CHF Hedged CHF 263 450 594 553 432 509 733 700 db Physical Gold ETC 129 111 247 444 513 442 479 561 Pictet CH Precious Metals Fund - Physical Gold 425 570 726 351 334 337 473 559 Other 1,725 2,407 3,084 2,175 1,809 1,553 2,333 2,389 Subtotal 22,203 26,584 30,890 21,608 19,619 18,332 27,428 31,446 Asia Huaan Yifu Gold ETF n/a n/a n/a 33 26 103 775 599 Bosera Gold ETF I 0 0 0 0 2 124 533 564 Japan Physical Gold ETF 59 188 180 222 245 317 365 376 Reliance ETF Gold BeES 240 343 362 333 255 230 215 219 E Fund Gold Tradable Open-end Securities n/a n/a n/a 21 1 16 244 146 Other 318 823 1,036 1,066 833 814 594 492 Subtotal 616 1,354 1,578 1,674 1,362 1,604 2,726 2,395 Other Regions NewGold Issuer Ltd 1,639 1,318 1,452 1,327 1,110 938 1,078 1,064 ETFS Metal Securities (Australia) 443 381 393 334 300 267 274 315 Other 49 75 99 41 38 30 59 65 Subtotal 2,132 1,774 1,944 1,701 1,448 1,235 1,410 1,444 Total 73,722 81,341 91,197 61,809 55,909 51,904 69,563 73,798 1: Holdings at end-period; includes certain physically-backed products that are not strictly speaking ETPs, 2: 2017 values at 31st August 2017, 3: Includes holdings of all relevant European physically backed precious metals ETPs issued by ETF Securities except Gold Bullion Securities Source: Respective ETP providers, World Gold Council, Bloomberg

Chapter 8: Appendices Precious Metals Investment Focus 2017/2018 84 Appendix 6 - Comex Silver Activity & Inventories Moz Futures Non-Commercial & Non-Reportable Positions in Comex Futures Year/Month Volume1 Open Interest2 Long2 Short2 Net2 Net Change3 Comex Inventories2 2001 12,900 310 244 105 138 75 105 2002 16,062 400 317 43 274 136 108 2003 21,069 513 442 59 383 109 124 2004 26,136 506 366 60 306 -77 104 2005 29,448 656 512 95 418 112 120 2006 31,700 506 325 69 256 -162 111 2007 43,939 764 345 83 262 6 133 2008 44,107 430 227 76 151 -111 128 2009 38,898 620 367 80 287 136 112 2010 64,048 680 371 117 254 -32 105 2011 98,043 528 222 151 71 -184 117 2012 66,563 707 330 97 234 163 148 2013 72,378 662 335 211 124 -110 174 2014 68,485 756 375 182 193 69 176 2015 67,263 841 462 313 149 -44 161 2016 91,094 824 549 179 370 221 183 Jan-16 4,802 792 459 233 226 76 158 Feb-16 8,471 811 537 169 368 143 154 Mar-16 6,062 882 529 188 341 -28 155 Apr-16 9,870 1,006 646 190 457 116 152 May-16 5,918 991 590 210 380 -77 154 Jun-16 9,141 1,058 662 186 476 96 151 Jul-16 7,294 1,117 744 209 536 60 154 Aug-16 9,697 944 688 210 478 -57 163 Sep-16 6,450 1,009 724 220 504 26 173 Oct-16 6,638 964 599 232 367 -137 173 Nov-16 11,072 796 528 151 377 10 179 Dec-16 5,678 824 549 179 370 -7 183 Jan-17 7,070 934 605 158 447 77 181 Feb-17 9,047 988 695 155 540 93 187 Mar-17 7,479 1,082 674 165 509 -31 190 Apr-17 10,604 980 732 191 540 32 197 May-17 9,523 1,022 601 246 355 -185 201 Jun-17 11,858 1,005 614 363 251 -104 209 Jul-17 9,149 1,038 578 431 148 -103 216 Aug-17 13,023 894 592 264 328 180 218 1: Aggregate volume over the period, 2: Position at end-period, 3: Net change versus previous end-period, Source: CME Group, CFTC, Bloomberg

Chapter 8: Appendices 85 Precious Metals Investment Focus 2017/2018 Appendix 7 - Chinese Exchanges’ Silver Activity Moz Shanghai Gold Exchange Shanghai Futures Exchange Year/Month Ag (T +D) Volume1 Ag99.99 Volume1 Futures Volume1 Futures Open Interest2 SHFE Inventories2 2010 2,365 2 n/a n/a n/a 2011 7,942 0 n/a n/a n/a 2012 6,717 0 20,510 118 31 2013 13,824 16 167,076 323 14 2014 16,047 28 187,517 196 4 2015 25,870 36 139,650 251 19 2016 35,907 22 83,529 357 60 Jan-17 2,320 1 4,697 318 64 Feb-17 2,579 1 4,480 383 68 Mar-17 3,817 0 4,628 301 68 Apr-17 3,218 1 3,887 281 63 May-17 2,816 1 3,927 263 64 Jun-17 3,173 1 3,909 310 62 Jul-17 4,396 1 5,513 299 61 Aug-17 4,851 1 6,736 333 57 1: Aggregate volume over the period, 2: Position at end-period N.B.

Volumes on both the Shanghai Gold Exchange and Shanghai Futures Exchange record each transaction twice, from the point of view of the buyer and the seller. As such, to compare the above volume igures with other exchanges, such as the Comex, one needs to divide them by two. Source: SGE, SHFE, Bloomberg Appendix 8 - Physically Backed Silver ETP Holdings (by weight)1 Moz ETP Name Region 2010 2011 2012 2013 2014 2015 2016 20172 iShares Silver North America 351 309 324 320 330 318 341 332 ZKB Silver Europe 77 81 90 85 77 69 72 78 Central Fund of Canada North America 75 77 77 77 77 77 76 76 ETFS Physical Silver3 Europe 31 29 29 35 37 41 53 57 Sprott Physical Silver North America 22 22 49 49 49 49 56 56 ETFS Physical Silver Shares North America 16 19 18 18 18 18 19 21 ETFS Physical Silver Oceania 1 2 2 2 2 2 2 3 db Physical SIlver Europe n/a n/a 3 4 3 3 3 3 Other 8 17 15 33 30 29 31 40 Total 582 556 608 623 623 606 653 665 1: Holdings at end-period; includes certain physically-backed products that are not strictly speaking ETPs, 2: 2017 values at 31st August 2017, 3: Includes holdings of all relevant European physically backed precious metals ETPs issued by ETF Securities Source: Respective ETP providers, Bloomberg

Chapter 8: Appendices Precious Metals Investment Focus 2017/2018 86 Appendix 9 - Nymex Platinum Activity & Inventories Koz Futures Non-Commercial & Non-Reportable Positions in Nymex Futures Year/Month Volume1 Open Interest2 Long2 Short2 Net2 Net Change3 Nymex Inventories2 2001 10,158 311 124 52 72 -138 12 2002 11,172 413 327 103 224 152 7 2003 13,913 413 372 107 265 42 9 2004 15,840 319 195 62 134 -132 19 2005 18,856 485 441 98 343 210 24 2006 18,655 399 277 108 169 -174 32 2007 25,021 878 772 179 593 424 48 2008 33,740 911 613 178 435 -158 78 2009 40,135 1,628 1,311 139 1,172 736 140 2010 74,314 1,955 1,577 123 1,453 282 108 2011 99,624 2,098 1,772 699 1,073 -380 181 2012 131,085 2,980 2,560 369 2,191 1,118 207 2013 163,138 3,102 2,312 1,100 1,212 -979 251 2014 161,797 3,206 2,520 976 1,544 332 135 2015 182,030 3,267 2,706 1,338 1,368 -176 155 2016 199,704 3,147 2,463 1,020 1,443 75 238 Jan-16 14,210 3,297 2,708 1,508 1,200 -168 191 Feb-16 13,144 3,280 2,679 818 1,861 662 169 Mar-16 20,654 2,889 2,423 721 1,702 -159 192 Apr-16 12,438 3,178 2,696 682 2,014 312 191 May-16 12,493 3,090 2,601 800 1,801 -213 189 Jun-16 21,751 3,054 2,576 850 1,727 -74 187 Jul-16 13,984 3,938 3,442 642 2,800 1,073 184 Aug-16 13,912 3,931 3,386 720 2,666 -134 181 Sep-16 22,805 3,402 2,950 844 2,106 -560 242 Oct-16 15,131 3,541 2,878 1,647 1,231 -875 240 Nov-16 18,023 3,439 2,843 1,483 1,360 129 239 Dec-16 21,159 3,147 2,463 1,020 1,443 84 238 Jan-17 17,281 3,228 2,641 483 2,157 714 230 Feb-17 14,345 3,560 2,852 353 2,500 342 229 Mar-17 25,780 3,183 2,401 793 1,608 -892 227 Apr-17 14,029 3,379 2,550 979 1,571 -37 226 May-17 17,713 3,440 2,601 1,500 1,101 -470 225 Jun-17 26,478 3,558 2,715 1,954 760 -341 225 Jul-17 16,053 3,608 2,608 1,854 753 -7 217 Aug-17 19,744 3,770 3,027 977 2,050 1,297 213 NB: 1: Aggregate volume over the period, 2: End-period, 3: Net change versus previous end-period Source: CME Group, CFTC, Bloomberg

Chapter 8: Appendices 87 Precious Metals Investment Focus 2017/2018 Appendix 10 - Nymex Palladium Activity & Inventories Koz Futures Non-Commercial & Non-Reportable Positions in Nymex Futures Year/Month Volume1 Open Interest2 Long2 Short2 Net2 Net Change3 Nymex Inventories2 2001 2,608 125 13 45 -32 -32 60 2002 4,134 193 51 121 -70 -38 15 2003 9,702 733 596 84 512 582 271 2004 28,188 1,267 997 365 632 120 708 2005 31,875 1,406 1,041 156 885 253 800 2006 37,812 1,187 698 310 388 -496 724 2007 39,739 1,598 1,081 230 850 462 526 2008 48,328 1,201 1,040 461 579 -272 429 2009 40,069 2,262 1,866 253 1,613 1,034 661 2010 89,766 2,285 1,991 258 1,733 121 578 2011 113,953 1,782 1,121 536 586 -1,148 603 2012 111,848 2,853 2,337 430 1,907 1,322 523 2013 148,602 3,888 2,515 725 1,790 -117 546 2014 157,397 3,317 2,674 435 2,238 448 221 2015 134,419 2,446 1,825 1,051 775 -1,464 84 2016 143,586 2,381 1,965 470 1,495 721 73 Jan-16 9,013 2,554 1,815 1,448 367 -408 72 Feb-16 15,116 2,627 1,767 1,440 327 -40 54 Mar-16 9,692 2,225 1,597 890 706 379 66 Apr-16 9,389 2,307 1,604 929 675 -31 73 May-16 14,259 2,234 1,523 1,177 346 -329 74 Jun-16 9,494 2,165 1,548 1,150 398 52 68 Jul-16 10,422 2,803 2,199 743 1,457 1,058 70 Aug-16 16,985 2,542 2,195 731 1,464 8 76 Sep-16 8,844 2,811 2,186 708 1,478 13 83 Oct-16 11,398 2,276 1,621 784 837 -641 75 Nov-16 19,854 2,665 2,141 643 1,497 660 58 Dec-16 9,122 2,381 1,965 470 1,495 -2 73 Jan-17 11,196 2,849 2,136 460 1,676 180 63 Feb-17 14,165 2,765 2,250 493 1,757 82 60 Mar-17 9,831 3,305 2,804 676 2,128 371 56 Apr-17 9,786 3,660 2,698 669 2,029 -99 53 May-17 19,160 3,066 2,475 629 1,847 -183 43 Jun-17 12,049 3,456 3,058 910 2,147 301 42 Jul-17 8,273 3,463 2,741 771 1,969 -178 41 Aug-17 16,415 3,463 3,110 691 2,419 450 46 NB: 1: Aggregate volume over the period, 2: End-period, 3: Net change versus previous end-period Source: CME Group, CFTC, Bloomberg

Chapter 8: Appendices Precious Metals Investment Focus 2017/2018 88 Appendix 11 - Physically Backed Platinum ETP Holdings (by weight)1 Koz ETP Name Region 2010 2011 2012 2013 2014 2015 2016 20172 NewPlat ETF Africa n/a n/a n/a 909 1,105 954 781 829 ETFS Physical Platinum North America 428 440 501 537 514 463 523 559 ETFS Physical Platinum3 Europe 411 375 472 338 352 306 366 374 ZKB Platinum ETF Europe 328 367 354 323 277 260 274 271 Standard Bank Platinum ETF Africa n/a n/a n/a n/a 111 117 135 147 Swiss & Global Platinum ETF Europe 48 94 104 83 100 81 84 97 Sprott Physical Platinum North America n/a n/a n/a 82 69 44 42 38 db Physical Platinum Euro Hedged ETC Europe n/a n/a 26 28 23 28 23 35 Other 3 13 10 205 181 147 140 88 Total 1,217 1,289 1,467 2,505 2,731 2,400 2,368 2,438 1: Holdings at end-period; includes certain physically-backed products that are not strictly speaking ETPs, 2: 2017 values at 31st August 2017 3: Includes holdings of all relevant European physically backed precious metals ETPs issued by ETF Securities Source: Respective ETP providers, Bloomberg Appendix 12 - Physically Backed Palladium ETP Holdings (by weight)1 Koz ETP Name Region 2010 2011 2012 2013 2014 2015 2016 20172 Standard Bank Palladium ETF Africa n/a n/a n/a n/a 703 611 426 424 ETFS Physical Palladium North America 1,089 588 712 718 515 338 264 239 Newpall Physical Palladium Africa n/a n/a n/a n/a 516 329 210 217 ZKB Palladium ETF Europe 437 387 365 288 238 217 210 192 ETFS Physical Palladium Shares3 Europe 587 464 555 467 511 362 332 154 Swiss & Global Palladium ETF Europe 74 128 135 188 143 136 102 88 Sprott Physical Palladium North America n/a n/a 169 187 158 100 96 85 Other 3 99 114 317 294 258 73 166 Total 2,190 1,666 2,051 2,165 3,078 2,351 1,713 1,565 1: Holdings at end-period; includes certain physically-backed products that are not strictly speaking ETPs, 2: 2017 values at 31st August 2017 3: Includes holdings of all relevant European physically backed precious metals ETPs issued by ETF Securities Source: Respective ETP providers, Bloomberg

Chapter 8: Appendices 89 Precious Metals Investment Focus 2017/2018 Appendix 13 - List of Major Precious Metals ETPs Bloomberg Ticker Name Region Primary Exchange *Market Cap (US$ Millions) Gold 4GLD GR Equity Xetra-Gold Europe XETR Germany 7,216 PHAU LN Equity ETFS Physical Gold Europe LSE UK 6,085 SGLD LN Equity Source Physical Gold P-ETC Europe LSE UK 5,086 GBS LN Equity Gold Bullion Securities Ltd (an ETF Securities product) Europe LSE UK 4,000 IGLN LN Equity iShares Physical Gold ETC Europe LSE UK 3,096 ZGLD SW Equity ZKB Gold ETF Europe LSE UK 2,800 XAD1 GR Equity db Physical Gold Euro Hedged ETC Europe XETR Germany 1,620 AUUSIC SW Equity UBS ETF CH-Gold USD Europe SIX Switzerland 1,356 AUCHAH SW Equity UBS ETF CH-Gold CHF hedged CHF Europe SIX Switzerland 914 XGLD LN Equity db Physical Gold ETC Europe LSE UK 743 JBGOCA SW Equity GAM Precious Metals - Physical Gold Europe SIX Switzerland 640 SGBS LN Equity ETFS Physical Swiss Gold Europe LSE UK 598 XAD5 GR Equity db Physical Gold ETC EUR Europe XETR Germany 576 CSGOLD SW Equity iShares Gold ETF CH Europe SIX Switzerland 364 GOLD GR Equity EUWAX Gold Europe XETR Germany 360 CSGLDC SW Equity iShares Gold CHF Hedged ETF CH Europe SIX Switzerland 357 AUEUAH SW Equity UBS ETF CH-Gold EUR hedged EUR Europe SIX Switzerland 174 GOLDL IM Equity Lyxor ETN Gold USD Europe ABI Italy 135 BULL LN Equity ETFS Gold Europe LSE UK 109 CSGLDE SW Equity iShares Gold EUR Hedged ETF CH Europe SIX Switzerland 107 GOLD1L IM Equity SG ETC Gold Collateralized Europe ABI Italy 99 GOLDH IM Equity SG ETC Gold Daily EURO Hedged Europe ABI Italy 92 RGLDO SW Equity Raifeisen ETF - Solid Gold Ounces Europe SIX Switzerland 86 GOLD1S IM Equity SG ETC GOLD -1X Daily Short Collateralized Europe ABI Italy 64 GOLD2L IM Equity SG ETC Gold +2x Daily Leveraged Collateralized Europe ABI Italy 59 LBUL LN Equity ETFS 2X Daily Long Gold Europe LSE UK 52 00XN GR Equity ETFS EUR Daily Hedged Gold Europe XETR Germany 21 GOLD3L IM Equity SG ETC Gold +3X Daily Leveraged Collateralized Europe ABI Italy 20 GLD US Equity SPDR Gold Shares North America NYSE Arca 35,613 IAU US Equity iShares Gold Trust North America NYSE Arca 9,384 PHYS US Equity Sprott Physical Gold Trust North America NYSE Arca 2,261 SGOL US Equity ETFS Physical Swiss Gold Shares North America NYSE Arca 1,076 CGL CN Equity iShares Gold Bullion ETF North America TSX Canada 299 DGL US Equity PowerShares DB Gold Fund North America NYSE Arca 202 OUNZ US Equity VanEck Merk Gold Shares North America NYSE Arca 137 DGP US Equity DB Gold Double Long Exchange Traded Notes North America NYSE Arca 132 UGLD US Equity VelocityShares 3x Long Gold ETN North America NASDAQ GM 108 UGL US Equity ProShares Ultra Gold North America NYSE Arca 99 GLDI US Equity Credit Suisse X-Links Gold Shares Covered Call ETN North America NASDAQ GM 54 GLL US Equity ProShares UltraShort Gold North America NYSE Arca 33 HUG CN Equity Horizons Gold ETF North America TSX Canada 26 DZZ US Equity DB Gold Double Short Exchange Traded Notes North America NYSE Arca 26 *Market Cap as of 15th September 2017 Source: Respective ETP Providers, Bloomberg

Chapter 8: Appendices Precious Metals Investment Focus 2017/2018 90 Appendix 13 - List of Major Precious Metals ETPs Bloomberg Ticker Name Region Primary Exchange *Market Cap (US$ Millions) Gold - Continued 518880 CH Equity Huaan Yifu Gold ETF Asia SSE China 779 1540 JP Equity Japan Physical Gold ETF Asia TSE Japan 496 GBEES IN Equity Reliance ETF Gold BeES Asia NSE India 442 159934 CH Equity E Fund Gold Tradable Open-end Securities Asia SZSE China 186 KOGOLD IN Equity Kotak Gold ETF Asia NSE India 158 SGETS IN Equity SBI-ETF Gold Asia NSE India 158 3081 HK Equity ValueGold ETF Asia HSE Hong Kong 102 HDFGOLD IN Equity HDFC Gold Exchange Traded Fund Asia NSE India 77 UTIGOL IN Equity UTI-Gold Exchange Traded Fund Asia NSE India 70 1328 JP Equity GoldPriceLinked Exchange Trade Asia TSE Japan 56 159937 CH Equity Bosera Gold Exchange Trade Open-End Fund ETF Asia SZSE China 51 132030 KS Equity Samsung KODEX Gold Futures Special Asset ETF Asia KRX Korea 50 00635U TT Equity Yuanta S&P GSCI Gold ER Futures ETF Asia TWSE Taiwan 38 518800 CH Equity Guotai Gold ETF Asia SSE China 35 AXGOLD IN Equity AXIS GOLD ETF Asia NSE India 27 225130 KS Equity KIM KINDEX Synth-Gold futures Leverage ETF - H Asia KRX Korea 22 GLD SJ Equity NewGold Issuer Ltd Africa JSE South Africa 1,400 GOLD AU Equity ETFS Physical Gold (Australia) Oceania ASE Australia 405 QAU AU Equity BetaShares Gold Bullion ETF Currency Hedged Oceania ASE Australia 50 Silver SLV US Equity iShares Silver Trust North America NYSE Arca 5,753 PHAG LN Equity ETFS Physical Silver Europe LSE UK 893 ZSIL SW Equity ZKB Silver ETF Europe SIX Switzerland 813 SIVR US Equity ETFS Physical Silver Shares North America NYSE Arca 362 AGQ US Equity ProShares Ultra Silver North America NYSE Arca 271 USLV US Equity VelocityShares 3x Long Silver ETN North America NASDAQ GM 255 XAD2 GR Equity db Physical Silver Euro Hedged ETC Europe XETR Germany 141 SVUSA SW Equity UBS ETF CH-Silver USD Europe SIX Switzerland 103 XAD6 GR Equity db Physical Silver ETC EUR Europe XETR Germany 95 SSLV LN Equity Source Physical Silver P-ETC Europe LSE UK 85 ISLN LN Equity iShares Physical Silver ETC Europe LSE UK 70 LSIL LN Equity ETFS 2X Daily Long Silver Europe LSE UK 57 SLVRH IM Equity SG ETC Silver Daily Euro Hedged Collateralized Europe ABI Italy 57 SLVR1L IM Equity SG ETC Silver Collateralized Europe ABI Italy 52 XSIL LN Equity db Physical Silver ETC Europe LSE UK 50 SLVR2L IM Equity SG ETC Silver +2x Daily Leverage Europe ABI Italy 49 SLVO US Equity Credit Suisse X-Links Silver Shares Covered Call North America NASDAQ GM 47 ETPMAG AU Equity ETFS Physical Silver (Australia) Oceania ASE Australia 45 1542 JP Equity Japan Physical Silver ETF Asia TSE Japan 44 SBT/U CN Equity Silver Bullion Trust North America TSX Canada 43 SVR CN Equity iShares Silver Bullion ETF North America TSX Canada 42 SLVR LN Equity ETFS Silver Europe LSE UK 38 *Market Cap as of 15th September 2017 Source: Respective ETP Providers, Bloomberg

Chapter 8: Appendices 91 Precious Metals Investment Focus 2017/2018 Appendix 13 - List of Major Precious Metals ETPs Bloomberg Ticker Name Region Primary Exchange *Market Cap (US$ Millions) Platinum NGPLT SJ Equity NewPlat ETF Africa JSE South Africa 801 PPLT US Equity ETFS Physical Platinum Shares North America NYSE Arca 536 PHPT LN Equity ETFS Physical Platinum Europe LSE UK 344 ZPLA SW Equity ZKB Platinum ETF Europe SIX Switzerland 267 ETFPLT SJ Equity Africa Platinum ETF Africa JSE South Africa 142 1541 JP Equity Japan Physical Platinum ETF Asia TSE Japan 97 PTUSA SW Equity UBS ETF CH-Platinum USD Europe SIX Switzerland 68 XAD3 GR Equity db Physical Platinum Euro Hedged ETC Europe XETR Germany 34 JBPLCA SW Equity GAM Precious Metals - Physical Platinum Europe SIX Switzerland 25 XPLA LN Equity db Physical Platinum ETC Europe LSE UK 25 SBAPL1 SJ Equity Standard Bank Platinum-Linker Africa JSE South Africa 16 IPLT LN Equity iShares Physical Platinum ETC Europe LSE UK 15 PTM US Equity ETRACS CMCI Long Platinum Total Return ETN North America NYSE Arca 12 NEWPLT SJ Equity NewWave Platinum ETN Africa JSE South Africa 9 SPPT LN Equity Source Physical Platinum P-ETC Europe LSE UK 8 LPLA LN Equity ETFS 2X Daily Long Platinum Europe LSE UK 7 PGM US Equity iPath Bloomberg Platinum Subindex Total Return North America NYSE Arca 7 PLTT LN Equity ETFS Platinum Individual Securities Europe LSE UK 2 Palladium ETFPLD SJ Equity Africa Palladium Debentures Africa JSE South Africa 453 NGPLD SJ Equity NewPalladium ETF Africa JSE South Africa 250 PALL US Equity ETFS Physical Palladium Shares North America NYSE Arca 225 ZPAL SW Equity ZKB Palladium ETF Europe SIX Switzerland 155 PHPD LN Equity ETFS Physical Palladium Europe LSE UK 121 PLUSA SW Equity UBS ETF CH-Palladium USD Europe SIX Switzerland 17 XAD4 GR Equity db Physical Palladium Euro Hedged Europe XETR Germany 16 SBAPD1 SJ Equity Standard Bank Palladium-Linker Africa JSE South Africa 12 XPAL LN Equity db Physical Palladium ETC Europe LSE UK 9 JBPACX SW Equity GAM Precious Metals - Physical Palladium Europe SIX Switzerland 8 IPDM LN Equity iShares Physical Palladium ETC Europe LSE UK 6 1543 JP Equity Japan Physical Palladium ETF Asia TSE Japan 4 Basket GLTR US Equity ETFS Physical Precious Metal Basket Shares North America NYSE Arca 351 DBP US Equity PowerShares DB Precious Metals North America NYSE Arca 174 PHPM LN Equity ETFS Physical PM Basket Europe LSE UK 111 SPPP US Equity Sprott Physical Platinum & Palladium Trust North America NYSE Arca 111 AIGP LN Equity ETFS Precious Metals Europe LSE UK 51 00XQ GR Equity ETFS EUR Daily Hedged Precious Metals Europe XETR Germany 43 QCB AU Equity BetaShares Commodities Basket ETF Oceania ASE Australia 7 * Market Cap as of 15th September 2017 Source: Respective ETP Providers, Bloomberg

Chapter 8: Appendices Precious Metals Investment Focus 2017/2018 92 Appendix 16 - Global Platinum Mine Production Costs Source: Metals Focus PGM Mine Cost Service Appendix 15 - Global Silver Mine Production Costs Source: Metals Focus Silver Mine Cost Service, *Costs shown on a by-product accounting basis 500 750 1,000 1,250 500 750 1,000 1,250 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% US$/PtEqoz Cumulative PlatinumProduction (%) Total Cash - 2016 All-In Sustaining - 2016 2016 Platinum Price ($989/oz) US$/oz -10 -5 5 10 15 20 25 -10 -5 5 10 15 20 25 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% US$/oz (by-product*) US$/oz (by-product*) Cumulative Silver Production (%) Total Cash - 2016 All-In Sustaining - 2016 2016 Silver Price ($17.14/oz) Appendix 14 - Global Gold Mine Production Costs Source: Metals Focus Gold Mine Cost Service 250 500 750 1,000 1,250 1,500 250 500 750 1,000 1,250 1,500 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% US$/oz US$/oz Cumulative Gold Production (%) Total Cash - 2016 All-In Sustaining - 2016 2016 Gold Price ($1,251/oz)

Notes & Deinitions 93 Precious Metals Investment Focus 2017/2018 Notes & Deinitions Notes Throughout the tables, totals may not add up due to independent rounding. Units Troy ounce (oz) One troy ounce - 31.103 grammes Tonne (t) One metric tonne - 1,000 kilogrammes (kg) or 32,151 troy ounces Carat Gold purity in parts per 24 Grade (g/t) Grams per metric tonne of rock Dollar ($) US dollar unless otherwise stated Deinitions Consumption The sum of domestic jewellery fabrication, plus imports, less exports, adjusted for changes in trade stocks.

Fabrication Captured in the country where the irst transformation of bullion or grain into a semi-inished product takes place.

Recycling Covers the recovery of gold from fabricated products, including unused trade stocks. Excludes scrap generated during manufacturing (known as production or process scrap). The recycling is captured in the country where the scrap is generated, which may difer from where it is reined. Mineral Resources A concentration of material in, or on, the earth’s crust of such grade or quantity where there is a reasonable prospect for economic extraction. Mineral resources in this report have been stated exclusive of those mineral resources which have been modiied to form ore reserves.

Mineral Reserves The economically mineable part of a measured or indicated mineral resource demonstrated by at least a preliminary feasibility study. Total Cash Cost Includes all direct and indirect mine site cash costs related directly to the physical activities of producing metals, including mining, ore processing on-site general and administrative costs, third-party reining expenses, royalties and production taxes, net of by-product revenues. Total Production Cost Total cash costs, plus depreciation, amortisation, reclamation and closure cost obligations relating to each operating unit.

All-In Sustaining Cost The sum of total cash costs plus community costs, sustaining capital expenses, corporate, general and administrative expenses (net of stock option expenses) and exploration expenses.

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