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Silver
2018 Sponsor
CPM Group Silver Reception at the 2018 PDAC
CPM Group Silver Reception at the PDAC
March 2018
CPM Group
168 Seventh St., Suite 310
Brooklyn, NY 11215
U.S.A.
Telephone: 212-785-8320
E-mail: info@cpmgroup.com
Website: www.cpmgroup.com
Copyrighted 2018 - CPM Group
_____________________________________________________________
Not for reproduction without written consent of CPM Group.
The information contained here has been obtained from sources believed reliable. We believe this
information to be reliable, but do not guarantee its accuracy or completeness. Opinions expressed
here represent those of CPM Group at the time of publication. This material is for the private use of
clients. We are not soliciting any action based on it. Information contained here should not be relied
on as specific investment or market timing advice. At times the principals and associates of CPM
Group may have long or short positions in some of the markets mentioned in this report.
214th Annual CPM Silver Reception
at the PDAC
2018 Sponsor:
Endeavour Silver Corp.
3Endeavour Silver Corp.
NYSE: EXK, TSX: EDR
Endeavour Silver Corp (NYSE: EXK, TSX: EDR) is a mid-tier precious metals
mining company that operates three high-grade, underground, silver-gold mines in
Mexico. The Company is forecasting a 20% increase in production to 10.2-11.2 mil-
lion oz silver equivalent in 2018. Endeavour has a compelling pipeline of explora-
tion and development projects to facilitate its goal to become a premier senior silver
producer. The Company’s fourth mine, El Compas in Zacatecas state, will be in
production this year and the Terronera Project in Jalisco state is awaiting final per-
mits and a production decision to become Endeavour’s fifth producing mine. Our
philosophy of corporate social integrity creates value for all stakeholders, delivering
long term sustainable growth.
Why Invest in Endeavour?
MID-TIER PRECIOUS METALS EXPERIENCED MANAGEMENT
PRODUCER TEAM
Three high-grade silver-gold mines Proven track record with
in Mexico exploration, development and
operational expertise
Our mission is to create value for
STRONG ORGANIC our shareholders and become a
GROWTH PROFILE STRONG BALANCE
premier silver producer in the SHEET
Building new mines to silver mining industry.
increase production and $66.2 million working
reduce costs capital, no debt
(as at 12/31/2017)
PURE SILVER/ GOLD LEVERAGE
No base metals, no hedging & industry leading beta to silver
price (60/40 silver gold producer)
Contact Details
PO Box 10328
1130-609 Granville Street
Vancouver, BC Canada V7Y 1G5
Tel: 604.987.1828
info@edrsilver.com
4Silver
CPM GROUP
5Monthly Average Comex
Through January 2018
$/Ounce $/Ounce
45 45
40 40
35 35
30 30
25 25
20 20
15 15
10 10
5 5
0 0
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17
Silver’s price performance was relatively lackluster during 2017, with prices rising at half
the pace of gold prices. Silver finished 2017 at $17.14, up from $15.98 at the end of 2016.
On an annual average basis silver prices actually fell slightly, to $17.09 in 2017 from
$17.14 in 2016. This was compared to a 9.3% increase in 2016 from the previous year. The
lackluster performance of silver over the course of 2017 was in sharp contrast to that in the
previous year, when shorter term trend-following investors joined longer term investors in
purchasing enough silver to drive prices sharply higher. It is important to remember that
while the annual average price of silver was basically flat last year the price did finish 2017
higher than where it started.
Silver prices started 2017 on a strong note. The metal was unable to hold onto its gains,
however, taking an especially hard beating toward the end of the year when institutional
investors on the Comex build large short positions in the metal and drove prices down
sharply. While gold was able to withstand a lot of the economic headwinds, silver, its more
volatile cousin, saw prices respond more dramatically. While global political turmoil
throughout 2017 prevented prices from declining significantly below levels seen in 2016
the relatively healthy economic environment kept a lid on prices. Continued strength in the
equities markets played a part in weighing on silver prices throughout 2017.
Silver prices are forecast to average $17.43 in 2018, up 2.0% over 2017. While growth in
silver prices is forecast to outpace growth in gold prices during 2018, the relative value of
silver is expected to continue lagging that of gold. At the end of 2017 the gold to silver ra-
tio stood at 77. This ratio is expected to decline over the course of 2018, to around 73 on an
annual average basis. This is still well above the historical average of 56, however.
Silver prices are forecast to rise sharply, possibly back to 2011 levels or higher, over the
next five to seven years. A combination of silver’s supply and demand fundamentals, mac-
roeconomic, political, and financial market factors are expected to come together to boost
silver prices back to these high levels.
6Silver Market Balance
Annual, Projected Through 2018. Prices through 2017.
$/Ounce Million Ounces
45 250
Net Additions Net Changes in Inventories
40 200
35 150
30 100
25 50
20 0
15 Net Withdrawals -50
10 -100
Nominal Price
5 (LHS) -150
0 -200
60 65 70 75 80 85 90 95 00 05 10 15
The silver market balance shown here is the classical view of market surpluses or deficits:
Total supply compared to fabrication demand. The net additions represent years of surpluses
of newly refined silver entering the market from mines and scrap recovery over fabrication
demand. The years of net withdrawals are periods when fabricators want more silver than is
being refined, and bid silver away from inventory holders (investors and market makers) in
order to meet their needs.
Much of the surpluses are taken up by investors, but that is not always the case. In the sur-
plus years from 1979 through 1990 market makers — bullion banks and trading companies
— bought and held several hundred million ounces of silver for a time, when neither inves-
tors nor fabricators wanted the metal.
In the silver market, investors wield major power in determining the price. Silver surpluses,
such as we have had since 2005, are caused by investors bidding up the price of silver, pay-
ing higher prices than industrial users are willing to pay. Thus, silver surpluses are related to
higher prices, while deficits are related to lower prices. When investors want more silver
than is readily available, they have to pay higher prices to redirect silver to their holdings.
When they want less silver, they sell into the market, depressing the price. At times like that,
as in the 1980s, bullion banks and dealers take up the surpluses. In this way silver, as a fi-
nancial asset, has distinct market conditions in contrast to those of industrial metals such as
copper, steel, and lead.
People sometimes ask if it is incongruous to see prices rise during periods of large surpluses,
and fall during times of large deficits. It is not incongruous if you realize that the surpluses
represent great demand for silver from investors bidding the price up to get additional metal,
while the deficits represent periods when investors are net sellers of silver.
7Investment Demand by Major Investment Vehicle
Mln Oz Mln Oz
250 250
Net Investment Demand
Bullion
200 200
ETPs
150 150
Coins
100 100
50 50
0 0
-50 -50
-100 -100
-150 -150
-200 -200
2002 2004 2006 2008 2010 2012 2014 2016 2018p
Note: Bars represent gross investment demand.
Investors have remained net buyers of silver since 2006. This continued investor interest in
silver is in contrast to the years prior to 2006.
The charts on the previous page and above show that prior to 2006 investors and other in-
ventory holders as a group actually were net sellers of silver, a trend that had first emerged
in 1990 and lasted until 2005. An estimated 2.2 billion ounces of silver was sold from in-
ventories during that time, including metal sold by market makers. Investors, and other in-
ventory holders, shifted from being a net source of supply – selling into the market – to a net
source of demand, becoming net buyers of silver, in 2006. They have continued to add his-
torically high volumes of silver to their collective holdings ever since then. From 2006
through 2017 investors are calculated to have bought 1.4 billion ounces of silver, a remarka-
ble amount of metal.
In 2017 investors are estimated to have purchased 108.1 million ounces on a net basis
worldwide. This was down from even greater volumes in recent years, but it nonetheless
represented historically strong investor interest in silver.
During the 11 years of steady large silver purchases since 2006 there has been a major shift
in how investors buy and hold silver. With the advent of exchange traded silver funds in
2006, a shift toward silver ETFs from silver large bars had been in vogue for a few years.
But as silver prices rose sharply after 2006, there was another major shift, away from both
1,000-ounce silver bullion bars and ETFs to silver bullion coins, due to a combination of the
increasing value in silver and rising investor concerns about economic, financial, and politi-
cal stability. Last year was a continuance from 2016 where investors were selling silver in
1,000-ounce bar form and in other forms and buying coins, albeit at a slower pace. This
trend is expected to continue for the foreseeable future.
8Coinage Demand
Through 2017
MOz MOz
150 150
China
140 140
130 Other Countries 130
120 Mexico 120
110 Germany 110
100 France 100
90 Austria 90
80 Canada 80
70 United States 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17
Investors bought an estimated 84.4 million ounces of silver in coin form last year. This was
down 38.8% from 137.9 million ounces in 2016. Much of the decline in silver coin sales
came from a sharp decline in U.S. Mint silver coins, with coin sales falling during most of
2017 and only rebounding in December.
This sharp decline in silver (and gold) coin demand has been in line with a trend that has
been in place over the past year. Investors in these products appear to have pulled back from
making as large of purchases in these products as they did in recent years. Many of the in-
vestors who purchased these products bought them as a hedge against the collapse of the
financial and currency markets, or a hyperinflation that never came. These concerns were
heightened during and after the Great Recession and Global Financial Crisis due to the un-
precedented monetary easing by central banks beginning in 2008.
Since then many of these investors have come to think that the currency markets and finan-
cial system as we know them are not likely to collapse any time soon, and so they would not
need silver and gold coins to help them buy things. Furthermore, the option of ETFs allows
investors to have easy access to silver and gold if they wish to carry it in their portfolio. The
cost of carry and transaction costs of ETFs are significantly lower than that of coins.
9Silver Exchange Traded Product Holdings
Through January 2018
Mln Oz
800
HK Silver Japan
700
SSLV SSLN
600 WITE GLTR
500 PSLV iShares Canada
ZKB
SBT.U Julius Baer
400
SIVR MSL AU
300
SLV
200
100
CEF
0
2001 2003 2005 2007 2009 2011 2013 2015 2017
Investors were net sellers of silver exchange traded funds (ETFs) in 2017, with a net sale of
6.5 million ounces of silver from their holdings during the year. While a decline, this reduc-
tion accounted for only 1% of the total silver held in these investment products. With the
exception of May 2017 when investors purchased large volumes of silver in response to a
price decline, during the other months of the year there was a positive correlation between
the prices and sales and purchases made by investors. That is: Investors typically were
sellers when prices declined and buyers when prices rose. This suggests that these (short-
term) investors are driven more by momentum than by value.
Silver ETF holdings rose from their inception in 2006 into 2011. Since 2011 silver ETF
holdings have demonstrated a surprising amount of stability. While investors have sold off
large volumes of gold ETFs and then rebuilt them, and sold off significant portions of their
platinum and palladium ETF holdings, silver ETF investors have shown resilience in hold-
ing on to their metal. CPM’s analysis suggests that this reflects that silver ETF holdings
belong to long-term silver investors who shifted their silver holdings from bars to ETF
shares starting in 2006. These investors are long-term, committed silver holders. Gold,
platinum, and palladium ETF investors appear to be newer investors in terms of holding
physical metal. Many of the ETF investors for these metals appear to be investors who pre-
viously had invested in mining shares rather than physical bullion. As such, they have dif-
ferent investment profiles that lend themselves more readily to buying and selling based on
shorter and intermediate term price trends, while the majority of the silver ETF investors are
long-term buy and hold investors.
10Non-Commercial Gross Long and Short Silver Positions
Comex Futures & Options. Weekly Data, Through 30 January 2018
Mln Ozs Mln Ozs
700 700
600 600
500 500
Long Net Fund Position in Comex
400 400
300 300
200 200
100 100
0 0
-100 -100
-200 -200
Short
-300 -300
-400 -400
A-95 J-97 O-99 J-02 A-04 J-06 O-08 J-11 A-13 J-15 O-17
Different from investor interest in silver ETFs, investor interest in the New York Comex
silver futures and options markets held up well during the most part of last year, only to fall
sharply December 2017.
The chart above shows the gross long and short positions, as well as the net positions, of
large investors on the Comex silver futures and options contracts. The “Non-commercial”
category in futures market data includes a wide range of institutional investors, ranging from
commodity trade advisors and commodity pool operators to hedge funds, general investment
funds, family offices, and other large investors.
As illustrated in the chart above, net long positions held by institutional investors on the
Comex silver futures and options contracts declined sharply during December. By 19 De-
cember these positions had declined to a mere 3.32 million ounces, the lowest level of net
long positions since November 2014, when they had declined to 730,000 ounces. The sharp
decline in December 2017 was the result of both an increase in gross short positions and a
decline in gross long positions. The buildup in gross short positions was much more dra-
matic, with gross shorts shooting up to 375.3 million ounces on 19 December from 158.5
million ounces at the end of November. Over that same period, gross longs had slipped to
378.6 million ounces, from 448.7 million ounces.
The recovery in silver prices in the following sessions led holders of shorts to liquidate their
positions. The liquidation of these shorts in turn helped silver prices rebound from their De-
cember lows. In November 2014, when net long positions had declined sharply, they rose
over the ensuing weeks to reach 227 million ounces by the middle of February 2015, before
they reversed course once again.
11Chinese Silver Imports and Exports
Monthly, Through December 2017
Moz Moz
25 25
20 20
15 15
10 10
5 5
0 0
-5 -5
-10 -10
Gross Imports
-15 -15
Gross Exports
-20 -20
Net Trade
-25 -25
05 06 07 08 09 10 11 12 13 14 15 16 17
Even though China is the second largest mining country for silver, and possibly the largest
refiner of silver in the world including metal from scrap, it still imports additionally silver
consistently. This is because in addition to being a major producer of refined silver, the
country also has very large fabrication demands for silver as well as large apparent invest-
ment demand.
China was a net importer of 57.35 million ounces of silver last year. This was 12.35 million
ounces or 27.5% higher than the 44.99 million ounces imported in 2016.
China is the world’s largest silver using country, consuming an estimated 197.6 million
ounces in 2017. Another 24.6 million ounces of silver were used in silver coins and metals
that are investment products last year in China.
Refined production in China totaled an estimated 306.5 million ounces in 2017. Of this,
140.3 million ounces were refined from domestically mined output. Another 26.8 million
ounces were refined from secondary supply sources. The remaining 139.3 million ounces
were refined from imported mine concentrates and ores.
Apart from the fabrication demand mentioned above, there appears to be a large amount of
silver bought by investors. The 24.6 million ounces of silver coins would be included in
this. In addition, the balance of refined silver entering the Chinese market relative to identi-
fied offtake in fabricated products and exports suggests strong ongoing investor demand in
China. Precise numbers are not available, but there is a net surplus of total new supply rela-
tive to fabrication demand in most years. In 2017 that surplus was 108.9 million ounces,
before accounting for net imports of 57.35 million ounces.
12Annual Total Silver Supply
Projected Through 2018
Million Ounces Million Ounces
1,100 1,100
1,000 1,000
Net Exports from Tran. Econ.
900 900
Government Disposals
800 800
700 700
Secondary
600 600
500 500
400 400
300 300
200 200
100 Mine Production 100
0 0
78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18p
Total supply of silver, primarily from mine production and secondary supply, is estimated to
have declined 1.1% to 998.1 million ounces in 2017 from 1,009.6 million ounces in 2016.
Both mine supply and secondary supply of the metal declined during the year, but a faster
pace of decline in mine supply was largely responsible for the 1.1% decline in silver total
supplies during 2017. Global silver mine supply is estimated to have slipped to 876.9 mil-
lion ounces in 2017, down 1.0% from 885.7 million ounces in the previous year.
Major silver producing countries saw declining production, including Australia, Peru, and
the United States. Production losses occurred at a mix of primary silver mines as well as
byproduct mines in these countries.
Total secondary supply, including scrap recovery, government disposals, and net exports
from transitional economies, is estimated to have declined slightly to 202.0 million ounces
in 2017 from 203.0 million ounces in 2016. This rate of decline was significantly slower
than the sharper declines in scrap recovery between 2013 and 2015, when secondary sup-
plies of silver plunged 27.8% from 2012 levels in the face of declining prices. The lackluster
silver price performance during 2017 weighed on silver scrap recovery, which otherwise
most likely would have risen from the levels in 2016.
Heading into 2018 total supply is forecast to rise, driven by increases in both mine supply
and secondary supply. Total silver supply is expected to rise 2.1% to 1,018.8 million ounces
in 2018, up 2.1% from 2017. The increase in silver mine supply is the result of a strong in-
crease forecast for Mexican mine production as well as a positive impact on silver second-
ary supply from the increase in prices. While the forecast strength in silver prices is ex-
pected to continue supporting silver scrap supply in the medium term, mine supply is fore-
cast to decline in 2019 and beyond, which is expected to weigh on total silver supply.
13Annual Total Fabrication Demand
Projected Through 2018
Million Ounces
1,000 Photovoltaic 1,000
Imports into Trans Economies
900 Other Countries 900
Other Uses
800 Biocides 800
Superconductors
700 Electronics
700
Jewelry & Silverware
600 600
Photography
500 500
400 400
300 300
200 200
100 100
0 0
77 80 83 86 89 92 95 98 01 04 07 10 13 16
Fabrication demand plays an important role influencing silver prices. Fabrication demand
for silver is estimated to have dropped 1.2% from 2016 to 889.9 million ounces in 2017. A
decline in silver use in the photovoltaic sector, after a record year in 2016 led to unsold in-
ventories of silver-bearing solar panels, was one of the primary reasons driving demand for
silver lower during the year.
More silver is used in the manufacture of jewelry and silverware than in any other use. This
really is a hodge-podge of uses, including traditional silver jewelry, investment-oriented
silver jewelry in some parts of the world, and a wide range of decorative objects and reli-
gious statues lumped together and called silverware. Silver use in these products is estimat-
ed to have risen to a fresh record high of 303.4 million ounces in 2017. Prices were lower in
2015 compared to 2017, and silver use in jewelry and silver decorative products is sensitive
to the price of the metal. Pent-up jewelry demand in India, after the Indian government in
late 2016 demonetarized large bank notes, and the ongoing trend of increasing use of silver
in lighter karat gold jewelry helped underpin demand for silver in jewelry during 2017.
Demand from the electronics sector, the second largest use of silver, also rose to a fresh rec-
ord of 229.6 million ounces in 2017, up 1.5% from 2016. The bulk of the demand increase
is estimated to have still come from consumer electronics. Continued inventory drawdown
in the electronics industry also provided some support. Apart from consumer electronics,
developments in automotive electronics, medical electronic devices, and automation-related
industrial electronic products helped underpin silver use in the electronics industry.
The downtrend in silver demand from the photography sector continued in 2017, with de-
mand from this sector slipping to 62.5 million ounces. The downtrend in the silver use in
photography is expected to continue in coming years.
14Annual Silver Demand for Photovoltaic Solar Panels
Projected Through 2018
Mln Oz Mln Oz
90 90
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18p
While the amount of silver used in solar panels is smaller than that in jewelry and electron-
ics, it is the growth rate that helps the PV sector stand out to drive overall silver demand
growth higher. In fact, demand from solar panels overtook the photography sector in 2016
to become the third-largest source of silver use after jewelry and electronics.
In 2017 the photovoltaic (PV) industry remained the third largest use of silver, after having
surpassed photography in the previous year, although demand for this source is estimated to
have declined during 2017 after a record year in 2016. Silver use in solar panels is estimat-
ed to have declined to around 68.7 million ounces in 2017, down 19.9% year-on-year. This
estimated decline came after record growth in key markets such as the United States and
China, where stellar growth was largely a result of demand being pulled into 2016 from fu-
ture years due to policy uncertainty.
As is the case with many technologies, there has been a great effort over the years to reduce
the amount of precious metals used per unit of power generation via solar panels. One of
the primary costs associated with technologies that use precious metals is the precious metal
being used. The amount of silver used per cell of a solar panel is down by around half be-
tween 2011 and 2016. That said, reducing the per unit precious metal content makes the
technology more affordable and therefore quite often more widely adopted. Silver demand
from the PV sector is forecast to continue rising because of the increase in the volume of
solar panels that are being produced.
Global silver use in solar panels is expected to rise at a healthy pace over the next decade
due to ongoing efforts by governments to push for renewable energy use. Emerging markets
also are expected to start contributing in a more meaningful way.
15CPM GROUP
168 Seventh St.
Suite 310
Brooklyn, NY 11215
info@cpmgroup.com
www.cpmgroup.com
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