Future of Silver Mining. Mitchell J Krebs President, CEO and Director, Coeur Mining

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1 Future of Silver Mining Mitchell J Krebs President, CEO and Director, Coeur Mining I. Preamble Good morning, everyone. I appreciate the interest that you are demonstrating by being here in the Silver Session, and look forward to talking to you about silver from a producer s perspective. When we think about the future of mining for the silver industry we take a macro view first. As demonstrated by the US Government currently being shut down, I think the macro world view for silver and precious metals is a positive one when you take a longterm perspective. Time horizon is a key part of my theme in this presentation. As a producer, we are looking at things in a five, 10 or 20-year timeframe for new projects and investments. A lot of people, especially in this conference, that I have talked to in the last day or so, in many cases long-term for them is a year, and that really creates a mismatch in terms of expectations on what the outlook is on a macro basis for silver. However, when you step back and take a look at some of the trends both in the US and globally, it is an attractive picture for precious metals. II. Ageing Demographics The ageing demographics, which is a trend we are seeing in the US and Europe, is worth mentioning as it relates to the industry. We have seen and are seeing a lot of our technical talent get to a point in their careers where retirement is in the very near future if not already taking place. There is a big gap between that seasoned group and the young generation who have been attracted into the industry over only the last few years. When we think about the future of silver mining, that talent gap is a big consideration. III. Silver Industry Dynamics Many of you already are well aware of some of the dynamics of the silver industry, but it is a small niche metal, with $20 billion of annual production. It is small enough to make it hard for real institutional money to allocate funds into just the silver industry. That is a bit of a worry as I think about the future of silver mining. It is largely a retail metal. The volatility that silver demonstrates is severe. Historically, when you look at the volatility, it has left of scars on people. As a result, there is a lot of scepticism about silver that we continue to face in our industry. 2. Unique Market It is a unique market from the standpoint of the demand profile, especially the industrial demand profile, which seems healthy. Mike alluded to this, and I think others will talk in

2 greater detail about the growing uses of silver in the industrial sector. The industrial profile is becoming healthier and more diversified. 3. Surplus Situation However, since 2008 we have been in a surplus situation where mine supply plus scrap supply has exceeded fabrication demand, and I think that will continue for the next several years. What has really been the x-factor in the industry is investment demand, which takes us back to the macro picture that I alluded to earlier. That has really filled the gap. Whether investment demand continues to be strong or not is really what will drive silver prices over the next few years. 4. Top 10 Countries Taking a closer look at the silver industry itself, historically it has been a very concentrated industry in terms of where the metal is located. The top 10 countries collectively contribute about 80% of the world s known silver supply. Most of that is by-product, and that is a big theme when we think about the future of silver mining. How much of silver production comes out of the ground as a by-product? These days I think it is about 70/75%, and I do not see that changing. It creates some interesting dynamics when it comes to any elasticity of supply when silver is coming out of ground as a by-product from other metals. Mexico continues to be a dominant location. It is estimated that about two thirds of all the silver ever produced in the world has come from Mexico. China has also moved up the ranks over the last several years. IV. Forecasted Silver Production The pipeline of future projects has really changed here, especially in the last six months, with prices having dropped down from the high 20s or low 30s to around $20 an ounce. The bottom line is that the pipeline of future supply is really drying up, compounded by the fact that capital markets have not been available to non-producing companies with projects that are seeking capital to build and put into production new mines. As a result, especially when you add in the age of some of the world s largest silver mines that have historically made up a large portion of annual silver supply with a reserve life of five years or less, the next five years or so of silver supply start to look pretty flat, if not declining. 2. Pascua Lama One of the biggest new silver mines is Pascua Lama. If, how and when that contributes to silver supply is obviously a big unknown, but we will move the needle regardless. 3. Future Projects BMO Capital Markets forecasted 150 million ounces of cumulative new supply by That has gone down again to just a little over 100 million ounces as projects that are on the

3 table are either uneconomic at current prices, or lack sufficient funding. Again, that sets up pretty nicely for the supply side of silver as we look forward. 4. Reserve Life Many of the larger silver producing mines have a reserve life of five years or less. As demand will continue to grow, especially in the industrial segment, the maths should work out so that on total supply less fabrication demand bases, we should be back into a deficit situation in the next five years. Between now and then prices should be fairly choppy, but I think the long-term again, and that is our mentality as a producer, things do set up rather nicely. V. Changes in Financial Structuring Things get really dangerous when you start to look at the industry itself, and its performance. Over the past decade, and gold mining companies are probably a better example even than the silver sector, have seen a lot of structural change. It really has not been very pretty for us on the producer side of the fence. Since 2004 we have seen the introduction of new financial products that have taken away a lot of the rationale from owning mining equities, such as the ETFs, that have physical backed metal, and inflation index bonds that take away some of the incentive for owning precious metals equities as an inflation hedge. Mining companies as a whole have not really delivered the operating leverage in a rising price environment as expected. A lot of new projects have generated returns lower than companies cost of capital, and in many cases negative returns. With this poor performance, the public capital markets have largely shut down, especially for the non-producing segment of the industry. 2. Exchange-traded Funds I mentioned the role of ETFs. It is a doubled-edged sword. I do not think we would have seen the prices that we have seen over the last few years if it was not for the introduction of these new products. However, at the same time it has also had a negative effect on the amount of capital flowing into the equities in the precious metal space and into silver companies shares. Another interesting thing about silver ETFs is that since April the extent to which Gold ETFs have sold off versus silver ETFs. We have not seen the same level of decline in the holdings of silver ETFs that we have seen in the gold. I think that reflects the difference between the large institutional money that tends to hold the gold ETFs versus more of a retail holder profile on the silver side, which has been a lot stickier than on the gold side. 3. Proposed Tax Changes To make our industry a little more challenging, there are about 18 countries that currently have proposed tax changes on the table. Between what governments are trying to do, and the increasing influence of NGOs and communities around the world, it is getting harder and

4 harder to make new mines and projects pencil out. Again, that is something that long-term is good for supply, but as a producer thinking about the future of silver mining it is a more challenging environment with a lot more costs associated with any new project. The industry has not done a great job of holding the line on costs in a rising price environment, which has really led to the equity markets turning their back a bit on the industry. As a result, capital has dried up for companies. Silver equities have performed less well than metal. 4. Private Capital As public capital markets, I am seeing pools of private capital becoming a lot more prevalent, and are being formed to invest in our industry. That is an interesting theme and trend to watch because a lot of new projects will end up getting funding from what we could consider non-traditional sources. It is a good thing in some ways because private capital tends to have a longer time horizon, which matches up with our industry better than the public capital markets. I talk to equity investors all the time who want to talk about what is going to move the share price in the next 12 months, where I am thinking about the next five or 10 years. I think private sources of capital will play a bigger role, and has the more patient timelines that may be a better for our industry. VI. Global investment in Exploration We are now seeing the impact of that lag in exploration, or decline in exploration spending back in the last price trough. As a result there are not a lot of new projects out there. When we look at new opportunities, most of them are pretty well known and have been around for quite a while. Every project has some hair on it. In a few more years, as we see some of the benefits of this recent up-tick in exploration activities we will start to see some new deposits come out of that. It is interesting from the standpoint that the future supply of silver from new mines is limited; and attractive for us long-term from a pricing standpoint. The silver mining industry does run the risk of becoming a bit irrelevant. We are such a small niche metal, and with the underperformance that we have delivered over the last 10 or 20 years, it is tough to attract the capital that this industry requires. If we do not perform better for our shareholders, the silver companies will become integrated much more into the diversified, consolidated type of companies who can tolerate some of the volatility and risk that comes along with silver. We are therefore at a really interesting inflection point in the industry, and those are some of the themes that we are looking at as we think about the future of silver mining. VII. Coeur Mining Our company, Coeur Mining, has been around since We are one of the world s top 10 largest silver producing companies, with about 18 million ounces of silver annually, and about 225,000 ounces of gold with operations mostly in the Americas. We have about $9 million in sales, and are a liquid company with a billion and a half market cap.

5 We have been undergoing quite a bit of change at our company to try and evolve with this industry and with what shareholders are looking for from precious metals mining companies. We have a series of strategic investments in some smaller companies with interesting projects, and a large reserve and resource base that underpins our portfolio. With that I will wrap up; I have overspent my time. I am happy to take any questions at the end of our Panel, so I will sit back down, Mike, and let the next speaker go. I appreciate your time. Thanks. Michael DiRienzo Thank you very much, Mitch. We look forward to the Q&A. Questions are starting to scroll in; please keep the questions coming. I always find that beyond the presentations, the Q&A is one of the more reflective points of these sessions here at the LBMA. With that, our next speaker is Radoslaw Zalozinski. He is a Director of Market and Credit Risk Management at KGHM Polska Miedz. His department works with credit and market risk, and he actively supports measures aimed at securing the risk of unfavourable commodity prices and exchange rate fluctuations at KGHM. I welcome him to the dais. Thank you.