Gold, Mines & Natural Resources Rising volatility

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1 Gold, Mines & Natural Resources Rising volatility Arnaud du Plessis - Senior Portfolio Manager, Global Thematic Equities, Natural Resources / Gold & Precious Metals Gold prices followed no clear trend in March, with a negative first half in anticipation of the Fed's next move followed by a catch-up driven by a less hawkish message than expected. Political uncertainty caused by Donald Trump's antics and European elections to a lesser extent also buoyed the market. The gold price ended the month more or less unchanged ($), blocked on the upside by its 200-day average. The weakening dollar and persistently low real interest rates in the US have supported the gold market since the start of the year. Barring an acceleration in the inflation outlook, unchanged since last month, the Fed will probably stick to two additional policy rate hikes in A negative shift in its monetary policy if the economic environment weakens would be a highly positive development for gold. Gold price ($/oz) vs Dollar Index & Dollar/Yen 3 years Gold price ($/oz) vs real US 10-year interest rates & US Inflation Swap Fwd 5y 5y 5 years

2 Gold-backed ETFs were similarly volatile, with assets ending the month unchanged after a swing of 25 tonnes over the period. Change in assets (tonnes) of "Gold" ETPs and gold prices since January 2016 Key trends in the gold market The World Gold Council has provided more details about recent trends in the gold market at a presentation. Modest demand growth in 2016 (~93t) masked wide disparities in the market. It is clear that the market's vigour was mainly underpinned by investment, in particular gold-backed ETFs, which recorded their second best year in terms of inflows (after 2009). In contrast, 2016 was a particularly disappointing year for jewellery demand, down 15% from 2015 and falling to a seven-year low. Note that China and India, the two biggest markets, were responsible for 80% of this decline. Net purchases by central banks remained positive for the seventh year running, but demand was weaker than in 2015 (~380t vs ~580t). This situation was mainly caused by Venezuela, forced to liquidate a portion of its reserves, and China, which slowed its purchases because of rising prices, leading to a mathematical increase in the percentage of its assets invested in gold.

3 What about other commodities? Other commodities markets ended the month lower overall, aside from uranium, which extended its recovery (+1%-$), though without offering much visibility, and aluminium (+2%-$), which continues to benefit from Chinese production cuts. The steepest declines were recorded by iron ore (-12%-$) because of high inventories, nickel (-9%-$), which reversed its February gains, and coal (thermal and metallurgic), whose prices continue to normalise (-3%/-6%-$) after rallying in Performance of the principal commodities - 1 year (base 100: 31/03/2016

4 Oil (Brent & WTI) deserves a special mention, as prices fell by almost 5% ($) in March. The production cuts decided on by OPEC and a few other countries, including Russia, failed to lower inventory levels, which remain high. US inventories have reached record highs, boosted by a recovery in domestic production. In these conditions, it is crucial for the oil market that OPEC maintains its policy to cut production. We will fund out at the end of April... Change in WTI & DOE inventories (inverted scale) 5 years Speculation has rarely reached such levels in the oil market and probably constitutes the weak link. Long positions have never been as big in futures markets. Shorts have also significantly added to their positions recently. This is set to fuel high volatility in the coming weeks and months... Change in WTI & NYMEX non-commercial open positions 5 years Market update Natural resources are maintaining their momentum compared with global equities. The Chinese PMI manufacturing index stood at 51.8 in March, its highest level since April 2012, which augurs well. The energy sector remains in last place year-to-date, down around 5% ($), but it is showing a few signs of recovery, in

5 line with the rebound in oil prices at the end of the period. Building materials also lag behind but are stabilising. Paper and wood sector stocks were once again the strongest performers in March (+3%-$). Chemicals have performed well, gaining almost 2% ($). In contrast, industrial and gold stocks are down around 2% ($). 1-year performance of the principal Global Resources indices (base 100: 31/03/2016) Gold mines ended March slightly lower (~-1%-$) after losing ~8% ($) during the first third of the month. Their year-to-date performance remains firmly positive at around +11% ($). Despite their reputation as a diversification asset, gold mines are highly volatile and not remotely defensive. A tactical and responsive approach is necessary to generate significant gains. Performance of gold - Large cap gold mines (NYSE GDM) & MSCI World ($ - base 100: 31/03/2014) While the performance of mines compared with gold since the September 2011 peak remains deeply negative at ~-33% ($) for large caps (GDX) and ~ -44% ($) for small caps (GDXJ), it has been relatively in line over the past three years, but with one nuance: volatility!

6 Performance of gold - Large cap gold mines (GDX) & small cap gold mines (GDXJ) ($ - base 100 : 31/03/2014) Profitability of gold mines under pressure The gold mining industry is in a critical state. While balance sheets have improved sharply thanks to massive restructuring measures in recent years, they risk weakening the sector's medium-to-long-term growth outlook. Most cost cutting has been due more to capex cuts than to a reduction in operating costs. Mine operations have certainly been optimised and overheads have been trimmed, which is positive, but many industrial maintenance operations have been postponed, which is more problematic. As such, there is a risk of a rapid erosion of margins, all else being equal. Source Bloomberg As a result, most gold companies failed to renew their reserves last year, even taking into account the higher gold price. The average life cycle of gold mines, based on reserves, fell by one year in 2016 to 12 years. Added to this, global production should start to fall in 2017, with an expected decline of 2% based on the industry's outlook. This state of affairs is not sustainable, and 2017 is likely to be a turning point for capex, the first consequence being an end to the cost-cutting trend since 2012.

7 Gold mines Production cost evolution since 2009 This will result in sharply weaker free cash flow generation in On the assumption of an increase of around 25% (~$9.5bn) in capital expenditure in 2017 and of around 50% ($1.2bn) in exploration budgets (estimates based on the sector outlook), the North American gold industry's free cash flow generation is likely to decrease by around 70% this year, based on a gold price of $1,200/oz and a silver price of $17/oz. Only royalty companies will see their situation improve in The free cash flow of "senior" companies may fall by almost 50%. "Mid-tier" and "junior" companies are set to burn cash to renew or maintain their production levels and renew their reserves. Free cash flow generation of North American gold companies after investments (CAPEX) - Spot In line with gold prices, whose average forecast level in 2017 has fallen from $1,350/oz in August 2016 to $1,237/oz today, 12-month forward earnings forecasts for gold companies have been slashed (-24% YTD) before finally stabilising since the start of March, and they remain up around +47% year-on-year. Trends are better for energy and materials stocks, whose 12-month forward earnings forecasts have been raised by 7% and 8.7% respectively YTD and by 81% and 36% year-on-year. These figures should be compared with those of global equities (MSCI World), whose 12-month forward earnings forecasts have been raised by 3.75% and by around 8% year-on-year. Normalisation of valuations of Natural Resources Valuations of energy and materials stocks continue to normalise. They remain high by historical standards, but are fast improving thanks to highly positive earnings momentum. Gold mine valuations (EV/EBITDA) are fully in line with their past four-year average.

8 Gold mines MSCI Energy MSCI Materials: EPS Momentum (1Yr) P/E (3Yr) EV/EBITDA (3Yr) An analysis of gold stocks valuation by net assets value (P/NAV) and operating cash flows (P/CF), which gives a better picture of the sector, is consistent with that of earnings multiples. This remains very reasonable at close to the average level since 2006 based on a P/NAV approach, and well below it based on a P/CF approach. Gold mines P/NAV ratios (7% discount rate) since January 2006 Source: RBC Capital Markets, Bloomberg Gold mines P/CF ratios since January 2006 Source: RBC Capital Markets, Bloomberg Completed on April 4, 2017

9 Information: All comments and analyses reflect CPR AM s view of market conditions and its evolution, according to information known at the time. As a result of the simplified nature of the information contained in this document, that information is necessarily partial and incomplete and shall not be considered as having any contractual value. This document has not been drafted in compliance with the regulatory requirements aiming at promoting the independence of financial analysis or investment research. CPRAM is therefore not bound by the prohibition to conclude transactions of the financial instruments mentioned in this document. Any projections, valuations and statistical analyses herein are provided to assist the recipient in the evaluation of the matters described herein. Such projections, valuations and analyses may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results. Accordingly, such projections, valuations and statistical analyses should not be viewed as facts and should not be relied upon as an accurate prediction of future events. About CPR Asset Management: CPR AM is an investment management company certified by the French Financial Markets Authority, an autonomous and wholly owned subsidiary of Amundi Group. CPR AM works exclusively in third-party investment management (for institutional, corporate, insurance, private banking, fund management, and wealth management clients). CPR AM covers the main asset classes, including equities, convertibles, diversified investments, interest rates and credit). CPR AM in figures (End-December 2016) billion in AuM - More than 100 employees, more than one third of whom are involved in investment management. CPR ASSET MANAGEMENT, limited company with a capital of Portfolio management company authorised by the AMF n GP boulevard Pasteur, Paris - France RCS Paris. _AM cpr-asset-management