223332 Global Commodi

8/13/2019 223332 Global Commodi

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www.pwc.com/ca/mining

Gold, silver and copper price report 2014

Metals mired in global uncertainty

8 INTERVIEW :DundeeCorporation

16 INTERVIEW :Pan AmericanSilver

20 INTERVIEW :KGHM 24 INTERVIEW :

Coeur Mining


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Annually, PwC surveys gold mining companies fromaround the world. This year, we also include copper and

silver companies from a cross-section of approximately150 senior, mid-tier and junior companies.

2 PWC ’S POINT OF VIEW :Metals struggle to ndfooting in 2013

4 A dim year for gold

6 Gold ETFs a “washout”

in 2013

8 INTERVIEW :Dundee Corporation

10 Mining’s New Frontier:Digging deeper intosustaining costs

14 Silver has seen better days

16 INTERVIEW :Pan American Silver

18 Oversupply concerns

weigh on copper

20 INTERVIEW :Q&A with KGHM

22 Coping with lowercommodity prices

24 INTERVIEW :Coeur Mining

26 Points of interest

28 Mining Excellence at PwC

Back Contactscover

Contents



Survey participants

Adriana Resources Inc. Africo Resources Ltd.

Agnico Eagle Mines Ltd.

Aldridge Minerals Inc.

Alexco Resource Corp.

Almaden Minerals Ltd.

Americas Bullion Royalty Corp.

Amerigo Resources Ltd.

Amerix Precious Metals Corp.

Apogee Silver Ltd.

Augusta Resource Corp.

Banro Corp.

Barrick Gold Corp.

Braeval Mining Corp.

Brigus Gold Corp.

Brixton Metals Corp.

Cangold Ltd.

Capstone Mining Corp.

Carlisle Gold elds Ltd.

Caza Gold Corp.Centerra Gold Inc.

China Gold International

Clairmont Metals Corp.

Claude Resources Inc.

CMC Metals Ltd.

Cobar Consolidated Resources Ltd.

Codelco

Coeur Mining Inc.

Colossus Minerals Inc.

Compass Gold Corp.

Concordia Resource Corp.

Copper One Inc.

CopperZONE Resources Ltd.

Cream Minerals Ltd.

Creso Exploration Inc.

Crocodile Gold Inc.

De ance Silver Corp.Delta Gold Corp.

Detour Gold Corp.

Dong Won Resource Group

Dundee Precious Metals Inc.

Eagle Hill Exploration Corp.

East Africa Metals Inc.

Eco Oro Minerals Corp.

Edgewater Exploration Ltd.

Eldorado Gold Corp.

Elgin Mining Inc.

Exeter Resource Corp.

Firesteel Resources Inc.

First Majestic Silver Corp.

Fortuna Silver Mines Inc.

Fortune Minerals Ltd.

Franco-Nevada Corp.

Frontline Gold Corp.

Gibraltar Mines Ltd.

Ginguro Exploration Inc.Goldcorp Inc.

Golden Arrow Resources Corp.

Golden Star Resources Ltd.

Goldgroup Mining Inc.

Goldrush Resources Ltd.

Graymont Corp.

Great Panther Silver Ltd.

Helio Resource Corp.

Hudbay Minerals Inc.

Hunter Dickinson Inc.

IAMGOLD Corp.

Impact Silver Corp.

International Tower Hill Mines Ltd.

INV Metals Inc.

Karmin Exploration Inc.

KGHM Polska Miedz SA

Kincora Copper Ltd.Kinross Gold Corp.

Kiska Metals Corp.

Luna Gold Corp.

Lundin Mining Corp.

Lupaka Gold Corp.

Magellan Minerals Ltd.

Marathon Gold Corp.

Marlin Gold Mining Ltd.

Masuparia Gold Corp.

McEwen Mining Inc.

McLeod Williams Capital Corp.

Midas Gold Corp.

Minaurum Gold Inc.

Minerx Inc.

New Gold Inc.

Newmont Mining Corp.

Northern Star Resources Ltd.

NovaCopper Inc.

NovaGold Resources Inc.Orca Gold Inc.

Orex Minerals Inc.

Orsu Metals Corp.

Orvana Minerals Corp.

Oxygen Capital Corp.

Pan American Silver Corp.

Pilot Gold Inc.

PJX Resources Inc.

Platinum Group Metals Ltd.

PMI Gold Corp.

PNG Gold Corp.

Potash Corp.

Quaterra Resources Inc.

Red Eagle Mining Corp.

Redzone Resources Ltd.

Regis Resources Ltd.

Ressources Appalaches Inc.Royal Nickel Corp.

Sandstorm Gold Ltd.

Santa Fe Metals Corp.

SD Gold International

Semafo Inc.

Sherritt International Corp.

Silver Bear Resources Inc.

Silver Standard Resources Inc.

Silver Wheaton Corp.

Silvermet Inc.

Stonegate Agricom Ltd.

Strait Minerals Inc.

Sulliden Gold Corp.

SUN Gold

Sunset Cove Mining Inc.

Superior Copper Corp.

Tamaka Gold Corp.

Tankoos Yarmon Group

Tanzania Minerals Corp.Taseko Mines Ltd.

Teck Resources Ltd.

Thane Minerals Inc.

Turquoise Hill Resources Ltd.

TVI Paci c Inc.

U.S. Silver & Gold Inc.

Unity Mining Ltd.

Vale Canada Ltd.

Victoria Gold Corp.

Votorantim Cement North Americ

Wesdome Gold Mines Ltd.

Wildcat Exploration Ltd.

Yamana Gold Inc.

Yellowhead Mining Inc.

Yukon Zinc Corp.

Zazu Metals Corp.


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PwC’s POINT OF VIEW

Metals struggle to nd footing in 2013

It’s been another tough year for miningcompanies. Lower commodity prices putmore pressure on company pro ts and squeezed shareholder returns across theindustry. That led many investors to puttheir money elsewhere, creating whatwe’re calling a con dence crisis acrossthe mining sector.





A dim year for gold

Gold has been the big mining storyof 2013. The metal, which surpassed$1,900 per ounce in 2011, fell toaround $1,200 in 2013.

What gold prices are you applying to yourreserves in 2013? (individual responses)

339 34

<$1,000 $1,000 – $1,250 >$1,250



The price drop has reignited the bull-versus-bear debate over bullion, with some callingfor an end to the high-price of gold, while

others call it a blip for a metal that willcontinue to serve as a backstop currency forcentral banks and investors alike.

Regardless of this age-old battle, gold minersare preparing for another challenging yearahead. Expectations for where the goldprice is headed are conservative, with theexception of a few very bullish companies.

Among gold miners surveyed, 47% said theyexpect the price to increase in the next 12months, which is down from 88% with thesame hopes a year ago – re ecting lowerlevels of con dence. Last year, none of therespondents expected the price of gold todrop. This year, 7% said they expect goldto head lower in the next year, while 46%expect the price to remain roughly the same.

When we did this survey a year ago, andgold was trading near $1,800 per ounce,most executives expected the metal’slong-term price to trade at around $1,400.There was a similar forecast when thesurvey was conducted two years ago.While the forecasts are more muted today(see results below), given that the spotprice of gold has fallen to about $1,300,

the long-term forecasts show companiescontinue to show belief in their long-termpricing estimates with a price of $1,369(down only 2% from last year).

When asked what gold price companies areusing to determine reserves, the averageamong respondents was $1,251 per ounce, with a range of between $900 and $1,500.

For resources, the average was $1,284, witha range of between $800 and $2,000.

The average price of gold for 2014 beingused for impairment testing amongrespondents is an average of $1,309 anounce, according to the survey results, andranges from a low of $1,000 to a high of$1,600. Those predictions increase overtime. For instance, the forecast for 2016 goldprices is an average of $1,378 an ounce, withestimates ranging from $1,000 to $1,900.The ght between the bulls and bearsintensi es in the long-term, with the averageprice predicted to be $1,369, and a rangebetween $1,000 and $2,000 for beyond2016.

Today, most companies are focused onnear-term pricing data to estimate theirreserves. According to our survey, reserveprices are based on a number of factorsincluding internal estimates, historicalaverage prices, forward curve, spot andconsensus pricing as the three-year trailingaverage price become less relevant in adeclining price environment.

When it comes to long-term pricing,33% of respondents said they relied onmanagement’s internal estimates andconsensus, while 14% looked at the forward

curve, 13% considered historical averagesand 9% the spot price.

For reserve pricing determinations, 65%turned to management’s internal estimates,39% looked at consensus, 23% historicalaverages, 15% spot price and 9% theforward curve.

The numbers were roughly the same indetermining resource prices among goldproducers.

The survey shows 39% of gold producers

believe their costs will be similar in thenext 12 months as they were in 2013 and28% expect them to fall. Only 12% expectcosts to increase.

As for the factors driving cost adjustments,about half of gold miners surveyed (49%)cited mine sequencing and grade mix as amain factor, followed by wage costs (29%),input commodity prices (22%), and a mixof either lower-or-higher-cost mines in theproduction mix (8%).

Where do you see the price of gold within thenext 12 months?

Stay the sameDecreaseIncrease

47% 46%

7%

What is the long term price of gold?

$2,500

2,000

1,500

1,000

500

02014 2015 2016 Long-term

Low Average High

% change between 52 week high and52 week low — Gold Companies

2009 2010 2011 2012 Oct 31, 2013Seniors 44% 33% 39% 38% 53%

Mid-Tiers 76% 54% 56% 55% 67%

S&P Capital IQ Gold Concensus

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022500

1,000

1,500

2,000

MedianLow High



Gold ETFs a “washout” in 2013

Nothing demonstrates investors’ recentexit from gold as clearly as the sell-off inexchange-traded funds (ETFs).

Gold ETFs holdings (millions of ounces) Silver ETFs holdings (millions of ounces)

2009 2010 2011 202 201320

40

60

80

100

2009 2010 2011 202 2013300

400

500

600

700

800



According to the World Gold Council, golddemand to the end of the third quarterof 2013 was down 12% compared to the

same period a year earlier, driven almostentirely by out ows from ETFs.

“Tactical investors in western marketsexited their positions as they began tospeculate on the early tapering of USquantitative easing amid signs of apparentimprovement in the US economy,” theWorld Gold Council (WGC) says in its GoldDemand Trends report for Q3 2013.

“By the end of September, ETFs had seenout ows to the tune of almost 700 tonnes.”

That’s after steadily rising in ows since

at least 2008 (see chart).Most of that selloff happened in the secondquarter, at the same time the price of goldfell sharply to around $1,200 per ounce.

It was a “washout,” according to theWGC. However, it believes there will bea turnaround in the coming months.

“We have almost seen a cessation ofout ows and, in fact, we had some netin ows globally in the last two to three weeks into November,” Marcus Grubb,Managing Director, Investments at theWorld Gold Council, told Mineweb.

It wasn’t all bad news for ETFs in thecommodities sector. While investors

ed gold, many headed into othercommodities investments such as silver,energy and platinum.

According to ETF Securities, assets incommodity exchange-traded products(ETP) 2 rose by $8.4 billion to $135.9 billionin the third quarter of 2013, which was the

rst quarterly rise since the third quarterof 2012. That includes a wide-range of

commodities from metals and energy toagriculture products.

The rise was driven by a combination ofprice increases and the largest quarterlyin ows into non-gold commodity ETPssince the rst quarter of 2012, ETFSecurities says.

“The rise in investors’ allocationsto commodities re ects a generalimprovement in investor sentiment

towards the asset class as the globalindustrial cycle has picked up, con dencein China’s growth prospects haveimproved and the prices of a numberof key commodities have dropped toperceived attractive accumulation levels,”says Nicholas Brooks, head of researchand investment strategy at ETF Securities.

“Assuming the global manufacturingrevival continues, and US and Europeanpolitical issues do not derail the generalimprovement in the global economicoutlook, we believe that Q3 2013

potentially marks an important positiveturning point for commodities.”

Excluding gold, key commodity ETPs saw$1.9 billion of in ows in the third quarter,“more than compensating for the out owsin Q2,” ETF Securities says.

When gold is included, global commodityETPs saw $2.3 billion of out ows in thethird quarter.

Still, ETF Securities says that’s a“substantial improvement” whencompared to the record $19.6 billion ofout ows in the second quarter of 2013.

Silver ETPs performed strongly, asthe price of the metal stabilized in the$22 per ounce range, with $706 million ofnet in ows in the third quarter comparedto three months earlier.

Silver ETFs have also been rising steadilyover the past ve years (see chart).

“After seeing a more than 50% decline inthe silver price from its peak, it appearsthat investors view silver as one of thebetter value ways to gain exposure to theturn in the global industrial cycle,” saysETF Securities in its third-quarter report.

“Its hybrid nature as both an industrialmetal and as a store of value ‘hardcurrency’ like gold appeals to manyinvestors who recognize we areexperiencing a cyclical pick-up in growth,but remain concerned about growingdeveloped country debt levels andcontinued risks of currency debasementstemming from extraordinarily easymonetary policies.”

There was $195 million in industrialmetal out ows in the third quarter, whichETF Securities saw as surprising given theimproved outlook for demand in China,the world’s largest consumer of thesemetals such as copper and nickel.

“The most likely explanation for the trendis that despite the improving demandoutlook, the expected increased supply ofa few key industrial metals, particularlycopper has kept investors away,” says ETFSecurities. “Therefore it appears that inQ3 investors chose to play the reboundof the industrial cycle through platinum,silver, oil and broad commodities ratherthan industrial metals.”

2. ETP is the umbrella term used to describe ETFs, exchange-traded commodities (ETCs), exchange-traded notes (ETNs), and US Grantor andother statutory trusts. They are collateralized or uncollateralized open-ended securities listed on a stock exchange tracking an underlying asset.

“We have almost seen a cessation ofout ows and, in fact, we had somenet in ows globally in the last twoto three weeks into November. ” – Marcus Grubb, Managing Director, Investments

at the World Gold Council



INTERVIEW

Dundee Corporation

As a self-described “gold bug,” you mightexpect Dundee Corp. founder and CEO Ned Goodman to be disillusioned by thecommodity’s recent price drop.



Quite the opposite.

“I have never been so bullish on gold inmy entire career,” says Ned, a legendaryCanadian investor whose rm’s investmentsinclude real estate, agriculture, assetmanagement, precious metals, energyand infrastructure.

His optimism comes from a belief that theUS is mishandling its nances, through what he calls “botox economics.” That’sthe stimulus money the US FederalReserve has been injecting to plump upthe economy.

“They’re trying to make everything lookgood. It’s an illusion,” Ned says. “The USis in deep trouble.”

That’s why, despite the sinking priceof gold in recent months, Ned remainsbullish on bullion for its reputation as aninvestment haven.

In fact, he believes the bull market forgold and gold stocks that began aroundthe turn of the century will continue, eventhough the metal has slumped from itsrecord above $1,900 in 2011 to just above$1,200 in late 2013.

While he believes the drop in gold’s pricein recent months is “disappointing,” Nedrecommends investors pay attention tothe sector.

In Dundee’s 2012 annual report, Ned sayshe expects an “unbelievable opportunity forsigni cant gains” in the months to come.

“The overall market for gold is still in abull market but the current situation isacting like a bear market,” he writes. “The view that we are continuing with is thatgold and gold stocks are very inexpensive,below real value.”

Ned believes the fundamentals for goldhaven’t changed.

While the US Fed has talked abouttapering, Ned expects the U.S. and someEuropean countries to continue excessiveprinting of money in the near term toprop up their economies.

One reason he cites is labour participationin the US, which is near an all-time low asmore people drop out of the workforce, while unemployment remains high.

“The entire so-called US economicrecovery we are witnessing is almostentirely driven by those ultra low interestrates and money printing they areenjoying,” his annual report states.

As for the mining sector as an investment,Ned says it’s increasingly dif cult to

nd exceptionally good buys across thesector right now. Part of the problem is

that junior companies don’t have cash toadvance projects, while seniors are alsoholding back on as they work to clean uptheir balance sheets.

“I’m favoured to mining companies thathave good reserves in the ground thatthey can take out when they want. Thecurrent moment isn’t the time to take [theore] out because the price is too low, sothey have to sit tight,” he says.

That means investors need to be patienttoo, while abiding by the Warren Buffett

philosophy of “value” investing.“Buffett has said, and I certainly agree,that the best philosophy for successfulinvesting is to buy something for a lot lessthan it is really worth,” Ned wrote in hisannual report.

He also buys a gold stock every day, whichin this market could mean a number of value plays.



Mining’s New Frontier:Digging deeper into sustaining costs

In a climate of high commodity prices,a focus on mine site cash costs may beappropriate to identify where on thecost curve operations sit. However cashcosts alone, the industry’s traditional yardstick of operational ef ciency,do not capture many of the expensesrequired to maintain a sustainable, value adding mining operation.



With margins squeezed by the recentdecline in commodity prices, investors andanalysts increasingly want more transparentdisclosure of total costs. It is clear that thegreatest area for improved reporting lies inthe reporting of all-in production costs andcapital expenditures. “Improved reporting”means increased transparency (moreinformation), and consistency of de nitionsacross the industry.

Sustaining costs – such as spending tomaintain and replace equipment – maybe ratcheted back at times of low metalprices to conserve cash. However, theseinvestments cannot be eliminated entirely without posing a high risk to a mine’s long-term productivity.

As with cash costs, there is no reportingstandard that currently requires companiesto disclose sustaining or growth capital.However, the World Gold Council hastaken a step towards formalizing theconcept with the publication in June 2013of a “guidance note” on the components of“all-in sustaining costs” and “all-in costs”that gold mining companies can use as partof their overall reporting disclosure.

A PwC survey of the top 40 global miningcompanies by market capitalization foundthat, as of the third quarter of 2013:

• 14 companies publish a gure forsustaining capital, and only sevenprovide an all-in cost gure.

• Only six companies -- Barrick Gold,Goldcorp, Gold Fields, Kinross Gold,

Newmont Mining and Vale SA -- disclosetheir de nition of sustaining capital.

• As these numbers show, very fewcompanies currently disclose theirall-in costs or a sustaining capital value, and even less provide adefinition of what is included withinsustaining capital.

Some companies have raised concernsabout the extra cost and effort required toprepare details of sustaining and growthcapital in addition to normal nancial

reporting requirements. But the mainconcern is uncertainty -- even confusion –over the de nitions used by companies forsigni cant capital expenditure items, morespeci cally, what is a sustaining cost and what is a growth cost?

If all-in sustaining costs and all-in costs arenot being used in 2013, in 2014 will you:

59% 41%

Use all-in sustainingcosts/all-in costs

Continue to use cash costs

What is the Company’s overall approximate all-in sustainingcost forecast for 2014? Per ounce for gold companies

Less than $900

66%

$901–$1,000

23%$1,001–$1,100

25%

$1,101–$1,200

14%

$1,201–$1,300

9%

Greater than $1,300

5%

Development costs, exploration costsand general and administrative (G&A)expenses are among the most challenging

grey areas. All of these reasons have madecompanies hesitant to be early adoptershowever many are internally exploring theconcepts without disclosure so that they canbe prepared if pressured by shareholdersand analysts to disclose, or at a minimumrespond to market queries.

The concept of all-in costs should bea relevant and useful yardstick for theinvestment community as well as forminers themselves to benchmark andcompare companies and operations.

A clear picture of sustaining and growthcosts is a valuable tool to demonstrateeffective cost management over the longerterm, and thus improve capital spendingdiscipline. In the current environment, it iscritical to achieve tight discipline of capitalexpenditures, which means tightly de ning what are truly sustaining costs so thatgreater visibility is gained in the capitalallocation process.



G&A

56%Capital Projectdevelopment

32%

Exploration

57%

What costs have you reduced and by how much to address lowerrevenue levels?

Expansionprojects

23%

What are your two most important businessimperatives in 2014?

Cost management 66%

Raising nancing 55%

A truer measure of overall costs candemonstrate to governments, employees

and others that the industry operates onmore slender margins than often seems tobe the case based on a cash-cost model.

Transparency on costs can helpmanagement make the case for dif cultdecisions, such as workforce reductions,care-and-maintenance announcementsand divestitures.

The prospect of continuing tight margins forthe foreseeable future suggests that analystsand shareholders will keep up the pressureon miners for improved disclosure.

The World Gold Council guidanceprovides a good framework, however

standardisation of de nitions and levelsof disclosure would certainly facilitateexternal comparison of companies andunderstanding of the sustainability ofoperations. Companies can be reluctantto lead in making disclosures whereinconsistencies may exist, though from ourdiscussions, most would follow once clearguidelines and de nitions are put in place.

The longer term question is whethercompanies continue to desire and drivetransparency around disclosing fullcosts? If prices start to increase, will thefocus from shareholders and analysts bediminished? In a forecasted period ofexpected tight margins, we should expectthe focus to remain for a while to come.

“For decades, we have disguised our true costs to lookbetter to providers of capital by focusing solely on

cash costs, rather than reporting all the costs that gointo mining. This created the impression that, evenat present depressed prices, the industry is makinghealthy pro ts, when it is, in fact, marginal. ” – Nick Holland, Gold Fields chief executive, writing in Business Day (South Africa),

August 15 2013.



How are you reporting costs in 2014?

0 5 10 15 20 25 30

Cash costs

Adjustedoperating costs

All-in costs

All-in sustainingcosts

Other

%

How will your costs change during the next12 months? Percentage of respondents for eachcommodity

Gold Silver Copper

Significantlyhigher

Moderatelyhigher

Similarlevels

Decreasedcosts

Don’t know

0 10 20 30 40 50 60 70%

What are the key drivers for the changein costs? Percentage of respondents for eachcommodity

0 10 20 30 40 50 60

Gold Silver Copper

Wage costs

Input commodity prices

Mix of lower/higher cost mines in the production mix

Mine sequencing and grade mix

Other

%



Silver has seen better days

Silver has had a terrible year. It started 2013 trading at around $32 per ounce, butthen fell to around $18 by mid-year. That’sa reversal from 2012, when silver was thebest-performing metal, ranging in pricebetween about $26 and $37.



While it was a tough year for silver minersto make a pro t, our survey shows they’reoptimistic for 2014.

Among survey respondents, 53% saidthey expect the price of silver to increasein the next 12 months, while 38% expectit will remain at current levels. Only 9%are anticipating the price of silver to fallfurther in the next year. These statistics aresimilar to how gold companies respondedto our survey.

The long-term silver price being used forimpairment testing among respondents was an average of $22 for 2014, andranged between $15 and $28. The averageincreased to $23 for 2015 and beyond.

When asked what silver price companiesare using to determine reserves, the averageprice was $22 per ounce, and ranges froma low of $17 to a high of $28. For resources,the average price was $22, with a range ofbetween $19 and $28.

Among silver miners surveyed, the mostimportant input used to determine thereserve price was management’s internalestimates (65%), followed by consensuspricing (20%), historical price averages(13%), spot prices (7%) and forward curve(3%). For resource prices, the numbers werehigher for management’s internal estimates(74%) and lower for historical averages(19%), while other factors were consistent with reserve price determinations.

When it comes to long-term pricing ofsilver, 55% of respondents said they reliedon management’s internal estimates, 19%looked at the consensus, 16% the historicalaverage, 6% spot prices and 3% theforward curve.

About two-thirds (61%) of silver minersexpected their cash costs to remain the samein 2014, while 21% are preparing for highercosts and 18% for lower costs.

Silver producers said the key drivers forcosts include mine sequencing and grademix (54%), followed by wages (29%),input commodity prices (29%) and amix of higher and lower grades in theproduction mix (18%).

What silver prices are you applying to yourreserves in 2013? (individual responses)

15122

<$20 $20–$25 >$25

What is the long term price of silver?

$35

30

25

20

15

10

52014 2015 2016 Long-term

Low Average High

S&P Capital IQ silver concensus

2013 2014 2015 2016 2017 2018 2019 2020 2021 202205

1015202530354045

MedianLow High



INTERVIEW

Pan American Silver Corp.

Like most mining companies, Pan AmericanSilver Corp. has been forced to adjust to slumping metal prices.

Photo courtesy of Pan American Silver Corp.



As silver prices fell to around $20 perounce in recent months, from above $30at the start of 2013, the company scouredits operations across Mexico, Peru, Boliviaand Argentina for cost savings.

The results showed up in its third-quarterearnings, when the company reportedlower expenses on higher production. Thathelped to offset a drop in revenues and net

income due to lower commodity prices.“We’ve taken the long-term approach andsaid ‘What can we do here to recognizethat the price of silver isn’t $30 anymore?It’s much closer to $20,’” says Geoff Burns,Pan American’s President & CEO.

Unfortunately, the adjustments madeincluded laying off about 1,000 people,or about 10 per cent of its workforce, while maintaining projected silver andgold production.

Silver production rose 7% in the thirdquarter and Pan American achieved a newquarterly record for gold production. Atthe same time, it trimmed its mine siteproduction costs by 9% compared to thesame period last year, which resulted ina healthy 25% reduction in its cash costsper ounce.

Pan American’s full-year 2013 guidanceis for 25 to 26 million ounces of silver and125,000 to 135,000 ounces of gold. Itsays cash costs will be below the originalforecast of $11.50 to $12.80, net of by-product credits. It also expects to produce38,500 to 41,500 tonnes of zinc, 12,500 to13,500 tonnes of lead and 4,500 to 5,000tonnes of copper for 2013.

While the restructuring efforts weredif cult moves, Geoff believes they werenecessary to help strengthen the company.

“The good news for Pan American isthat, as a consequence of that effort - ofreducing, refocusing and retuning - we’vebecome a stronger company and muchmore able to survive the volatile world of

the silver miner,” he says.“We enjoyed a long time of good prices... and within seven or eight months we’ve been reminded commodities isa volatile business.”

Prices aren’t the only challenge facing Pan American and other miners, particularlythose doing business in Mexico.

In October, the Mexican Senate approveda bill to introduce a royalty of 7.5% onmine operating income, as well as a 0.5%royalty on revenues derived from silver,gold and platinum. The bill also proposesa 10% withholding tax on dividends paidto non-resident shareholders (subject totax treaty reductions).

Pan American warned in its third-quarterearnings report that this change, effectivein 2014, could result in a “signi cant non-cash adjustment to deferred taxes,” in thefourth quarter of 2013.

About half of Pan American’s revenuescome from Mexico, which last year wasaround a half a billions dollars, says Geoff.

While Mexico is following measures thatother countries such as Peru, Australia,Chile and Canada have taken, it’s themagnitude of the taxes that Geoff says istough to take. Pan American and otherminers weren’t expecting the rates to beas high.

“It is going to change the amount ofinvestment in Mexico,” he says. “Money

ows where the potential for returns isthe greatest and to any extent where youcreate an additional impediment to returns,money will look for a better home.”

He predicts some smaller companiesmight pull out of Mexico as a result ofthe new taxes, but Pan American plansto continue producing there and isevaluating expansion projects at two ofits three properties there because theeconomics continue to make sense.

“Mexico is also still one of the best mining jurisdictions in the world,” he says.



Oversupply concerns weigh on copper

Among the three key metals discussed here,copper clearly outperformed in 2013. Still,the drop in price – from about $3.70 per pound at the start of the year to just above$3 as we nish of the year – has weighedon margins for copper companies.



Much of the price drop seen in 2013 is saidto be the result of a demand and supplyimbalance, which is expected to continueinto 2014.

Many copper producers are anticipatinganother challenging year as copperinventories remain high and the globaleconomy struggles to gain traction. Copperproducers are also watching closely to see

how the US Federal Reserve’s taperingprogram will impact prices next year.

“Possible quantitative easing tapering mayaffect base metals with a stronger dollar, which is in general negatively correlated with commodities prices,” KGHM CEOHerbert Wirth told us.

Still, he’s con dent the price will recoverlonger-term.

“I personally believe the commodities supercycle is not over yet and I think that thereis still some room for prices to increase in

the future,” he said. “I believe in copper’spositive price outlook in the coming years.”

Our survey shows about two-thirds ofcopper miners (62%) believe the metal’sprice will remain around current levels forthe next 12 months, while 21% expect anincrease and 17% a decrease.

When asked what copper price companiesare using to determine reserves, the averageprice was $2.77 per pound, with a range ofbetween $1.87 and $3.26. For resources,the average was $2.87, ranging from $2 to$3.50.

The long-term copper price being used forimpairment testing among respondentsaveraged $2.83. However, this forecast has

a wide range of between $1.20 and $3.50.Those predictions don’t change much for2015, and increase slightly in 2016, whenthe average price forecast for impairmenttesting is $2.87 per pound, ranging from alow of $1.30 to a high of $4.

The most important input used to determinethe long-term price view was consensuspricing (47%), followed by management’sinternal estimate (41%), with historical priceaverages and the forward curve both at 6%.

For reserves, 67% look at management’sinternal estimates, 42% consensus pricing,18% historical averages and 9% for boththe spot and forward curve. Resource-price determinations were lower formanagement’s internal estimates (62%),and lower for consensus pricing (38%), buthigher for historical averages (21%).

When it comes to cash costs, 47% of copper

miners expect theirs to remain at similarlevels in the next 12 months compared to2013. Meantime, 20% anticipate costs toincrease moderately and 3% are anticipatingsigni cantly higher costs for theiroperations, compared to 30% of respondents who expects costs to decrease in 2014.

What will drive costs in the coming year forcopper miners? Mine sequencing and grademix was the top response (37%) followedclosely by wage costs (33%) and both inputcommodity prices and the mix of lower-and-higher-grade mines into the production mix

at 19%. Other costs accounted for aboutone third (35%) of what copper minerssaid would drive a change in prices in 2014,including higher production fees, mine andcapital expansion costs and lower cost ofservices in some cases.

What copper prices are you applying to yourreserves in 2013? (individual responses)

21 7 2

<$2 $2 – $3 >$3

What is the long term price of copper?

$4.50

4.003.503.002.502.001.501.000.500.00

2014 2015 2016 Long-term Low Average High

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 20230

1

2

3

4

5

6

MedianLow High

S&P Capital IQ copper concensus



INTERVIEW

Q&A with KGHM

PwC partners Jacek Socha and Mariusz Dziurdzia recently sat down with KGHM CEO Herbert Wirth to discuss thecurrent commodities market and whatopportunities it presents for his company.

Photo courtesy of KGHM



How would you describetoday’s commodity market? Isthe super cycle over, or is this just a down part of the cycle?Naturally, most commodity producersare positive about the potential pricedevelopment of the market in the longrun. Otherwise they would not invest intheir core business. I personally believethe commodities super cycle is not over,and think there is still some room forprices to increase in the future. Manyauthorities in developing countries haveunderstood that their greatest potentialcomes through increased urbanization, which requires intense commoditiesusage. I am an optimistic person ingeneral, believing in progress and people’sability to evolve and increase productivity.

What are your thoughts on the

current copper price?In recent quarters, copper prices haveexperienced a major correction after severalstrong years. This downtrend is mainlydriven by investors’ increasing interest inequities markets and potential oversupplyon the copper concentrate market. Scrapavailability is still low, which has also ledto production downtime across scrap-dependent smelters. The global economicsituation has also been perceived asmoderately pessimistic in the recent months,leaving investors worried that the assumed

growth in key countries driving commoditiesconsumption will not be delivered.

How has the lower copper priceimpacted your company?It has caused a moderation of the company’searnings and margins. However, thanks tohedging positions built up over the past few years, some headwinds have been alleviated.We started building our hedging position inour three core markets – copper, silver andPolish zloty. Today we are bene ting from

the hedging transactions. We watch themarket closely on a daily basis.

What is your outlook for copper?Recent macroeconomic data shows signsof global economic recovery, which mightcause a pick-up in overall demand, in turndriving up base metals prices. Althoughcopper stocks are down and the number ofcancelled warrants is high, global nancialinstitutions anticipate many mining projects will add supply to the market. Additionaloutput, if delivered without any delays,

might put downside pressure on prices inthe coming months. Possible tapering ofquantitative easing in the US may also affectbase metal prices. Still, I believe in copper’spositive price outlook in the coming years.

What projects and initiativesare helping to drive growthat KGHM?One of the most important projects forus right now is development of the SierraGorda project in Chile, which will be oneof the biggest copper mines in the world,being built together in a joint venturescheme with our partner Sumitomo MetalMining and Sumitomo Corporations.Construction of the project should be

nished in the second quarter 2014 and we are focused on delivering the plannedproduction on time. We have also twobig projects located in Canada waitingfor development: Victoria and Ajax. Theoptimal nancing structure for theseprojects is currently under discussion.

What is your current position onM&A? Are you a buyer or sellerin today’s market?KGHM has been successfully maintainingstable production level in Polish minesfor many years. That said, it would be very hard to grow organically based onlyon local resources. The acquisition ofQuadra FNX in 2012, which includedSierra Gorda and other projects, was thebeginning of a new era in KGHM’s history.It’s allowing the company to strengthenits growth potential. Right now weare continuing to integrate all of theseadditional assets into KGHM, while at thesame time still closely monitoring other

M&A possibilities. We are looking forinteresting assets, especially at the earlystage of development.



Coping with lower commodity prices

Falling commodity prices have led to aninevitable drop in revenues for miningcompanies. After years of spending onmergers and acquisitions and expandingoperations with money generated fromhigh metal prices, miners are nowcutting back.



given the volatile markets and laggingcommodity prices. Another 23% saidthey turned to corporate debt, while 8%found project nancing. About one-third(33%) of miners surveyed said theyreceived no nancing over the past 12months. That result can be attributedto the dif cult conditions many minershave cited when it comes to raising fundsfor future exploration, development orproduction growth.

For the coming year, 53% said theyanticipate going to the equity markets toraise capital, while 29% expect to raiseproject nancing and another 14% planto raise corporate debt. Streaming androyalty agreements remain on the radar ofminers with 6% of respondents looking atstreaming agreements and 3% checkingout royalty deals.

% change in metal prices — 2013 (Comex)

10% 5 0 (5) (10) (15) (20) (25) (30) (35) (40)

(45) Jan Feb Mar Apr May Jun Jul Aug Sep Oct No Copper Silver Gold

Where do you see the price of commodities within the next 12 months?

Managing costs and nding nancing areamong the top priorities for miners amidless optimistic future price expectations,our survey shows.

When asked to identify their top twobusiness imperatives in 2014, executivesselected managing their spending andraising nancing. Productivity andmergers and acquisitions followed closelybehind. M&A activity has been muted inthe past couple of years as a result of tight

nancing conditions, volatile markets,and as many miners focus inward oncutting costs and managing currentproduction over buying future growth.

To fund corporate development andother activities, nearly half (47%) saidthey tapped equity markets over the

past 12 months, despite how dif cult ithas been to raise this form of nancing

Stay the same

Gold Silver Copper

47%

7%

46%

53% 21%

9%

17%38% 62%

Increase Decrease



INTERVIEW

Coeur Mining Inc.

Coeur Mining Inc. may have been around for 85 years, but the company considersitself a newcomer in the industry lately.

Photo courtesy of Coeur Mining Inc.



“We do describe ourselves as an 85-year-old startup because there is so much newhere at this company over the last few years,” said Mitchell J. Krebs, Coeur’sPresident and Chief Executive Of cer.

Some of the biggest changes have takenplace in 2013 alone.

They include the producer’s purchase

of Orko Silver Corp. and its La Preciosadevelopment in Mexico. Coeur alsoincreased its stake in Mexico-basedexploration company InternationalNorthair Mines Ltd. to 19% and formeda new wholly owned subsidiary, CoeurCapital, Inc., to hold its existing and anyfuture-acquired royalty and streaminginterests, along with its portfolio ofstrategic equity investments. The goal ofthe new company is to provide stockholders with higher-margin, less-volatile free cash

ow as well as diversi ed metal exposureand future avenues for growth, Mitch says.

If that wasn’t enough, Coeur also recentlyappointed several new executives andmoved its head of ce to Chicago fromIdaho.

The changes are taking place alongsidea readjustment across the industry asminers cope with the recent drop in metalprices and prepare for what’s expected tobe a volatile future.

“This industry is undergoing a tremendousamount of change, which makes it very

exciting,” says Mitch. “There is a healthyshakeout underway that is going to end upmaking the industry a lot better.”

Coeur’s recent moves are also part of itsfocus to be among the most-attractivemining companies for stockholders,particularly as Mitch hopes more investorsstart returning to the sector.

He acknowledges many investors havebeen scared off by the industry’s bigspending past, decisions that left a numberof miners in nancial turmoil as a result ofthe recent slump in commodities prices.

What’s more, companies are competing with other forms of investment suchas ETFs, where they don’t have to riskputting their money into one stock.

“Companies are being forced to rethink‘What is their purpose for investors,

why should investors buy the shares of amining company?’” says Mitch.

Coeur is working to attract more investorsby further de-risking the company andtrying to provide a more stable platformof high-margin cash ow to generatestronger stockholder returns.

The company, which has a growing silverand gold portfolio, has assets in theUnited States, Mexico and Bolivia. It alsoowns strategic minority shareholdingsin eight silver and gold developmentcompanies in North and South America.

In 2013, Coeur expects to producebetween 18 million and 19.1 millionounces of silver and between 250,000 and258,000 ounces of gold. Cash operatingcosts per silver ounce are expected to bebetween $9.50 and $10.50 for 2013. At itsKensington gold operation, cash operatingcosts per ounce for 2013 are expected tobe between $950 and 1,000.

Mitch says the company plans to reducecosts across its operations, and furtherexplore in areas with the most potential.

“In the past some in the industry havefocused on growth for growth’s sake andestablishing as much scale as possible,” hesays. “You don’t have to be the biggest tobe the best in this industry.”



What foreign exchange rate do you use for the followingcurrencies in your mine planning?

Year US$: Canadian US$: Australian

2011 1.01 0.97

2012 1.00 1.00

2013 1.02 0.96

Metals predominantly mined

71%

32%

25%

GoldCopperSilver

How have you raised nancing on the past 12 months?

0 10 20 30 40 50

Equity

Corporate debt

Project financing

Royalties

Streaming arrangement

No financing raised

%

Points of interest

26



59%Expect to increase

corporate developmentactivity in 2014

78%Do not plan on

hedging their principlecommodity in 2014

0 20 40 60 80 100

North America

South America

Europe

Africa

Australia

Asia

What geographical region(s) does your business cover?

What have you done with your dividends in the past year?

Maintainedat the same

levels

8%

Decreased

6%Increased

5%Have not paid

dividends

81%

2





Photo courtesy of KGH



Global

Global Mining LeaderJohn GravelleCanadaT: +1 416 869 8727E: [email protected]

Steve Ralbovsky U.S.A T: +1 (602) 364 8193E: [email protected]

Ronaldo ValinoBrazilT: +55 (21) 3232 6139E: [email protected]

Jock O’Callaghan AustraliaT: +61 3 8603 6137E: [email protected]

Jason BurkittUK T: +44 (20) 7213 2515E: [email protected]

Hein BoegmanSouth AfricaT: +27 11 797 4335E: [email protected]

Ken SuChinaT: +86 (10) 6533 7290E: [email protected]

Kameswara RaoIndiaT: +91 40 6624 6688E: [email protected]

Sacha WinzenriedIndonesiaT: +62 21 5289 0968E: [email protected]

Frank RittnerRussiaT: +7 (495) 232-5536E: [email protected]

Contacts

Key contributors

Amy Hogan

James Lusby

Sachin Mehta

Joe Rafuse

Chris Sullivan A special thank you to writer Brenda Bouw

Sources

Bloomberg

Capital IQ

Intierra

World Gold Council

ETF Securities

A special thank you to the executives

we interviewed for this report.To view the full interviews visit www.pwc.com/ca/commoditiesdig

Documents

223332 Global Commodi