Investing in Silver 101 With Peter Krauth

0:08 Hello everyone and welcome to a 6 webinar. My name is Peter Kraut and thanks for attending. Today we're going to talk about whether and if so how you should invest in silver. So let's just start with silver itself and understand a little bit about what makes it really quite different. So silver is unique. If you look at all of the metals around, both base metals and precious metals, silver is really the only one that is both. It's considered a monetary and an industrial metal. That's been the case for, well, industrial metal has been a shorter time, but it certainly has been money for thousands of years. If you go back as far as 5,000 years in fact, silver was the first true international currency.

0:55 So there are many aspects of silver that make it ideal as money And if you look over those 5,000 years, it was almost continuously used as money. And it's only in the last 50 years that silver has been removed from our coinage. And today, the currencies that we have that are unbacked by anything of value, really only trust, is an experiment. We've never lived an extended period like that. And unbacked currencies tend to go to their intrinsic value which is essentially 0. So let's move on. Right now official inflation is running probably north of 8%. If you look at unofficial inflation and you consider other measures, it's probably almost double that.

1:45 The debate often comes up, is silver an inflation hedge or not. And so I actually went back and looked at the price of silver over the last 100 years and saw that in 1922, so 100 years ago, silver was actually priced at 68 cents an ounce. And if you use the US's own CPI inflation calculator, and that runs about 3 or 3.2% per year over that last 100 years, Silver really should be trading right now at about $11.60. And yet, silver today is running close to $19.50. So it has nearly doubled official inflation. And so, for me anyways, on that basis I certainly feel that silver has been a fantastic hedge against inflation despite its volatility over longer periods of time.

2:39 Let's look at silver demand a little bit. What makes up the silver market? How is it used? So about 0.5, in fact, it's actually 54% in 2021 of silver was used in industry. And we'll talk about that a little bit more, but actually the main applications are the most interesting perhaps and growing applications are things like solar and EVs and electronics. So silver is about half of silver goes to industry and about if you look if you add up the other different parts of that pie chart physical investment silverware jewelry other than photography most of the rest is some form of investment so 22% goes to coins and bars 17% goes to jewelry 4% silverware and then finally 3% photography and interesting note I just read recently that Kodak is scrambling to hire people to process the old old-school film which uses silver because it's becoming a new a new trend.

3:46 So what we've seen in the last couple of years is that investment demand has been exploding. It probably will dial back perhaps a little bit on an official basis this year, but the outlook is very strong. When we look at growing debts and inflation, silver will very certainly kick in from the investment demand side. And so we're experiencing supply shortages. That's something that's ongoing and I will look at that a little bit more as well. So some of the uses for silver on the industrial side. Silver is actually the most reflective and the most conductive of all materials, all metals. That makes it crucial in technology. Solar panels are the single largest use for silver.

4:34 12% of all demand goes to solar panels. The supply of silver on an annual basis is about 1 billion ounces. About 20% of that is recycled and about 80% is mined silver. So 113 million ounces or 12% of demand actually goes to, as I say, just 1 use, solar panels. And with the green revolution, we know that solar panels are actually the cheapest new form of added energy in many countries, and certainly governments are behind supporting the installation of solar panels to generate electricity because of the cleanliness aspect and the lack of carbon emissions.

5:23 Automobiles are a significant driver as well. EVs are obviously on the rise. They in fact use twice as much silver as the internal combustion engine. Currently the automotive sector uses about 60 million ounces a year and that's expected to be up about 50% in just the next couple of years. So that's driving very quickly. Electronics printed and flexible electronics currently consumes about 50 million ounces a year and that is also expected to rise by about 50% but over the next 8 years or so. A crucial use for silver is medicine. It's interesting to note that silver has been known as a biocide for thousands of years. It kills bacteria, limits infections, it's embedded these days in medical equipment, you find silver nanoparticles in cornea replacements and in contact lenses. So really, silver is crucial to medicine and bacteria does not get used to or adjust for the effects of silver so it's constantly permanently effective against many bacteria.

6:33 I talked about silver supply earlier how it cannot meet demand. Supply is very much challenged at least last year officially supply was growing a little bit about 4% or 5%. We know that demand last year was off the charts at about 19%, so that's nearly 4-5 times the supply growth. And again, solar is a huge part of demand for silver. And this chart is from the Silver Institute and shows how in 2021 we went into a pretty big deficit 5% or so of 50 million ounces. They forecast about 70 million ounces this year. I actually think that's going to be revised even deeper. And so they also think that deficits are going to persist in the next several years.

7:22 An interesting bit of research from Oxford Economics together with the Silver Institute was published not too long ago and it looked at the optimal or potential optimal amount of silver in a portfolio, an investment portfolio. So they looked at the last 23 years, January 1999 to June of this year. And what they did was they ran a number of simulations. They varied the different asset classes, things like stocks, bonds, stocks and bonds from emerging economies and then gold and commodities.

7:57 And so what they did was they adjusted for 3 different risk profiles. Low risk, medium and high risk. And what they found was that silver absolutely was a great contributor to lowering risk in a portfolio and increasing returns. So lowering the volatility and pushing up the return. So clearly over the last 23 years, silver made sense to hold and in the medium risk portfolio that number was about 4.9 so let's say 5%.

8:30 Then Oxford and the Silver Institute decided to look at the next 10 years. They have their own method of forecasting how they think different asset classes will behave going forward. One of the important drivers for silver that they used to adjust was this gold silver ratio, which right now is very high, meaning silver is very cheap relative to gold. And so in any case,

8:56 again, varied the different allocations to different asset classes and saw that going ahead over the next 10 years a low-risk portfolio would make most sense to carry about 5.6%, a medium-risk portfolio 6% and a high-risk portfolio should carry about 5.8% silver. So again, looking forward

9:19 this group feels that it makes sense to hold silver in your portfolio, again to lower risk and to maximize returns. So how do you invest in silver? Well, there are multiple options. The least or lowest risk would have to be physical silver, things like coins and bars. There is a hiccup with that today, and that is that right now these trade at very, very high premiums. In some cases, some coins really right now are trading at as much as 100%

9:51 premium over the physical or over the spot price, the content of silver. There's multiple reasons for that. It's historically out of whack,

10:02 but right now at least there are no signs of that dropping back. Another option is physically backed silver ETFs. This is an area that I suggest investors, if they're interested, they really do some good due diligence because they really are not all the same. Some are absolutely better than others. Then you have silver miner ETFs. This is like a stock. It's a basket spread across a number of silver miners. Then you have royalty and streaming companies, large producers, growing producers, developers, and junior explorers.

10:36 So given the outlook and given the fact that silver is so inexpensive versus gold, in fact Silver compared to all other major metals, other base metals, platinum group metals and precious metals is the only metal that is still below and by the way it's 50% below still today, more than 50% below its all-time high initially reached in January of 1980.

11:03 So silver compared to its history and silver compared to all these other major metals is very very cheap, massively mispriced. And so here we have some forecasts from some noted analysts. You have Rick Rule that believes we're going to see silver north of $50 in the next 5 years. Keith Neumeyer of 1st Majestic sees triple-digit silver this cycle. Citigroup, you'd think quite a conservative outfit, sees $40 silver in a year and as much as $50 to $100 in the coming years. A large, formerly large, commodities manager, Gerring N. Rosensweig, today still active in commodities, in fact thinks that silver could actually reach as much as $500 this decade.

11:51 And as Chen Lin, a colleague of mine, says, silver is really the next lithium in terms of what looks like lies ahead. And he thinks anyone who sells it at $30 or $40 will likely regret it. In my case, I think that the ultimate peak in silver could be as high as $300.

12:10 In fact, I've written a book that was published about 6 months ago called The great silver bull. You can find it on Amazon, paperback or in Kindle. And I go through the history of silver, the current setup and the outlook and the drivers and as well, eventually how to build a silver portfolio. But specifically going back to the previous point in terms of my forecast for $300 silver, I go through multiple indicators

12:38 that all for me point to somewhere close to $300. And I'm not saying silver would go there and stay there, but I certainly think that in a mania, a blow off top, silver could certainly reach that kind of level. So that pretty much wraps it up for me. If you want to follow my work, you can go to SilverStockInvestor.com. You can also follow me on LinkedIn and on Twitter. And that is it for my presentation. So now we're going to move on to the second portion, which is the questions for the panel members. We have 2 members. First, we have Forbes Gennel of Discovery Silver. Forbes, why don't you just give us a quick introduction of yourself and we'll move on to Eric and then we'll move on to the questions.

13:28 Yeah, thanks, Peter. So I very much like some of those silver price forecasts, I must say. So I started off originally in Australia. I worked for one of Australia's biggest investment funds, Trade Addy University. And then when I came to Canada a bit over 15 years ago, I worked as a sell side analyst covering gold and silver stocks. And then I suppose the last 12,

13:53 13 years I've been on the corporate side, working for a mix of exploration, development and operating companies in Gold and Silver. And as you noted, joined Discovery Silver there in the beginning of 2020 as VP Corporate Development. And for those who aren't aware, Discovery Silver owns the Cordero project, which is one of the world's biggest silver deposits located in Chihuahua, Mexico. Excellent. Eric, tell us a little bit about yourself and GR Silver.

14:24 Thanks, Peter. Forbes, it's a pleasure to be on a panel with you. Yeah, I'm originally a geologist, spent some time in the bush, and then about 36 years ago, I went to Bay Street in Toronto, became a mining analyst and then after 34 years as a mining analyst retired in December 2019.

14:45 In the following year in 2020 joined several boards but my primary focus today is on GR Silver. GR Silver is focused on the Plumosas mine area and the Plumosas project surrounding that. We have over 400km2 in Sinaloa, Mexico, where we are building resources and drilling actively with 5 rigs. So I joined the board back in the beginning of 2020, became chair of the board not too many months after that, and then as of March 1st, I'm the CEO of GR Silver.

15:19 Okay, well, thank you for that, Eric. So why don't we just jump right into the first question and that would be, does investing in silver make sense for the average investor? So Forbes, what are your thoughts? Yeah, I mean, it's a hard question. Obviously, the average investor, there's big variables around risk return profile, there's time horizon, etc. But I think you touched on some interesting points there around the diversification benefits that silver has given us very low correlation with the other asset classes. And so I think anyone with that longer term time horizon, look, in and around that 5% range is probably a reasonable number. It is volatile, certainly a lot more volatile than the other asset classes, hence why you need to have that long term view.

16:09 But what also you have to recognize is the cyclicality and that can present some excellent buying and selling opportunities

16:17 as Silver tends to overshoot on the upside as well as overshoot on the downside. And what's really interesting now, obviously, we were at $30, close to $30 not too long ago. We're now back around $20. It's been a pretty big pullback. But as you pointed out, that longer term supply-demand dynamic is actually very favourable. So if you're looking at entry points, I think now is a very attractive point in time for that. Well, thank you. Eric, what are your thoughts?

16:47 Very much in parallel with what Forbes had to say. It's very important for an investor to have a diversified portfolio. We've certainly seen too much in the way of people placing bets on 1 particular stock, that sort of thing. They need to have a very disciplined approach and taking advantage of the unique properties of silver in an investment portfolio is the way to go. In particular, the fact that as you pointed out in your presentation, the idea of 50%, roughly 50-50 between a precious metal and an industrial metal is something that makes silver extremely important in a portfolio. So yeah, I would definitely say that there's an opportunity for an investor with the correct risk tolerance to have some silver exposure.

17:33 Okay, something I just want to add perhaps quickly, I did some calculations and research just a day or 2 ago and I looked at the average silver price over the last 3 years and then the average silver price over the previous 3 years. So this would be say 2016 to 2019 and then 2019 to today and the average silver price roughly in 2016 sorry over the 3 years 2016 to 2019 was about $16 and if you look at the average of last 3 years it's about $22.50-$23.

18:09 So on that basis silver is actually up 40% in the last 3 years over what it averaged prior to that and so yes certainly sentiment is is is weak to be to be to be fair but I think if you look at perspective, you can certainly see that Silver has moved up on average and it's still looking very much relatively cheap, especially given the all-in cost to produce an ounce of silver. So,

18:42 Eric, we're going to jump to the next question. Why don't we do this back and forth like this. You had the last question second, we'll start with you this time. How important is silver in our future? Yeah, you touched on it again in your presentation, Peter, and that is the industrial side of it. I've seen estimates of 10 to 15 percent and you were pretty well in the middle of that for solar panels. So on a global basis, as society is moving towards decarbonization and increasing exposure to the renewable side, solar is a key part of that and silver

19:18 is a key part of the solar panels. And so that's a key part of any portfolio is having exposure to that decarbonization theme. I'd also point out that physical inventories have declined rapidly recently and so hence those high premiums that you were talking about. So it's important to have exposure to any metal where we're seeing a rapid decline in inventories And where prices are beginning to reflect that.

19:48 Thanks. Forbes, what are your thoughts? How important is silver in our future?

19:55 Yeah, look, I think it's often overlooked. Silver's virtually in every electronic device that we use. And so as the world shifts to more towards more automation, more electronics, etc. Those unique qualities you highlighted in terms of conductivity and obviously being very ductile and those devices becoming smaller and smaller, I think absolutely it's going to play a critical role. And it is evolving. I mean, even some recent studies out on using silver, a silver carbon layer in lithium-ion solid state batteries. I mean, if that technology plays through, it's going to generate a much more efficient battery that has a much lower risk of catching fire. And so that could be a potential game changer. But I think with that general theme of more technology playing a bigger role in our future. So it was going to be a key part of that. And then look, certainly on the other side, the investment side, I think the trust in central banks,

20:58 governments, et cetera, I mean, it's pretty low right now and with not a lot of optimism looking forward. So given that long track record of being a store of wealth over the centuries, I think there's also an important role to play there. Yeah, that makes sense.

21:14 Why don't we jump to the next topic? So we'll stay with Forbes again in this case. So Forbes, what do you think? How should investors go about investing in silver? What kind of research, what kind of approach should they take?

21:29 Well, Yeah, I think you touched on the investment vehicles and so to really, I suppose, take a step back. You call those 2 probably main vehicles. 1, you invest in the physical and 1 you invest either in the equities or the stocks. And so on the physical side, you're either looking at coins or bars

21:48 or through one of the ETFs, the SLV, PSLV are the big ones. So investing in the physical, lower risk, lower return. If you're going to look on the equity side of things, then you're looking at a higher risk, higher return. And the equity, you've got a choice between the streaming companies, producers, operators, developers and explore codes. And look, I think you've got to keep it simple. Really focus on Companies that have great assets, great teams and a track record of surfacing value over time.

22:23 But I think a pretty mix of probably maybe 0.5 on the physical side, 0.5 on the equity side would make sense as a rough guideline too. Okay, thanks. Eric, what are your thoughts? Yeah, we always call that the barbell approach, where on one hand, you've got those really safe ways of approaching the investment in the space. So you've got physical and you've got the large producers. On the other end, the other barbell, you've got this exposure to, as you said, Forbes, the high risk, the higher risk, the higher potential returns, and that gives you a balanced portfolio. But I think one thing is right from the very beginning is having a very disciplined approach to the space. It's like I said earlier, it's too easy to go on hot tips and go for the placing a bet, looking at it as gambling, when it's not. It's a science. You do your research on your companies, as Forbes said, you want companies with management expertise and so on.

23:17 But you do want to have a disciplined approach, including your exit strategy.

23:22 Makes sense. Something that I kind of want to maybe add to that is, you know, investors, especially if they're new to investing in silver, shouldn't feel like they have to have exposure to all of these different silver investment options right away. They can certainly start out with the lowest risk and participate in that and even that buy gradually in do some dollar cost averaging whether it's physical silver whether it's an ETF or even a large producer or royalty company. Buy in gradually, split your purchases into multiple, maybe 3 purchases, spread that out over weeks and months. That will lower your risk and you'll build some confidence, you'll build some understanding, you'll see how these stocks move around and react and then you'll perhaps become gradually more comfortable with moving to the next sort of higher level of risk and you can certainly do that gradually.

24:18 This bull market in my view is 1 that's going to run for a long time, several years, people should not feel rushed to get in. But as you say Eric, I think too that people should do this in a disciplined way. As you say, Peter, I think taking advantage of those pullbacks as well. Yes. I think we talked around the volatility and if you can be patient enough and strong enough to make volatility your friend, it obviously throws up a lot of good buying opportunities there.

24:50 Absolutely. Absolutely. And so, you know, you as you say, you can use that volatility if you've made an initial purchase, you see the stock price goes down. If your investment thesis hasn't changed, if you're still comfortable with it, that just means that the market has mispriced it. And so, you know, that's one of the things that I find interesting as individual retail investors. We actually have a leg up over some of the big guys, the institutional investors, the

25:19 fund managers, because they can only buy companies of a certain minimum size. They have to trade on certain markets. They have to have a certain amount of volume. And as retail investors, we don't have those limitations. We can buy companies and we're not concerned with, I mean, obviously we don't want volatility, but we can take advantage of the volatility. We can take advantage of the company size, something being mispriced.

25:45 Sometimes you have some juniors that have very large cash positions. Sometimes their cash positions are more than 50, 60, 70% of their market value. And so if the projects are sound and the management is sound, that could be a relatively low risk kind of play. So these are the kinds of things that I think people can look out for and as I say, again, reduce their risk. Let's look at where perhaps junior explorers and developers fit in the investment mix. How do you feel about that, Eric? Yeah, I like to point out the Lassonde curve at this point. The Lassonde curve is well known in the industry and if you're not familiar with that you should Google it. But it describes basically the life cycle of a company and it identifies 2 key points, entry investments points.

26:45 One is as exploration is occurring and we get drill results and as a new exploration program is taking off. That's a fantastic entry point for higher risk tolerance investors. The second entry point is after a company has commenced construction and we have a good handle on the timeline and the budget, is this project being developed within the timeline, within budget? Generally on average, we see a lift of about 100% in the value of that project as we come up to first cash flow. So those are the 2 entry points to consider. Points to consider not investing is as exploration gets a bit longer in the tooth before a feasibility study and incremental ounces or tons or pounds, whatever's being added to it, aren't really adding to the value of the stock anymore.

27:42 Secondly is when, okay, feasibility study's been delivered, we know what it's worth. Money has been raised or the company's waiting to raise that money. Generally, a stock will trade off at that point because there's a huge amount of execution risk on delivering that project towards cash flow. So, always consider the timing and the Lausanne curve describes that extremely well. Thank you. That's certainly something that you're right. I think that investors should get familiar with the Lausanne curve. They can Google that and take the time to understand it. It's not especially complicated, just they need to realize that companies move along that curve and what the opportunity and what the risks are as you move along the curve.

28:31 Forbes, what are your thoughts? Where do junior explorers or developers fit in the investment mix? Look, on the equity side, the stock side, I think they play an important role. I think if you look at the overall trend of the bigger producers going out and buying gold assets. We've seen Pan American, Core, Heckler, 1st Majestic, Fortuna Silver all go off and do that. So their level of silver revenues has actually come way down and in a lot of cases is well below 50%. So it's actually the developers and the explorers where you're getting much higher exposure to that silver, given that silver percentage revenue is typically or often above 50%. So there's a key role to be played there.

29:16 And I think certainly along the lines of what Eric was saying, if you're looking to explore coast, you really need to focus on the value they're adding through the drill bit and the ounces they're adding through the drill bit, because that's how you're servicing value. And then the developers, absolutely there's a Lassonde curve there too. But if you have a good project with a high quality team and you can sort of successfully execute as you move through going from the PEA to PFS, FS through construction into production, then there's a huge re-aiding that sort of comes with that. And with those sort of sell-offs that often happen during that period, because those stories can go a little bit quiet, but they also present buying opportunities too. When you look at the multiples, the companies who are in production are trading at, which is often above 1 times the net present value of the project versus 0.2 or 0.3 times the net present value of the project, the company is more at the PEA stage.

30:19 So, but yeah, overall, certainly they play a key role and I think certainly high risk. So you really need to have that basket approach where you're owning maybe sort of 5 to 10 names to sort of spread that risk and make sure you're not putting all your eggs in 1 basket. Sure, it makes sense. If I could just jump on to a point that Forbes made earlier about cyclicity and such. Believe it or not, we are into an upswing of the TSX Venture composite. And it's a metric that I've been following for 40 years. And the TSX Venture composite, its predecessors, obviously, it's not all mining, but a good chunk of it is. It's about 60% dominated by mining. And in that sense, it bottomed in March 2020 on the COVID low. Let's call it the COVID low. And since that time, they rebounded by 160% in the year that followed. And it's backed off since that time on US dollar strength and concerns about global economics.

31:21 But we're still up 50% from that COVID low. And so I think as we get closer to seeing the US Fed pivot, a slowing in the rate increase that we've been seeing in the US and globally, that we're going to have that next leg up. And that speaks, Peter, to what you said earlier about believing that there's some run left to this bull market. I couldn't agree more. The other thing you have to keep an eye on is seasonality. Over the last 4 decades, the fourth quarter of the calendar year delivers the best returns over sort of that 2 to 6 month time horizon and investment time horizon. That Santa Claus rally in the wake of tax loss selling is a real thing. Okay, And it's something that you need to take advantage of. So it comes back to what you said before about timing, taking advantage of pulling back, anything like that. So we're coming into a very strong period, actually, if you're looking for that 2 to 6 month return right now.

32:15 Thanks. Yes, of course, that makes sense. Something that I wanted to point out, add on some research I was looking at recently, I looked at mining companies, as well as the precious metals, in particular miners, the larger ones, and they are extremely profitable these days. Over the last decade or so, they've become a lot leaner and they have tremendous cash flow. What is interesting is that they're not spending that on CapEx. And so they're not replacing overall, they're not replacing their depleting reserves. So they do some brownfields exploration a lot around their existing mines and below their existing mines and so on.

33:04 But they've really sort of delegated, I think, a lot of that greenfields work to junior explorers. And so I think that not only has Capex not kept up, And so production is going to be challenged, but also M&A, there's a huge gap in M&A if you look at what happened in the 2000s. So up until about 2011, 2012 or so, as the gold price rose, M&A soared and CapEx soared. And then in the last, if you look at the last sort of 8 years or so, the gold price moved sideways for a fair bit of time and then started to climb. This would have been sort of late 2018 or so, corrected of course in 2020, but it really started to climb and if you look at the numbers, CapEx, both CapEx and Exploration are far behind levels of say 2010, 2011, 2012.

34:05 So there's this big gap that needs to be filled. They're very likely, I think, to start spending on exploration and on acquisition. And trying to find good quality silver projects that are profitable to mine, that are in good jurisdictions, that are run by good teams. You can almost count them on 2 hands these days. And frankly, I think that there's a lot of potential where we're going to see and you know, if we go back and look at a little bit at a higher level, we talked about the overall potential for silver as a high-tech metal. The Green Revolution, all these kinds of things. Silver is going to be a whole lot more in demand and I think we're going to be surprised at how some large producers and maybe even some mid-tiers are going to start getting active in the, as I say, both in the CapEx and in the acquisition side, mergers and acquisitions.

35:05 So I think that's something that people should keep an eye out for. It might take a little while to play out, but over the next couple of years, I think That is something that is going to start to really start to push these equities higher. Let's move to the next question. Forbes, how about this? What should prospective investors look for in an explorer slash developer? What are your thoughts? Yeah, I think you just sort of hit the nail on the head when you talk about people and projects. But obviously there's layers underneath that on the project side. I think any explorer needs to aspire to outline, call it a tier 1 project. If you're a developer, ideally you're already sitting on a tier 1 project.

35:51 And it's a term that gets thrown around a lot, but there's subjectivity around what that would classify. But you could argue in the Silver space, tier 1 probably means plus 15 million ounces of Silver production over a 15-year mine life in the bottom half of the cost curve. And I think if you can deliver on those metrics, certainly you're going to stand out a part. And certainly, as you pointed out, Peter, given a declining reserve profile overall in the industry, there'll be a lot of strategic appeal for those tier 1 type assets. You also want an asset that's capital efficient. You don't find having a big asset, but if it's going to cost you billions and billions to get it built, there's going to be huge hurdles there. And typically these days, as a measure of capital efficiency, people look at the NPV, the net present value to the CapEx ratio, and usually anything above 1.5 times is viewed favourably.

36:46 Jurisdiction is obviously very important. You want to be in a place where mining is present already and mining is supported moving forward. And then look, as far as people goes, I think the proof's got to be in the pudding. You want to have the team in place, both at the management and board level. If it's an explore code, they've been able to add value through the drill bit for shareholders over time. And if you're in the development stage, yeah, you want that management team board, the track record of having sort of successfully delivered on development and operations previously in their career. Yeah, it makes sense. I mean, like you say, if you move from exploration and you have a deposit, you're growing it, and the intention is to eventually build it. You want to know that you've got the team that can support that and can draw on experience and resources and so on to get it done. Not an easy thing these days of course. There's always concerns like inflation, running up costs and so on.

37:49 So these are things that investors may want to look for in terms of how that can affect possibly the profitability of the project. Eric, what are your thoughts? What should prospective investors look for in an explorer or developer? Yeah, I always look for the 4 Ps. You know, the project, the people, the place and the price. And so Forbes has done a great job talking about the project, what you're looking for, particularly in terms of what the project's margin might be, bottom in the cost, bottom quartile in cost, that's a tier 1 project for sure. In terms of the people, as you mentioned, you want to have all the skill sets required and one of the more recent skill sets that are required is that socially savvy that addresses the ESG that is demanded by investors these days.

38:37 And then thirdly on the place, you know, what's the vector like? What's happening with the sovereign risk in the jurisdiction that the project is based in? Are things improving there or are things getting worse? Simple question, would you take your kids or grandkids there to visit the site? I think that's a good metric in terms of is it a safe project to invest in. In terms of the price, one thing that I've done for a long time is watch the enterprise value per ounce or pound or ton, whatever the metal is in the ground. Right now, for example, GR Silver is trading at 61 cents US per ounce measured and indicated. I believe Discovery is actually 62 cents, so a very similar place per ounce in the ground. And the mean right now for silver companies is much closer to $1.57.

39:26 So you got to ask, why is there a discount? Why is Visla trading at 5.20 per ounce and plus sign the ground? And there's usually a good reason for it, but it begs that question, why is there a variation from the mean of the peer group? That's for earlier companies, as you get more advanced and they put out a technical study, you look at where is the company trading relative to the NPV, the net present value of the project as defined in the technical study. So lots of projects are trading at around 0.8 or 1 times NPV depending on what the discount rate is. Why is another project trading at 0.2 or 1.5? Again, it asks that question. Why is there variation with the mean? And you sort of dig into that. Well, that's great. Those are some great metrics for people to look at to consider the relative costliness or bargain for that particular company. But like you say, there are so many factors as well that can influence the discount or the premium.

40:28 So I got one more question and then we can jump to the viewers' questions. What questions should a prospective investor be asking a company that they have some interest in? What are your thoughts, Eric? Well, I think one of the first ones is, what are the next key project catalysts or milestones? And are you fully funded to achieve those? That's really germane in this particular environment where you've got one of the worst equity markets for funding in 40 years. And so, Okay, are you fully funded? If not, what are your plans to achieve those milestones, those catalysts? What are your plans B and C, options B and C, if the market isn't there for you? That sort of thing is I think one of the key questions.

41:14 How about we bounce back and forth, Forbes? I know we've got several questions. Forbes, your thoughts. What questions should a prospective investor ask a company that they have some interest in? Yeah, look, it comes back to Eric's comment on the previous question around price. I mean, I think any investor looking at any opportunity really has to understand that risk return set up for that investment. And so you want to really be confident that management is thinking through that value creation, that shareholder value creation lens. And the question is, OK, well, what is the value proposition here? How are you going to go out and create shareholder value? And ideally, you want a response that's almost quite quantitative in nature. And so we talked about value of ounces in the ground.

42:00 OK, But if your discovery cost is 20 cents an ounce and you're getting value in the market of 50 cents an ounce and that's still cheap, that's a pretty good setup because you're obviously adding value through the drill bit. And similarly, if you're a developer company, you're trading at 0.2 or 0.3 times, but you know that the more advanced developers or even the producers are trading above 1 times their net present value. You can see there's obvious value, multiple expansion as you sort of work your way through that transition. So I think it's important that management teams are looking at their companies around how they're ultimately going to create shareholder value and it will ultimately help the prospective investor get a better feel for that risk return profile. That makes sense. So that's the last of my questions. What I would like to do is encourage viewers to submit questions. We have a few we can get started with, but certainly we have some time left, about 15 minutes or so. So, we Welcome any further questions. I'm going to start with this 1. First one here concerning supply chain and demand for the green revolution.

43:09 How long before demand outstrips supply and how long will it take the mining sector, I guess, to meet that demand as demand grows. So anybody want to take that? Well, a good question for you, Peter. Well, frankly, given what I said in my presentation, my thoughts are that we're in some ways already there. Last year had a supply deficit. There's 1 this year that has grown from last year, grown significantly in fact, and as I say, I do believe actually that will get revised even deeper. And so the Silver Institute does a lot of great research and they think that the supply deficit is going to be ongoing for the next several years at least. And so I think we're there and I think that that deficit is going to only worsen because as the viewer asks about the demand for the green revolution for silver, the demand is only going to grow.

44:13 And if you look at supply, The silver market is very, very challenged when it comes to supply. It peaked in about 2016 in terms of mining output and then dropped into 2020 when we had COVID. Of course, many mines shut down, so that was an odd year. It's grown a little bit since then, but it's suspected to only peak in the next couple of years once again. That's the longer term outlook. In the next few years, mining output might actually peak once again and then start to fall off. There's a reckoning ahead, I think, and the only way that this can adjust is with much higher silver prices. So I think that as I say, from my view, it's not going to we're already there. It's only going to worsen and that makes a great setup for silver.

45:03 If any of you would like to add anything, certainly feel free. Yes, as we talked about earlier and as pointed out by one of our viewers here, that the physical inventories have been falling dramatically in the recent history. That's an expression of the demand that we're seeing, but it's also an expression of how slow mine supply is to replace those inventories or to meet that demand. And when you look at how much of mined silver is not primary, in other words, it's related to a byproduct of a gold mine or related to the byproduct of a lead zinc mine, the silver market is not in its own control. It's something that's secondary and so until we see more companies, the silver producers ramp up silver production, we're not going to see equilibrium in that market.

46:01 So that's a point. It's an increase in silver price that's required to adjust that. Exactly. I do want to maybe add a little note to that. Interestingly pointed out that silver, most of silver is not mined as a primary metal and so just for the sake of information for the viewers about 75% or so of silver is actually 70 to 75% is mined along with other metals So that's silver comes from producing gold, copper, lead and zinc for the most part. And so that's how it's found in nature. It's not very often found by itself. So the production of silver depends a whole lot on producing these other metals. If there is a recession, a slowdown and a slowdown in demand perhaps for base metals, that could certainly affect the production of silver.

46:57 If those miners decide for some reason to slow down their output, It's not the easiest thing to do, but nonetheless, you could see at least perhaps delays in new projects. There are all kinds of ways this can affect the silver output. And so again, silver, as you say, is not the master in some ways of its own destiny on the supply side. And so very specifically, I talk about this in the book, in fact, that silver is considered relatively supply inelastic. So if the price goes up it doesn't mean you're gonna get more silver produced. In fact you may get some producers tapping parts of their mine that is actually lower grade with the higher silver price because they can make similar profits to when the price is lower. So tapping lower grades might actually help push silver output even lower.

47:58 So these are all sorts of dynamics in silver mining, And as you say, based on how much silver actually comes from primary silver mines. One of the reasons I think it is sticky is because you look at the big primary silver mines globally, they're all underground mines. And so you can't, there's a natural throughput rate, there's a natural mining rate there that is always going to have a bit of a ceiling on it. And so there's not that ability to respond. And You can play around with grade and focusing on different high grade, medium grade, low grade parts of the deposit. But in terms of the actual volume of tons you're mining each year, you can't dial up and down. And certainly, when you talk about the byproduct, lead zinc is when they reduce the most amount of silver as a byproduct compared to copper and gold mines.

48:53 But there haven't been any big sort of zinc mines come online for a long time. And I can't remember back to when the last big zinc mine came online. So certainly when you look ahead at the medium and long term point of view, I think that demand, the supply side is fixed to sort of trending down versus a very strong demand profile. Absolutely. Quite ironic that a lot of the primary silver producers over the last 10 years have been very proud of their diversification into more gold at a time when we actually need more silver. Isn't that often the case? An interesting question here, will silver play second fiddle to gold forever? If a significant use for silver was found and demand outstripped supply, is it possible that silver can topple gold?

49:43 So either of you would like to have at that? I think they've always tied to the hip. I think the longer term correlation of silver and gold is around 0.8. But you look at the gold silver ratio, I think it's a low of around 18 times versus a high of around 120 times. And the long term average is 65 times. Right now we're around 75 to 80 times. So we're certainly above that long term average. So there's a long term profile that skews a more favourable outlook for silver versus gold. But yeah, there are some of those big game changing dynamics in the background for silver that gold doesn't have. And certainly the big push to renewables, especially solar, I think that's going to underpin some strong performance tied together with that sort of undervalued to Gold on that long-term basis when you look at the Gold-to-Silver ratio too.

50:43 I'd say it's an interesting thought experiment, but I would suggest that there are more low-grade Gold deposits out there that are well known and well investigated than there are low-grade Silver deposits. And I wonder if you did have a price rise, even if you did have a big demand from a new application or a new demand source, I think it would be very difficult for the industry to rapidly address that. So I'd hesitate to say that there's a real opportunity there. I would. Good point actually, Eric. I mean, you think around up and coming gold developers moving into production in the next 2, 3 years. I mean, you've got quite a number there between Skeena, Marathon, Kote Lake, Magino, etc. But in the silver space, you've had Mag and Silvercrest now move into production already.

51:44 We are in the developer space, but a little bit earlier, we've still got to deliver a pre-feasibility study, which will be early next year. But there's not a lot of up and coming sort of silver development plays that are going to fill that potential demand also. So I think to what you were saying, Eric, and back to that gold-silver ratio, there's some favourable dynamics in terms of that longer term supply outlook when we compare both those metals. Yeah, I mean, I just want to add a little note, and that is that Given silver's demand profile, so roughly 50% industrial, 50% investment, that certainly clearly sets it apart from gold but also from base metals and so on. I think that if you look at that mix, what I think we're going to see over the next several years is that the demand side from industrial is going to help keep a rising floor under the silver price.

52:46 And then when you get some sort of financial crisis, some kind of chaotic event on markets, the economy, etc. That it's the investment side of silver that's going to kick in and just kind of drive it dramatically, potentially higher. So, you know, it's got this dual function, but I think they're both going to help push it higher, just that they'll act different ways on the price. One other question from Sam, he's asking, Comex is being drained last month, about 35 million ounces registered now. Can you share some thoughts on the decline of the Comex and the consequences if the decline persists?

53:32 Do you have some thoughts? Look, it's interesting times. I mean, if some of that has to be delivered in the physical, then, Yeah, that's where things can get crazy. So that downward trend has been very persistent here. I think it points to some of the supply demand dynamics we're talking to. But Yeah, there's been huge physical demand. I mean, even a lot of the export numbers into India, I mean, they've been sort of going through the roof. They're obviously very savvy buyers. So what happens if that gets us here outside of a very big spike in the silver price.

54:20 I'm not sure if either of you 2 have predictions on what that could look like. Last year We had the great silver squeeze concept that was in the market, right? And that did not really materialize. The paper market is very sophisticated and of course some people would argue it's highly manipulated. If we see that sort of thing in the paper market at the same time as we see the physical drawdown that's certainly very real, that sets one up for a rather significant run up in the silver price. And I think, Peter, that speaks to the slide that you had on various projections on price, including some that are triple digit.

55:11 That's the sort of thing you need to get into the triple digits, is to have some sort of crisis in the paper market that then spills over. I would certainly have to agree. We've got about 5 minutes, let's try and maybe do another question or 2. Futella asks, most mining companies usually target Gold with Silver piggybacking as a by-product, but are there exploration companies that are purely focused on Silver, irrespective of its ratio with Gold? Yeah, I mean I can jump in there. GR Silver has the Plomosis project. On the Plomosis project are 2 areas. One is a former lead-zinc mine that has a very strong Silver and Gold component to it or credit to it.

56:00 That's the more traditional thing that one sees, but 5 kilometers to the south, we've discovered the San Marcial deposit, and then a new discovery just southeast of that, cleverly called the Southeast Discovery. Both San Marcial and the Southeast area are about 90-95% by value silver. So yes, there are projects out there that are delivering primary silver to the market and certainly since the time that we started to announce the intersections that we're getting there, that we are definitely getting attention from the producers out there that are saying, OK, there aren't too many pure or near pure silver plays out there. But with a bit of research, if you look at the companies that are out there, there are definitely pure silver stories out there. Thank you. The other areas, I mean, if you look in Bolivia and I think IAS Silver in Morocco, where they're actually 100%, typically there's obviously some other metals in the background there.

57:01 They're the only ones I can think of that have that pure silver element to them. Yeah, I would agree. Those are the 2 names that stand out for me as well. Let's go with this. David is asking, Discovery Silver has been defining their asset through drilling for many years. When do they expect to make a construction decision? All right. So for context, we put out a preliminary economic assessment at the end of last year. We're going to be delivering a pre-feasibility study early in 2023. So right now we're sort of all hands on deck with that. So it's going to be a very big catalyst for us. And then We plan on delivering a feasibility study, call it 12 to 15 months after that.

57:52 And at that point in time, when we'd be making that construction decision. So it's still, that timeline is still to be defined post our pre-feasibility study, but call it first half of 2024 for that construction decision. The timing is pretty interesting, obviously, if you allow for a two-year construction period and some of the supply-demand fundamentals play out as we've discussed. I mean, that could be the perfect storm for us in terms of starting that initial metal production with some very strong tailwinds. Sure. We're going to have to shortly wrap up. Forbes, since you were talking about Discovery, do you want to maybe tell us a little bit more or give us a quick overview of the company?

58:38 Sure. So our flagship project is Cordero. It's located in Chihuahua state of Mexico, so one of the very active mining states in Mexico. The total resource is over 1 billion ounces of silver equivalent. So that makes it one of the world's biggest undeveloped silver deposits. And we're looking at putting out, as I said, a pre-feasibility study early next year. We're sort of hoping to outline a 15 to 20-year mine life with production somewhere around 25, 35, 25 to 30 million ounces of Silver equivalent. So that will make it, call it a top 3 primary silver mine globally. It's a big open pit, so it's very different to a lot of the underground operations we've referenced earlier.

59:25 And because it's an open pit, we can stage the sizing of the plan. And so the initial plan is to start around 25,000 tonne per day, expand to 50,000 tonne per day using internal cash flow. But that helps keep that upfront capex down. So certainly very, very attractive metrics. And we've got a very good team. Tony McCooch is the interim CEO. He joined the board here earlier in the year. And then Tony Esplin, he's our chief operating officer. He's run some of the biggest gold mines globally with Newmont. So Yanicotcher and Boddington, Merion to name a few. So, exciting times ahead. But right now it's all focused on a pre-feasibility study started next year.

1:00:11 Okay, thanks for that. Eric, last word, if you'd like to give us a minute or 2 overview of Vigiara Silver? Sure. As I've mentioned, we have the 400 square kilometre plus Plumosis project in Sinaloa, Mexico with excellent infrastructure, including roads and power lines to site, 2 former producers, 2 areas within 5, 6 kilometers, and we're in the process and we're very laser focused on very specific targeted drilling to deliver in the first quarter of 23, and we're fully funded to do so, mineral resource updates for both locations. So I think that's a key catalyst for the stock and something to keep an eye on. Fantastic. Well, thank you very much. I'm sorry to viewers, we didn't get to every question. We did get to many, I'm going to say even most, but we certainly covered a lot of ground and I had a great time.

1:01:10 We had some great discussions on silver, the outlook, the potential and how investors should they invest and how they may want to go about investing in silver. So, gentlemen, thank you very much for your time. I enjoyed the discussion and would encourage viewers to go and look at both of your companies to learn more about them. Thanks for hanging out. Thanks everyone. Thank you. Thanks everyone. It's been a pleasure.