Ninepoint Silver Equities Class

May 2018 Commentary

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May was a quiet month for silver as the metal was range-bound and closed the month essentially flat at US$16.43 /oz (+$0.10). For the month of May, the Sprott Silver Equities Class returned 1.1% versus the MSCI Silver Select Index, which added 1.6% in the same period.

This month we would like to highlight silver’s growing use in the automotive industry due to its shift toward electrification powered by solar technology. Lithium and cobalt, two key battery metals, are currently in the spotlight, but investors should also understand that silver has a critical role to play in the shift to electric vehicles (EVs) and the growing demand for fossil-free forms of energy generation to support electrification. A new report out from the International Energy Agency, Global EV Outlook 2018 , estimated that over 3 million EVs were on global roads at the end of 2017, potentially growing to 125 million by 2030. As countries make this transition from internal combustion engines to electric and hybrid vehicles, combined with the desire of many countries to move away from coal-fired and nuclear-generated energy, solar energy will continue to grow in importance. As the technology boom fuels a dramatic shift in the vehicles we drive, the trends could give silver a turbocharge. In fact, last year the auto sector’s demand for silver grew 5%, while silver demand in photovoltaics increased 19%.

To understand how countries are adjusting to electric and self-driving vehicles, look to Asia where a new solar-powered road being constructed in Jinan, a city in eastern China. What’s unique about this 1,080-meter-long (3,540 feet) road is that it’s paved with solar panels according to Bloomberg . Transparent concrete covers the panels, which will power the highway’s lights and nearby homes.

Solar panels, known as photovoltaics (PV), have become a growing source of demand for silver. These panels use silver paste, which contains about 90% silver powder. As the use of these solar panels increase, the need for more silver should follow. The tonnage of silver paste used within PVs is expected to grow 10% by 2020, according to PV silver paste developer Heraeus Photovoltaics. Looking further out, BMO Capital Markets estimates that silver demand for PVs will double by 2025, accounting for 15% of silver consumption and improving industrial demand.

The architects of the Jinan road have a grand vision, eventually charging electric vehicles’ (EV) batteries when riding along the stretch of highway, once wireless charging technology becomes practical.

That’s not the only opportunity coming from EVs. While China’s road is unique, other countries are increasing the amount of electric charging ports to keep up with stricter carbon-reducing policies. Volkswagen has embraced this trend, announcing in April that it would add EV charging stations to over 100 Walmarts across the U.S. Porsche (a subsidiary of VW) has committed to building 500 such stations as well. Where will the electricity for these ports come from? Solar panels.

China estimates that self-driving vehicles will account for about 10% of all cars on the road by 2030. No doubt, the solar-paneled road will provide fine-grained geo-location and traffic data, supplying autonomous vehicles with additional information to cruise without a human driver.

Silver also benefits from this trend, since it’s a key component in technology within vehicles. With more technology, you’ll see more silver in cars, particularly in the tools that protect riders. For example, silver is a component in operating collision avoidance systems, like cameras and sensors. If there’s suddenly a mass-market need for these automated features, then automakers will likely require more silver.

The three largest contributors to May fund performance were Wheaton Precious Metals, Pan American Silver and First Majestic Silver. Wheaton Precious continued to benefit from the January announcement of restructuring the San Dimas mine streaming agreement. The deal removed the overhang on the stock concerning the viability of the previous operator of the mine. Similarly to Wheaton Precious, First Majestic re-rated on the back of announcing the deal to acquire Primero Mining and its flagship San Dimas gold-silver mine in Mexico and concurrently restructuring the silver streaming agreement. Pan American reported a strong Q1 with lower costs and a strong balance sheet as the company focuses on growing production while generating free cash flow.

The three largest detractors from May performance were Industrias Penoles, Dolly Varden Silver and Americas Silver Corp. Penoles sold off on uncertainty surrounding the Mexican presidential elections taking place on July 1st, 2018. Dolly Varden announced that drilling will begin in June and the exploration program will consist of ~25,000 meters in 60 to 75 holes. The program will focus both on resource delineation and discovery of new mineralization. Americas Silver reported a slightly weak Q1, but showed progress in developing the San Rafael mine, which will start contributing low cost production in the latter part of the year.

Maria Smirnova, MBA, CFA

1 All returns and fund details are a) based on Series F units; b) net of fees; c) annualized if period is greater than one year; d) as at May 31, 2018; e) 2012 annual returns are from 02/28/12 to 12/31/12. The index is 100% MSCI ACWI Select Silver Miners IMI (CAD) Index and is computed by Ninepoint Partners LP based on publicly available index information.

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