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Commodities Strategy | Metals Quarterly / Monthly

MACRO SUMMARY: the risk pool expands, but positive trade ‘hope’ keeps macro markets contained

If risk/stocks and bonds were any indication, September was a rather tame macro month, but that hides the fresh risks that ap-peared which triggered some chaotic intraday & intramonth pricing. September was defined by renewed ME/ oil risk (Saudi drone attack), new impeachment risk (whistleblower case), repo/funding risk (squeeze in short-term rates), and fiscal policy risk (the growing idea that monetary policy has reached limits), which were offset by the positive hope/sentiment around trade (the mere fact that US & China due to talk in October/currently). Precious metals (ex Palladium) dragged lower in September but remain largely within the bullish trends ignited the beginning of this summer. September looked relatively calm despite the market having to navigate the combustion of a marquee IPO (WeWork), a major turning point in US data (ISM manufacturing), churning in the Japanese bond market and the worst start of a quarter in US equities since 2009. October is jam-packed with event-risk (US/China trade talks & deadlines, FOMC, earnings, ECB & Brexit) - vigilance is required, but doesn't seem to ignited.

Gold: Something is bugging Gold... The series of would-be sizably bullish catalysts the past few weeks (listed above & on page 3) were overlooked due to a persistently strong US$, short-term liquidity/funding stresses, hawkish Fed rhetoric reducing rate cut expectations, trade war ‘hopes’, and profit-taking / positioning downsiz-ing. The purge of tactical length is a necessary development for the longer-term health of the structural gold trade, but with Q4’19 packed with event-risk (Brexit, US earnings, 2 more jobs reports & key manufacturing data and a continuation of trade/geopolitical/US political headline risk), its unrealistic to believe the Fed will commit to a pre-set course after the FOMC. Golds short term direction is slightly less bullish (down from $1500-1600) but dependent on upcoming events that are complicated by the incessant news cycle (something that ultimately bolsters the argument to hold gold as a growing tail risk hedge to risk/equity exposure). $1450 is the hard floor and dips remain a buying opportunity. Further upside (sustained above $1500) is contingent on 1) how aggres-sive the Fed is (does rhetoric begin to match action) 2) U.S data (back in the limelight after ISM & NFP) and 3) any sustained equity market volatility; those drivers have changed from the previous report in which U.S. politics/geopolitics and trade were the core influences of upside price action

Silver: The Gold/Silver ratio was abnormally whippy in September gyrating between 79 and 86 indicative of

evolving macro risk and outsized flows; the Gold/Silver ratio should remain structurally higher given Silvers physi-

cal overhang, a delicate late cycle macro environment, and the lack of CB demand in silver. A fair & “aligned” range (vs Gold above $1450), given a world of negative interest

rates, strong technical momentum and relatively under-owned precious positioning, is $17-19/oz. Upside Silver risk hinges on potential SHFE and/or EM investor inflows into

‘poor mans gold’ as a hedge against weakening EM currencies. Core downside risk (below $16) is contingent on sideways-to-lower Gold prices (drawing in subsequent oppor-

tunistic flows).

Platinum: above ground stocks, weak auto & jewelry demand and record exports out of SA ensure tactical rallies (which are increasingly outsized given the disconnect between

strong investor inflows and the size/liquidity of market) are capped; the next bull run in the short-medium term is unlikely unless we begin to see the clues in physical indica-

tors. Platinum should reset higher reflective of its peers prices (a fairer discount given growing precious interest is $400-500 discount to Gold, just the 1 year average) but re-

quires a catalyst outside of being a cheap proxy for gold/precious exposure.

Palladium: prices busted into a new higher range $1600-1700 in September given renewed near-term metal unavailability (driven by a mix of investor interest, a physical over-

reach by consumers on SA supply-fears, while secondary supply and liquidity was bottlenecked and limited). There is no change to the fundamental auto emission thesis, so

some participation on dips, as Palladium remains in a structural bull market, makes sense. However, the later the business cycle becomes, the more downside risks grow given

how susceptible palladium prices are to risk assets/SPX especially with investor holdings somewhat saturated (up at 1.8m oz).

Rhodium: Physical availability tightened recently and together with demand from OEMs and OTC investor inflows remaining strong, the move through $5000 was exacerbated.

With seemingly no substitute in sight to fight emission/Nox limits, the bottlenecks created by recycling issues, ETF outflows (associated with price rises!), and the illiquid &

opaque nature of the market, wild swings are becoming the norm not the exception while availability is likely to continue to thin.

Nicky Shiels Commodity Strategist (Metals) 212-225-6724 Commodities Derivatives nicky.shiels@scotiabank.com

Follow us on Twitter @ScotiaMetals

CONTACTS

Sections:

Macro overview & summary: pg. 1

Chart of the month: non vs negative yielding assets, pg. 2

Gold: pg. 3-4

Silver: pg. 5-6 Summary table of current Bullish/Bearish Drivers for Pre-

cious: pg. 7

PGMS: Platinum, Palladium & Rhodium: pg. 8

*Quick LBMA review will be released after the Oct 13-15th conference* ***Updated Official Scotia GBM precious metals forecasts here***

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Commodities Strategy | Metals Quarterly / Monthly

Chart of the month: When non-yielding precious metals become (relatively) yielding assets. Rate cuts were back in vogue with the Fed and ECB cutting in September, which helped shift global yields lower and see the pool of negative yielding global debt peak at $17tn. Thus it was then no surprise that investor demand - for precious metals - surged; global gold-backed ETFs saw ~$4bn of net inflows , in-creasing their collective holdings to >80m oz, a record high.

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GOLD: Gold prices have solidified a short-term range between $1460-$1540, somewhat aligned with US rates—its recent core driver— in which 10 years

remain structurally low (~1.40-1.90%). However, while lows were tested in early October and prices bounced (see note here on drivers and explanation behind the Precious weakness), there is something bugging Gold beneath the surface… Over the past 5 weeks theres been plenty of bullish catalysts, that historically would've played into sustainably higher prices (ME oil attack, US/China trade escalation-confusion*, impeachment risk, Syria/Turkey tensions, QE-lite essen-tially launched, weaker US data, mega Gold ETF inflows). However, Gold continues to trade somewhat poorly with rallies short-lived, trade de-escalation head-lines impacting it more than trade escalation headlines, frustrating some participants who argue pricing should be testing range highs (~$1550), especially giv-en the recent equity market volatility and US 10yrs haven fallen below 1.60%. The thinking that Gold is cheaply mispriced is not wrong, but two explanations serve up an explanation.:

The Fed (now) & US repo issue (then) are headwinds for gold. Gold only started 'misbehaving' (i.e.: internalizing bearish drivers more so than bullish drivers) when US

short-term rates tightened up in September. Its unlikely a coincidence and while its tough to confirm the mechanics the logic generally ties out —> Gold is ultimately “a liquidity product” and hardly performs well in periods of tight liquidity (vs expectations), the fear or uncertainty of tightening liquidity, or confirmation that the Fed is not as dovish as priced in and positioned for. While the Fed IS committed to continue the $75bln o/n repo facility through Nov 4th with 8 new term sessions (until the FOMC), Gold needs a permanent kick starter from the Fed/Powell. Gold received that on October 8th when Powell announced that the Fed had decided to increase its purchases of short-term Treasuries ultimately increasing its Balance Sheet, but they downplayed it (Powell: “This is not QE”. Mester: “this is nowhere near anything about QE”). Dovish in action, but hawkish in rhetoric creates mixed (bearish) signals for Gold in the near-term. Further upside Gold pricing requires a Fed (and other CBs) that highlights economic and geopolitical/trade risks (not a stronger US economy) and calls for activism (not highlighting monetary policy ineffectiveness, limits to easing and in other cases shifting the onus to fiscal policy). That would ultimately keep open the prospect of further cuts into 2020 (vs talking about “restrained cuts” or “mid-cycle adjustments”), which isn't the case. Through this lens, the market is only pricing in slightly less than 2cuts over the next 6 month, which is down from 3 cuts (over 6m) ex-pected in the beginning of September (graph 1 on page 4); Gold is actually a little expensive vs these Fed rate cut expectations, helping to clarify why rallies have been capped.

Saturated tactical positioning: while this is an easy ‘out’ to explain muted price responses, its still effective. ETF inflows have been extraordinary, with the daily accumula-

tion pace since May 2019 averaging ~110k oz/day (that matched the fastest pace of accumulation seen in 1H’16). Global ETF holdings have swelled to record highs in Sep-tember (at ~82m oz), overtaking peak holdings last seen in 2012 when Gold was $1700; not surprising given the shift in Global yields (see chart of the month, page 2). Overall, total known investor holdings (ETF + COT) own over 100m oz (~150bn worth), also a record high on actual-oz basis. Given that the bulk of these hefty inflows oc-curred in June (when Gold averaged $1360), investors are clearly well ITM, and thus opportunistic on price rallies given its Q4, a period in which winners are traditionally downsized in light of softening risk-reward profile. Our argument, that the larger equity / generalist investor remains underweight Gold (gold holdings are only 0.60% of SPX market cap, vs peak of >1.6%), is unchanged and without equity market volatility and an unwind of the equities bull run, these wont be unlocked. Tactical/fast money posi-

tioning is overweight; structural/generalist positioning is underweight.

SUMMARY: The series of would-be sizably bullish catalysts the past few weeks (listed above) were overlooked due to a persistently strong

US$, short-term liquidity/funding stresses, hawkish Fed rhetoric reducing rate cut expectations, trade war ‘hopes’, and profit-taking / positioning

downsizing. The purge of tactical length is a necessary development for the longer-term health of the structural gold trade, but with Q4’19 packed

with event-risk (Brexit, US earnings, 2 more jobs reports & key manufacturing data and a continuation of trade/geopolitical/US political headline

risk), its unrealistic to believe the Fed will commit to a pre-set course after the FOMC. Golds short term direction is slightly less bullish (down from

$1500-1600) but dependent on upcoming events that are complicated by the incessant news cycle (something that ultimately bolsters the argument

to hold gold as a growing tail risk hedge to risk/equity exposure). $1450 is the hard floor and dips remain a buying opportunity. Further upside

(sustained above $1500) is contingent on 1) how aggressive the Fed is (does rhetoric begin to match action) 2) U.S data (back in the limelight after

ISM & NFP) and 3) if theres any sustained equity market volatility; those drivers have changed from the previous report in which U.S. politics/

geopolitics and trade were the core influences of upside price action

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Silver: After reaching a high above $19.50 in early September, driven by strong investor inflows that drove some outsized intraday moves, Silver came under persistent pressure and continued to dribble down toward $17. The Gold/Silver ratio, despite being inherently volatile, was abnormally whippy in September gyrating between 79 and 86 indicative of evolving macro risk and outsized flows. The ability for Silver to hold $17, after its summer repricing, and without the help of copper (base metals) or an extension of risk/SPX, continues to show off that Silver has maintained its precious luster, and can play a role as a quality asset/hedge against wide ranging risks, as well as provide relatively cheap optionality on further Gold upside. Digging into Silvers bifurcated properties reveals two very different outlooks. The drivers through an industrial metals lens, paints a pretty bearish picture, due to: 1. Record high exchange inventories

2. A global manufacturing synchronized slowdown / mini recession,

3. The inability for the majority of the industry/producers to self-regulate supply, given it’s by-product nature,

4. Little signs of new large-scale industrial applications in the pipeline (while thrifting Silver out of PV is still being encouraged and is evident via trade flows).

However, viewing silver through a precious lens, and given the overall constructive Gold outlook, the structural headwinds noted above are largely offset. While strong investor flows in the summer brought known investment holdings (ETF & net COT holdings) to a peak of ~920m oz (graph 1, panel 1) the larger general-ist investor is still inactive in the precious space; total investor Silver AUM is only half the size of its historical peak at $15bn (graph 1, panel 2), and that repre-sents only 0.1% of an average portfolio (which is 1/4 the size of its peak portfolio share, of 0.34% seen in 2011). Thus given increasingly lower yields, a slowing global growth outlook, uncertainty around trade, geopolitics and the shrinking confidence in the ability for au-thorities (via both monetary and fiscal policy) to stabilize a growing set of risks, there continues to be decent demand for cheap precious exposure. Overall, we still believe a higher Gold/Silver ratio in the longer-term makes sense because 1) macro markets are navigating the delicate late cycle period (where large de-risking ‘episodes’ become the norm, not the exception, supporting ’safer’ Gold over Silver), 2) silvers relatively oversupplied backdrop & 3) the fact that it doesn’t attract core Central Bank demand like Gold does. This physical overhang ensures Silver will be well-supplied in both the short and medium term, and is less likely to put in sustained volatile moves (as seen during 2009-2012) where any outperformance vs Gold remains short-lived. The new fair & more “aligned” range (vs Gold above $1450), given a world of negative interest rates, strong technical momentum and relatively under-owned precious positioning, is $17-19/oz. Upside price risk for Silver hinges on potential SHFE and/or Emerging Market investor inflows into ‘poor mans gold’ as a hedge against weakening EM currencies. Core downside risk (below $16) is contingent on sideways-to-lower Gold prices (drawing in subsequent opportunistic “relief hedging” and related-physical flows).

Silver chart pack on page 6:

1. Investor positioning and AUM in Silver: still underweight on a $ and portfolio basis

2. Silver vs its peers: expensive vs Copper but cheap vs Gold

3. Exchange inventories and Silver forwards: extremely well supplied and showing in forward/lease rates

4. Cumulative Silver imports into China: running at historical averages indicating sustainable (but not high) Silver demand

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Current Bullish vs Bearish Drivers for Gold (& thus Silver, Platinum)

Tailwinds Neutral Headwinds

**Fed is reluctantly cutting rates, downplaying QE-

lite/expansion of BS. Some global central bank

policies putting the onus on fiscal policy and

highlighting monetary policy limits**

**Positioning and sentiment: fast money (COT +

ETF & perhaps OTC) is well ITM, with positioning

peak/saturated & thus downsizing; the generalist

investor remains largely underweight**

Trade, Geopolitics: an unpredictable & escalating

multi-front trade/cold war. Outlook increasingly

uncertain with formal US/China trade deal unlikely

before US 2020 elections. Renewed geopolitical

risks becoming more frequent

A stubbornly perky US$. Outlook on whether the $

extends into cyclical weakness is mixed, given its

reserve currency status & historical resilience

Lack of sustained macro fear/equity volatility

(VIX <25) given the inbred resilience of US equities

to bounce.

Expanding pool of negative yielding debt securities

& lower for longer global bond yields; talk of the

threat of negative rates in the US in the medium term

Higher pace of Central Bank gold buying,

diversifying against fiat and US$ in 1H'19; risk of CB

demand slowing due to significantly higher prices in

4Q'19

Muted physical support from India & China as

higher prices in local terms defer purchases;

XAUINR near record highs & XAUCNH at 6 year

highs deterring jewelry consumption

Fiat currencies politicized with markets in a cold

currency war; growing risk of US currency

intervention to weaken the $ as yuan devalues

through 7 per-US$

Gold Producer consolidation / M&A driving "peak

gold" supply calls; (bullish sentiment theme in the

short-term; negligent in the longer-term)

Large dishoarding from traditional physical Gold

countries given price surge

Growing talk around alternative CB tools (MMT,

QE+, negative interest rates globally) more relevant

as rate cuts arrive earlier

Higher yielding Gold ‘detractors’ like alternative

currencies (Bitcoin) or assets compete for similar

flows, especially in EM markets where currencies

are depreciating

The independence of CBs increasingly under

threat from populist governments; skepticism

growing around power of CBs s to remove volatility

& pump up asset prices amidst trade tensions

Q4'19 reflation risk or fear on US data

outperformance and / or trade ceasefire promoting a

"one-&-done" Fed cut

Unsustainable US debt/fiscal path with swelling

twin deficits; Structural theme, and one which has

taken a backseat to trade/politics

A pickup in socialist rhetoric and policies with social

pendulum swinging left in US (democratic nominees)

and abroad

<--

---

LE

SS

BU

LL

ISH

---

--->

MO

RE

BU

LL

ISH

<--

---

LE

SS

BE

AR

ISH

---

--->

MO

RE

BE

AR

ISH

**drivers that have shifted since the last update

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PGMs: Platinum & Palladium put in another set of very strong divergences in September, with Platinum almost touching $1000 in early September before crum-

bling toward $800 before Chinas Golden Week, while Palladium proved, once again, why its in a reliable bull market, hitting another record high of $1700. Rhodi-

um was the notable outperformer, reaching the highest level since 2008, at $5400 and essentially more than doubling its YTD gains! Overall, this has taken the

PGM Basket to all time highs (due to byproduct strength) of almost R20,000/oz and interestingly has exceeded the Rand/oz price for Gold for the first time since

2011; S.A producers have swung from net ‘panic’ mode to net ‘picnic’ in a very short period, which, unsurprisingly is driving a hunt for Palladium / M&A activity

outside of SA, shown up by the most recent announcement by Implats to acquire NAP.

The most prominent micro update stemmed from South Africa, where Sibanye and Anglo announced they’re seeking remediation to break the wage deadlock with

Amcu, raising strike-risk , especially in light of the major restructuring announced by Sibanye post Lonmin acquisition which will result in ~5300 job losses and

shaft closures. Historically that’s been bullish all PGMs, but recently any supply-side fears merely tightens the undersupplied ones further (Palladium, Rhodium)

with limited effect on oversupplied metals (Platinum), as it upends consumer buying trends by injecting some fear of future availability. That largely played out

with both Palladium and Rhodium forwards tightening in September and providing physical tailwinds for underlying prices to rally.

Platinum:

Thee short-lived September rally in Platinum was predominately due to strong investor inflows, with investors overreaching for any precious exposure (as a hedge against low/negative yields amongst other risks) and driving Platinum ETFs to a record high of 3.3m oz, while (fast money) speculators drove net COT holdings to 1.3m oz. Overall, since the US/China deal collapsed in May 2019, Platinum investors (ETF+COT) have accumulated a massive 2.7m oz, which should help to lower the 2019 surplus (IF that’s how net balances are calculated). However, the recent strong investor inflows, in light of a lack of sustainably upside pricing and higher forward rates, only serves to indicate that over the past few months:

Supply—both primary and secondary—is opportunistic on XPTZAR price rallies,

Core physical demand is either neutral (industrial demand) or weaker (autocatalyst and jewelry demand), and

The surplus, of both above ground stocks is still large and moving between unknown/off exchange to on-exchange; investor inflows have not tightened for-ward rates (yet)

While Platinum's headwinds are well known (ZAR weakness is a boon for producers driving record SA Platinum exports; weak auto and jewelry demand, chunky

above ground stocks, no real signs of major substitution* occurring ), its worthwhile to sift through some green shoots:

In Europe, the rate of diesel share declines (arguably the shunning of diesel since 2015), is slowing; pre-2015, the diesel market share was over 50%, with

current figures at 31%. However the pace of (Western European) declines in diesel share is slowing and interestingly Germanys diesel car sales actually in-

creased in Q2’19. This indicates some evidence of ‘cleaner diesels’ (they are a preferred choice in meeting CO2 emission limits, vs gasoline cars, that are

due to take effect in 2021); a net supportive for prices.

Industrial demand remains rather solid, with Chinas chemical sector growing while glass fabrication and other applications are flat-lower; overall the lower

prices remain, the sustained availability of metal and the lack of volatility is all supportive for new industrial applications to be considered/tested

The structural backdrop hasn't changed— surpluses are due to shrink over the coming years, contributing to an overall large PGM (not platinum) deficit.

* Informative article here analyzing North Macedonia PGMS trade flows (its home to a diesel autocatalyst plant) to determine that theres some evidence of no substitution (away

from Palladium into Platinum) occurring.

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Platinum cont. Overall, on an annual basis, Platinum prices, have underperformed Gold since 2013, and Palladium since 2012, making 2019 no different.

Platinums short-term profile is very similar to Silver— a “physical surplus” / overhang ensures tactical rallies are largely short-lived, but persistent investor de-mand for any precious exposure (especially cheap, higher beta metals) is driving a “paper deficit”. The size and pace of these tactical rallies can be outsized given the disconnect between investor inflows and the market size/liquidity.

We expected Platinum to average $1000 in 2019, which was dependent on 1) forecasted buoyant Gold prices and a Plat-Gold spread to be closer to -$200 (not -$500) as the market searches for depressed real assets, 2) supply-side risks, and 3)peak bearish sentiment reversing given a switch in focus from ‘lack of supply discipline’ to ‘hopes of substitution’; that was a little ambitious and despite shrinking surpluses, substitution bulls need to be patient as its perhaps only occuring on an incremental basis (in diesel catalysts) and in some select regions (U.S). Platinum still remains structurally depressed vs Gold prices (trading be-tween a $650 and $550 discount the past 4 months) and should reset higher reflective of its peers prices in 2020 (a fairer discount given growing precious inter-est is $400-500 discount to Gold, the 1year average). However given the global growth / manufacturing overhang and plentiful above ground stocks, its unlikely platinum enters the next bull run in the short-medium term unless we begin to see the clues in physical indicators.

Palladium: Palladium has been on a one way streak since August, committing to a strong defined bull channel that’s been driven by a mix of investor interest,

a physical overreach by consumers, while supply and liquidity has been bottlenecked and limited. Forwards have tightened up (lease rates spiked) again to levels not seen since February; it’s a feature—an unexplained trigger suddenly tightens up metal, especially in the lead up to important seasonal turns like month/quarter/yearend, leaving participants scrambling to substantiate the move. That may have been accelerated by the fear of the wage impasse in South

Africa and/or into the US-China trade war talks upending buying trends. Interestingly, the demand for sponge (typically the auto–related proxy) remains light;

the recent demand has been for ingot, suggesting that Fareast OTC investors have reentered and perhaps theres also a preference to hedge exposure via in-got (since it has optionality / an outlet via the exchange or ETFs) by some end-users.

The fundamental story is well known and cited – the manufacturing recession and the global auto sales slowdown (China is still moving through a ‘car crash’ with YTD sales down >10%) is still no match for the tougher emission regulations in China and US, while Europe pivots (albeit incrementally) away from diesel and supply remains constrained. The presence of silicon carbide in the autocat system and historically longer lead times (for both Rhodium & Palladium) to re-cycle & refine this somewhat ‘contaminated’ material, remains an additional structural issue for the tighter metals (Rh, Pa) as it accentuates these bottleneck episodes.

Palladium remains in a structural bull market that has shown it can deftly capitalize on any spark (this time around seasonal tightness) to reach new highs. But the later the business cycle becomes, the more downside risks grow given how susceptible palladium prices are to risk assets/SPX which are increasingly anx-ious; so with total investor holdings back up at 1.8m oz, the top-end of 2year highs, the risk of a short-term pullback (akin to the late July/August selloff) is mounting but one which should be capitalized on if exposure is unhedged.

Rhodium: Physical markets/availability tightened up the last 2 weeks in Rhodium and together with physical demand from OEMs and Fareast OTC investor

inflows remaining strong, the move through $5000 was exacerbated taking prices to levels not seen since 2008. Similar to the theme in Palladium (in which

ETF holdings were drawn down at a time of extreme forward tightness), in September, over 1.8K oz exited out of the DB ETFs, either being redeployed to

where pricing is more attractive or this was vanilla profit-taking; regardless, ETF outflows associated with price rises is a warning shot that availability is thin-

ning. With seemingly no substitute in sight to fight emission/Nox limits, the bottlenecks created by recycling issues (more so for Rhodium, since its chemical

complexity ensures its takes the longest to be refined), and the illiquid & opaque nature of the market, wild swings are becoming the norm not the exception.

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Nova Scotia, Scotiabank Europe plc, or any of their respective affiliates (“Scotiabank”TM), their directors, agents or employees with respect to the completeness or accuracy of the information, conclu-

sions and opinions provided herein, or as to the achievement or reasonableness of any projections, targets, estimates, or forecasts and nothing in this presentation should be relied upon as a promise

or representation as to the future. Past performance or simulated past performance is not a reliable indicator of future results. Forecasts are not a reliable indicator of future performance.. This presenta-

tion has not been prepared (i) by a member of the research department of Scotiabank, or (ii) in accordance with the legal requirements designed to promote the independence of investment research. It

is considered a marketing communication for regulatory purposes and is solely for the use of sophisticated institutional investors. This presentation does not constitute investment advice or any person-

al recommendation to invest in a financial instrument or “investment research” as defined by the UK Prudential Regulation Authority and the UK Financial Conduct Authority, and its content is not sub-

ject to any prohibition on dealing ahead of the dissemination of investment research.

The information contained in this presentation reflects prevailing conditions and our judgment as of the date of the presentation, all of which are subject to change or amendment without notice, and the

delivery of any such amended information at any time does not imply that the information (whether amended or not) contained in this presentation is correct as of any time subsequent to its date. Sco-

tiabank undertakes no obligation to update or correct any information contained herein or otherwise to advise as to any future change to it. Scotiabank does not provide any applicable tax, accounting

or legal advice and in all cases independent professional advice should be sought in those areas.

This presentation incorporates information which is either non-public, confidential or proprietary in nature, and is being furnished on the express basis that this information will not be used in a manner

inconsistent with its confidential nature or be disclosed to anyone other than as may be required by law or to those who have been informed of the confidential and proprietary nature of this presenta-

tion. This presentation and its contents are strictly confidential to the person to whom it is delivered and may not be copied or distributed in whole or in part or disclosed by such persons to any other

person without the prior written consent of Scotiabank. This presentation and the information contained herein remain the property of Scotiabank.

This presentation is not and shall not be construed as an offer, invitation, recommendation or solicitation to sell, issue, purchase or subscribe any securities or bank debt in any jurisdiction or to enter

into any transaction. Nothing in this document contains a commitment by Scotiabank to sell, issue, purchase or subscribe for financial instruments, or securities, to provide debt or to invest in any way

in any transaction described herein, or otherwise provide monies to any party. Any participation by Scotiabank in any transaction would only be provided in writing after satisfactory legal, financial, tax,

accounting and commercial due diligence, as well as being subject to internal approval processes. Any transaction implementing any proposal discussed in this document shall be exclusively upon the

terms and subject to the conditions set out in the definitive agreement related thereto.

This presentation is not directed to or intended for use by any person resident or located in any country where the distribution of such information is contrary to the laws of such country. Scotiabank, its

directors, officers, employees or clients may currently or from time to time own or hold interests in long or short positions in any securities referred to herein, and may at any time make purchases or

sales of these securities as principal or agent. Scotiabank may also have provided or may provide investment banking, capital markets or other services to the companies referred to in this presentation.

TM Trademark of The Bank of Nova Scotia. Used under license, where applicable. Scotiabank, together with "Global Banking and Markets", is a marketing name for the global corporate and investment

banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including Scotia Capital Inc., Scotia Capital (USA) Inc., Scotiabanc

Inc.; Citadel Hill Advisors L.L.C.; The Bank of Nova Scotia Trust Company of New York; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución

de Banca Múltiple, Scotia Inverlat Casa de Bolsa S.A. de C.V., Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank Group and authorized users of the mark. The Bank of Nova Sco-

tia is incorporated in Canada with limited liability. Scotia Capital Inc. is a member of CIPF. Scotia Capital (USA) Inc. is a registered broker-dealer with the SEC and is a member of the NASD and SIPC.

The Bank of Nova Scotia is authorised and regulated by the Office of the Superintendent of Financial Institutions of Canada. Scotia Capital Inc. is authorised and regulated by the Investment Industry

Regulatory Organization of Canada. The Bank of Nova Scotia and Scotiabank Europe plc. are authorised by the UK Prudential Regulation Authority. The Bank of Nova Scotia is subject to regulation by

the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Scotiabank Europe plc is regulated by the UK Financial Conduct Authority and the UK Prudential

Regulation Authority. Details about the extent of The Bank of Nova Scotia 's regulation by the UK Prudential Regulation Authority are available upon request. Scotiabank Inverlat, S.A., Scotia Inverlat

Casa de Bolsa, S.A. de C.V., and Scotia Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.