August 20th, 2013

Dear Shareholders,

The end of the second quarter has been marked as a time of turbulence and uncertainty in the global gold markets.  However as we at Clavo Rico examine the global trends in gold we are more than ever convinced that what we have built at our mine is bearing fruit for us in the way that we envisioned at the start of our expansion.

The World Gold Council has released its analysis of the second quarter.  Most of us will look only at the declined in gold prices and conclude that that decline is indicative of the declining value of our investment.  However, when you closely examine the elements of the gold price supports you are led to the opposite conclusion.

During the second quarter the demand for gold jewelry increased 37% in terms of tonnage and even though the price of gold declined sharply during the quarter, the dollar value of gold used for jewelry increased 20% year over year.  The usage of gold for technology remained relatively constant for the second quarter when compared to the second quarter of 2012.  The demand for gold jewelry was led again by China and India and to a lesser extent by the United States, where demand was also much stronger.  According to surveys conducted of consumers in India and China an overwhelming majority (62%-66%) of those surveyed believed that prices of gold would be higher in the coming years and that the current prices represented a buying opportunity.  Only 11% believed that prices would go lower.

The only area which showed a decline in gold demand was with short term gold investors.  This was driven largely by Exchange Traded Funds (ETF’s), among which Gold demand declined by 76%.  As investors viewed the US economy begin to recover, they fled to the next hottest thing leaving gold behind.  However, we should remember that those investors who pushed the price of gold to new heights were doing so as speculators and not as long-term value investors.  Their leaving will allow the markets to stabilize and the price of Gold to recover as demand continues to rise.

Finally, the supply of gold actually decreased during the quarter as well, driven mainly by a sharp decrease in gold from recycling activities.  During times of relatively high prices gold from recycling constitutes a significant portion of the gold supply.  For the last five years it has constituted approximately 40% of the gold supply and for the current quarter that fell to approximately 30% of the gold supply.  The supply of gold from mine production rose modestly during the quarter although many mining companies have decreased their employees in efforts to trim the costs of extraction. At Clavo Rico, our relatively low extraction costs allow us to remain profitable even during this period of economic recovery.





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