January 11, 2015
Dear Shareholders and Investors

We have started the first ten days of 2015 on a positive note. Our share price is up for one, closing the first full trading week of the New Year at $0.07 and probably many of our shareholders are breathing a sigh of relief.

We have received approval from the Exchange for a technical report that we filed in support of our recently announced Farm-In Agreement with Saturn Minerals that can be viewed on our website at Little Swan Saskatchewan Technical Report

www.oilprice.com has put out a piece on the Company that can be viewed here Banking-on-North-Americas-Final-Oil-Gas-Frontier

The Little Swan project is conventional sweet crude, also called “Texas Tea” and “Black Gold” and of interest to our shareholders is that Canada’s richest grain family, Richardson’s, is betting big on this type of conventional oil. Through their subsidiary, Tundra Oil and Gas, they are currently pumping light sweet crude, 26,000 barrels a day, from their long lived field to the south-east of Little Swan, just across the border in Manitoba.

That field is comparable to what we expect to find at Little Swan and Tundra has just purchased additional production to bring their daily production to 32,000 barrels a day. The field that Tundra is producing from is similar to the Tyvan pool, which is our exploration model, and like the Tyvan, it produces low cost light sweet crude from similar depths. A report on Richardson bet can be viewed here;

Canadas-richest-grain-family-is-betting-big-on-an-oil-rebound

Additionally some other of the majors are shifting their focus from other types of oil fields where expensive deep drilling, horizontal wells and fracking is the norm, to the less costly conventional crude. Crescent Point Energy for one. Below is a link to a report on the sustainability of Canadian oil at $50 dollars a barrel that we invite you to view. These events substantiate our decision to add low cost oil to our exploration mix, at a time when it was apparent high cost oil was out of favor with the markets.

Canadian Oil Sustainability at $50 barrel?

On December 23rd, we announced a small financing of 2 million units at $0.05 with a full two year warrant at $0.10. As of the date of this newsletter, the financing is 50% spoken for and we expect this to close before the end of the month. Participation in the financing is also open to existing shareholders who are not accredited investors under the “existing shareholder” exemption of National Instrument 45-106 as promulgated in Multilateral CSA notice 45-313 in participating jurisdictions. We have also granted 600,000 options at $0.10 cents, replacing 312,000 options that were cancelled, 150,000 options that expired, and 95,000 options that were exercised in 2014.

Silver prices appear to have stabilized since December 1, 2014, and are now around $16.50 an ounce. We believe production from the mine will be profitable at these prices.

There have been numerous articles written recently on the silver supply/demand picture as the US Mint reported that 44 million ounces in coinage was sold during this past year, and of the annual 2014 silver production, approximately 850 million ounces, a substantial amount was used just in the manufacture of solar cells (around 90 million ounces) The total of these two is 134 million ounces or approximately 1/7th of 2014′s annual silver production. We have also recently read a report that India has imported a significant amount of silver late in 2014.

India-imports-record-amount-silver-in-November

So after a four year long downturn, we believe silver has bottomed and now has a good basis for holding, or increasing in price that should make the economics of our Bayhorse mine even more attractive.

We are now approximately one month away from Saturn’s proposed drilling operation on the Bannock play. We believe that a successful well there will substantially and positively affect our share price.

We are intending to fund our share of the exploration expenditures on Little Swan through a flow-through financing and we should be able to announce the terms of the flow-through in the very near future.

We will provide more relevant updates in next month’s newsletter and a report on any developments from Saturn’s proposed Bannock oil well drilling.

Graeme O’Neill

President

Bayhorse Silver Inc