M ANAGEMENT ’ S DISCUSSION AND ANALYSIS (continued) 14 Orbit G arant 2012 annual rep O rt INDUSTRY OVERVIE w Demand for services in the mineral drilling industry is driven by conditions in the global ferrous (iron) and non-ferrous (prec ious and base metals) metals markets. The strength of demand is primarily determined by price levels for ferrous and non-ferrous metals and the availability of capital to fnance exploration and development programs and/or ongoing mining operations. Despite current global economic uncertainties and market volatility, metals prices remain generally favourable. There is also uncertainty surrounding future c ommodity prices. Gold prices are currently in excess of US$1,700 an ounce, which is positive for Orbit Garant as approximately 75% of its revenue is currently derived from gold related projects. Base metal and iron ore prices have declined from price levels a year ago, but remain well above their collective fve-year price lows and above average costs of production. However, 2012 has been a challenging y ear for junior mining companies to raise capital, which has resulted in reduced exploration spending. Metals Economics Group (MEG), a leading independent resource for global mining industry information and analysis, estimates that total global expenditures for non-ferrous metals exploration was a record US$18.2 billion in 2011. In its World Exploration Trends 2012 report, published in March 2012, MEG forecasted a 5% to 15% increase in global non-ferrous metals exploration spending in 2012, compared to 2011, with growth driven primarily by senior and intermediate mining companies. At the time of their report, MEG noted the di ffculties that junior companies were having in accessing capital to sustain or increase their exploration spending. Junior mining companies c ontinued to experience a challenging environment in raising capital. * The indexed metals price represents a blend of the relative changes in a basket of metals prices weighted by the percentage of exploration expenditures dedicated to each metal by the industry as reported in MEG’s CES studies. This weighting acts as a proxy for the relative importance of each metal with in the mining and exploration industry at a given time. Gold With the current uncertainty concerning global economic conditions and fnancial markets, gold has once again emerged as an al ternative safe haven for capital. Further, increasing affuence in rapidly developing countries, such as China and India, has c reated greater demand for luxury goods, including gold jewellery. At the time of this report, the s pot price for gold was more than US$1,700 an ounce. Despite the substantial increase in the price of gold over the last decade, annual global gold production from 2002 to 2010 di d not surpass the peak production levels attained in 2001, indicating that mine supply growth has been an industry challenge. With a lac k of signifcant new discoveries and declining production at existing mines, many gold producers are focused on developing new projects or ex panding existing deposits in efforts to replace or replenish reserves. Base metals Base metals’ price performance generally refects global economic conditions, as these metals are primarily used in infrastructure, i n d u s t r i a l and manufacturing applications. Prices for aluminum, copper, lead, nickel and zinc – the primary industrial metals – have decli ned from price levels a year ago. Demand from emerging markets, particularly China and India, has a major infuence on base metals markets. 0.0 1.0 2.0 3.0 4.0 5.0 $0 $3 $6 $9 $12 $15 $18 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 MEG Indexed Metals Price (1993=1) Nonferrous Exploration (US$ bil) Nonferrous Exploration T otal MEG Indexed Metals Price So urce: Metals Economics Group Estimated Global Nonferrous Exploration Budgets and Indexed Metals P rice*, 19 93–2011