Orbit Garant Drilling
Annual Report 2022

Plain-text annual report

ANNUAL REPORT 2022 STRONG CANADIAN FOUNDATION | EXPANDING GLOBAL PRESENCE PROFILE Headquartered in Val-d’Or, Quebec, Orbit Garant Drilling (TSX: OGD) is one of the largest Canadian-based mineral drilling companies, providing both underground and surface drilling services in Canada and internationally through its 217 drill rigs and approximately 1,400 employees. Orbit Garant provides services to major, intermediate and junior mining companies, through each stage of mining exploration, development and production. The Company also provides geotechnical drilling services to mining or mineral exploration companies, engineering and environmental consultant firms, and government agencies. Head Office Regional Office Field Operations MARKET POSITION (BY PERCENTAGE OF REVENUE¹) DRILLING ACTIVITY CUSTOMERS 35% 65% Surface Underground 30% 70% Majors & Intermediates Juniors REGIONS RESOURCE EXPOSURE 26% 74% Canada International 29% Gold 71% Base Metals / Other 1. For the year ended June 30, 2022 To our shareholders, On behalf of Orbit Garant’s Board of Directors, management and our team of approximately 1,400 employees across Canada and our international operations, we are pleased to present our fiscal 2022 annual report. The mineral drilling industry continued its strong recovery during our fiscal 2022 year, following the negative impact of the COVID-19 pandemic. Our drilling activity in Canada and our international operations now exceed pre-pandemic levels. We drilled more than 1.8 million metres during fiscal 2022, the most we have ever drilled in a single fiscal year. According to S&P Global Market Intelligence, global nonferrous exploration budgets increased 35% in the 2021 calendar year and are expected to increase an additional 5% to 15% in calendar 2022. This strong increase in customer demand required us to make significant investments in our driller training program due to an industry-wide shortage of experienced drillers in Canada. This shortage resulted in increased wage costs to retain and attract key personnel. We also incurred increased costs for project ramp-ups in Canada and project mobilizations in our international operations. In addition, the impact of the pandemic on global supply chains resulted in higher costs for supplies and materials. Finally, the war in Ukraine resulted in higher fuel costs, which further compounded these cost pressures. As the year progressed, we were able to start offsetting the increased costs for wages, supplies and materials through increases to contract pricing in Canada. Our consolidated revenue for fiscal 2022 was a record $195.5 million, an increase of 19.7% compared to fiscal 2021. Revenue generated from drilling projects in Canada totaled $145.2 million, an increase of 11.7% from last year, reflecting sustained customer demand and improved contract pricing. Our international revenue increased 50.9% year-over-year to $50.3 million, primarily reflecting new, long-term contracts in Chile and Guinea. Our international revenue total in fiscal 2022 was close to our all-time high of $52.2 million in fiscal 2018. Gross profit for fiscal 2022 was $13.7 million, compared to $20.3 million a year ago. Adjusted gross margin, excluding depreciation expenses, was 12.2%, compared to 17.9% last year. Net loss for the year was $6.6 million, or $0.18 per share, compared to net earnings of $2.3 million, or $0.06 per share, in fiscal 2021. The negative variances in our profitability in fiscal 2022 reflect the investments we made in scaling up our operations and higher business input costs, as discussed above. We also had a decline in driller productivity due to a higher proportion of less experienced drillers, and we were impacted by Omicron-related work interruptions across our operations, primarily in our third quarter, when we lost 16,000 hours of labour due to this COVID-19 variant. In addition, our cost of contract revenue was reduced by $2.9 million in fiscal 2021 due to financial support recorded from the Canada Emergency Wage Subsidy program. We were no longer eligible for this program in fiscal 2022. Our net earnings in fiscal 2021 also reflect the reversal of a $1.96 million provision for litigation in Burkina Faso recorded in the third quarter last year. The significant costs we incurred related to driller training and project ramp-ups in Canada, and new project mobilizations in our international operations, impacted our margins in the short term. However, they were necessary in order to scale up our operations to meet increased customer demand. This investment in scaling up our operations, combined with increased contract pricing, contributed to our improved fourth quarter performance. Our revenue totaled $53.8 million in the fourth quarter of fiscal 2022, up 5.3% year-over-year, representing the highest revenue we have ever generated for a single quarter. Our profitability also increased significantly. We generated EBITDA and Adjusted Gross Margin of $5.7 million and 17.2%, respectively, compared to $1.2 million and 9.8% in the fourth quarter last year. Net earnings were $0.5 million, or $0.01 per share, compared to a net loss of $2.2 million, or $0.06 per share, in Q4 a year ago, as continued strong customer demand and increased contract pricing in Canada more than offset higher wage, material and fuel costs. In addition, worker productivity improved as our newer drillers gained more field experience, and costs related to project ramp-ups and mobilizations declined compared to prior quarters. 1 We expect to continue building on this positive momentum in fiscal 2023. Customer demand for our drilling services remains strong, and we anticipate further improvement in profitability as contract price increases continue to offset the cost pressures that are impacting our business. In addition, costs related to project ramp-ups in Canada and project mobilizations in Chile and Guinea have now largely been absorbed, and our driller productivity continues to improve as our newer drillers gain more field experience. Long-term debt under our Credit Facility was $31.5 million at the fiscal year-end, compared to $24.3 million as at June 30th a year ago. The increased debt was used to support working capital requirements and the acquisition of capital assets, property, plant and equipment. As at June 30, 2022, our working capital position was $53.4 million, compared to $54.0 million at the end of fiscal 2021. We expect to reduce our debt position in fiscal 2023, supported by our expected increase in cash flow from operations. Entering fiscal 2023, demand for drilling services remains strong, and we anticipate continued strength throughout the year. Gold and copper prices have declined from their highs earlier this year, but they remain at elevated levels that provide a strong incentive for mining companies to expand exploration and development spending, particularly given the lack of major new mineral discoveries and a global decline in both gold and copper reserves. Looking ahead, as we pursue future growth, our focus on innovation and leading-edge technology will remain a priority and a competitive advantage in our industry. We currently have 43 drill rigs outfitted with our computerized monitoring and control technology. These technologically-advanced drill rigs increase accuracy and productivity, have long-lasting rig components, are ideal for training less experienced drillers, and have proven to be in high demand from our customers. Our continuous focus on innovation, our global operations and scale, expertise in both surface and underground drilling, vertically-integrated manufacturing capabilities, and highly experienced leadership team position us to capitalize on this strong market cycle and drive continued revenue growth and margin expansion to build value for our shareholders. In closing, we extend our appreciation to all of our employees, our management team and our board for their ongoing commitment to the success of Orbit Garant. Thank you for your continued support. Sincerely, Jean-Yves Laliberté Chair Éric Alexandre President & Chief Executive Officer 2 MD&A and Consolidated Financial Statements YEAR END AND FOURTH QUARTER FISCAL 2022 SEPTEMBER 20, 2022 3 YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 2 MANAGEMENT’S DISCUSSION AND ANALYSIS This Management Discussion and Analysis (“MD&A”) is a review of the results of operations, the liquidity and the capital resources of Orbit Garant Drilling Inc. This discussion contains forward-looking statements. Please see ‘‘Forward-Looking Statements’’ for a discussion of the risks, uncertainties and assumptions relating to these statements. This MD&A should be read in conjunction with the audited consolidated financial statements for the fiscal years ended June 30, 2022 (“Fiscal 2022”) and June 30, 2021 (“Fiscal 2021”) and the notes thereto which are available on the SEDAR website at www.sedar.com. The Company’s Fiscal 2022 audited consolidated financial statements and the accompanying notes were prepared in accordance with International Financial Reporting Standards (“IFRS”). All amounts in this MD&A are in Canadian dollars, except when otherwise noted. In this MD&A, references to the “Company” or to “Orbit Garant” shall mean, as the context may require, either Orbit Garant Drilling Inc. or Orbit Garant Drilling Inc. together with its wholly-owned subsidiaries. This MD&A is dated September 20, 2022. Disclosure contained in this document is current to that date unless otherwise stated. Percentage calculations are based on numbers in the Financial Statements and may not correspond to rounded figures presented in this MD&A. Additional information relating to the Company, including the Company’s Annual Information Form for the most recently completed fiscal year, can be found on SEDAR at www.sedar.com. FORWARD-LOOKING STATEMENTS Securities laws encourage companies to disclose forward-looking information in order for investors to have a better understanding of a company’s future prospects and make informed investment decisions. This MD&A contains forward-looking statements about the Company’s objectives, strategies, financial condition, results of operations, cash flows and businesses. These statements are “forward-looking” because they are based on current expectations, estimates and assumptions about: the markets in which the Company operates; the world economic climate as it relates to the mining industry; the Canadian economic environment; and the Company’s ability to attract and retain customers and to manage its assets and operating costs. They are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. Risks and uncertainties that could cause actual results, performance or achievements to differ materially include the ability of the jurisdictions in which the Company operates to manage and cope with the implications of COVID-19, the impact of measures taken by such jurisdictions to control the spread of COVID-19 on the Company's operations, and the economic and financial implications of COVID-19 to the Company. Actual results could be materially different from expectations if known or unknown risks affect the business, or if estimates or assumptions turn out to be inaccurate. The Company does not guarantee that any forward-looking statement will materialize and, accordingly, the reader is cautioned not to place reliance on these forward-looking statements. The Company disclaims any intention and assumes no obligation to update any forward-looking statement, even if new information becomes available, as a result of future events or for any other reasons except in accordance with applicable securities laws. Risks that could cause the Company’s actual results to materially differ from its current expectations are discussed in this MD&A. For a more complete discussion of the risk factors that could cause the 4 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 3 Company’s actual results to materially differ from its current expectations, please refer to the Company’s Annual Information Form dated September 20, 2022, accessible via www.sedar.com. COVID-19 On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. Governments responded by implementing emergency measures to minimize the spread of the virus, including the temporary shutdown of businesses deemed to be non-essential. These measures caused significant economic disruption, as well as volatility in equity markets, commodity prices and foreign exchange rates. Orbit Garant’s operations were significantly impacted by these measures beginning late in its fiscal 2020 third quarter, as a number of its drilling projects were put on hold or postponed. Orbit Garant considers the health and safety of its personnel, customers, suppliers, and the communities in which it operates to be a top priority. The Company implemented precautionary health and safety measures across its operations, based on the recommendations, or directives, issued by the public health authorities and governments in the various jurisdictions in which the Company operates. Management took several measures to mitigate the economic impact of COVID-19 on its business and implemented multiple initiatives to reduce costs and manage its liquidity position during the period in which drilling activities were reduced. Activity levels have now returned to pre-pandemic levels in most regions the Company operates in. Management continues to closely monitor the impact of the pandemic in the jurisdictions in which it operates. As part of its business continuity plan, Orbit Garant continues to manage its variable cost structure and cash prudently, while maintaining the flexibility required to adapt to any potential increase in COVID-19 related business restrictions. FISCAL 2022 SUMMARY • Revenue totalled $195.5 million, an increase of 19.7% compared to $163.3 million in Fiscal 2021 • Gross margin decreased to 7.0 % from 12.4% in Fiscal 2021 • Adjusted gross margin(1) (excluding depreciation expense) decreased to 12.2% from 17.9% in Fiscal 2021 • EBITDA(1) totalled $10.0 million, compared to $17.6 million in Fiscal 2021 • Net loss was $6.6 million, compared to net earnings of $2.3 million in Fiscal 2021; and • Metres drilled totalled 1,813,999 compared to 1,661,396 metres drilled in Fiscal 2021 (1) See Reconciliation of non-IFRS Financial Measures CORPORATE OVERVIEW Orbit Garant (TSX: OGD) is one of the largest Canadian-based mineral drilling companies, with 217 drill rigs and approximately 1,400 employees. Headquartered in Val-d’Or, Québec, the Company provides both underground and surface drilling services in Canada and internationally to major, intermediate and junior mining companies, through each stage of mineral exploration, mine development and production. Orbit Garant also provides geotechnical and water drilling services to mining or mineral exploration companies, engineering and environmental consultant firms, and government agencies. The majority of Orbit Garant’s business activity is conducted in Canada. The Company has regional offices and facilities in Sudbury, Ontario and Moncton, New Brunswick, to support its Canadian business activities. Orbit Garant has worked on international projects in the United States, Mexico, Guyana, Chile, Argentina, Kazakhstan, Burkina Faso, Ghana and Guinea. The Company has established international operating subsidiaries in: Winnemucca (Nevada), U.S.A.; Santiago, Chile; Georgetown, Guyana; Ouagadougou, Burkina Faso; Takoradi, Ghana and in Conakry, Guinea, to support its international operations. 5 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 4 Orbit Garant has a comprehensive infrastructure with vertically integrated manufacturing capabilities. The Company manufactures custom drill rigs and ancillary equipment for its own use and also manufactures conventional drill rigs for third-party customers from its facilities in Val-d’Or, Québec. Orbit Garant focuses on “specialized drilling”, which refers to drilling projects that are in remote locations or, in the opinion of Management, because of the scope, complexity or technical nature of the work, cannot be undertaken by smaller conventional drilling companies. The Company has two operating segments: Canada (including surface drilling, underground drilling and manufacturing Canada), and International (including surface drilling and underground drilling). For Fiscal 2022: • Specialized drilling services, which typically generate a higher gross margin than conventional drilling services, accounted for approximately 33% of the Company’s total revenue, compared to 36% in Fiscal 2021. • Approximately 71% of the Company’s revenues were generated by gold related operations, and approximately 29% were generated by base metal related and other operations. • Surface and underground drilling services accounted for approximately 65% and 35%, respectively, of the Company’s revenue. • Approximately 70% of Orbit Garant’s revenue was generated from major and intermediate mining company projects, compared to 73% in Fiscal 2021. Orbit Garant’s drilling contracts with major and intermediate customers are typically from one to five years in length. • Approximately 74% of Orbit Garant’s revenue was generated from domestic drilling projects, and approximately 26% was generated from international drilling contracts, compared to 80% and 20% respectively in Fiscal 2021. BUSINESS STRATEGY Orbit Garant’s goal is to be the leading Canadian-based mineral drilling company, through the pursuit of both domestic and international market opportunities, and through the provision of best-in-class underground and surface drilling services, equipment and personnel for all stages of the mining and minerals business, including exploration, development and production. The Company employs the following business strategies: • Focus primarily on major and well-financed intermediate mining and exploration companies operating in stable jurisdictions; • Provide conventional, specialized and geotechnical drilling services; • Manufacture customized drills and equipment to fit the needs of customers; • Maintain a commitment to technological innovation and advanced drilling technologies, such as the Company’s current implementation of computerized monitoring and control technologies; • Provide training for the Company’s personnel to continuously improve labour efficiency and the availability of a skilled labour force; • Maintain a high level of health and safety standards in the workplace and promote protection of the environment; • Establish and maintain long-term relationships with customers; • Cross-sell drilling services to existing customers; • Expand the Company’s base of operations in strategic regions, such as: the Company’s acquisition of Orbit Garant Chile S.A. (“OG Chile”) based in Santiago, Chile in December 2015, and the acquisition of the drilling business of Projet Production International BF S.A. (“PPI”) in Ouagadougou, Burkina Faso in October 2018; • Maintain a sound balance sheet and a judicious deployment of capital; and • Evaluate strategic acquisition opportunities to enhance value for the Company’s stakeholders. 6 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 5 Employee Share Purchase Plan In December 2021, the Company implemented the Employee Share Purchase Plan (“ESPP”) in Canada to encourage all full-time employees, including senior management, to purchase ordinary shares of the Company. Shares are purchased on the open market and are not newly issued shares. Eligible employees can contribute up to 10% of their annual base salary through payroll deductions. The Company pays a corresponding contribution equivalent to 50% of the participant's contribution. Participation in the ESPP is voluntary. INDUSTRY OVERVIEW Orbit Garant provides drilling services, in Canada and internationally, to the minerals industry through all stages of mine development, from exploration through production. Client mining companies consist of major (or senior), intermediate, and junior companies (which generally focus on exploration only). Mining companies’ budgets for external drilling services, such as those offered by Orbit Garant, are typically determined by ferrous (iron) and non- ferrous (precious and base) metals prices, and the availability of capital to finance exploration (particularly in the case of juniors) and development programs, and/or ongoing mining operations. Gold Gold prices are determined by the balance between supply (primarily mine production) and the many sources of demand including global demand for gold jewelry, investment demand, and to a much lesser extent, demand from industrial applications. The price of gold is lower today compared to 12 months ago. At the time of this report, the spot price of gold was approximately US$1,665 per ounce, representing a decline of approximately 6% compared to a year ago and an increase of approximately 42% from its trailing five-year price low in August 2018. During March 2022, the spot price of gold traded at near-record levels above US$2,000 per ounce. Base Metals Base metals’ prices generally reflect global economic conditions, as these metals are used primarily in infrastructure, industrial and manufacturing applications. Demand from emerging markets, particularly China and India, has a major influence on base metals markets. As emerging markets advance their economic development, their infrastructure and industrial bases expand. Further, residents typically become more affluent, driving increased demand for manufactured goods. Aluminum, copper, lead, nickel and zinc are the primary base metals. The spot prices of aluminium, copper and lead are lower compared to 12 months ago, and the spot prices of nickel and zinc are higher. The spot price for copper, the metal widely considered to be the most sensitive to macroeconomic activity, was approximately US$4.13 per pound a year ago and at the time of this report was approximately US$3.52 per pound, a decline of approximately 15%. The spot prices of the primary base metals are currently near the mid-points of their respective trailing five-year price ranges. Iron Ore Iron ore prices are determined by the global demand for steel, as more than 95% of mined iron ore is used to make steel. As both the world’s largest consumer and producer of steel, China is widely regarded as having the most influence on global iron ore market prices. Continuing urbanization of the world’s population, particularly in China and India, the world’s most populous countries, is fueling global steel consumption, and long-term demand is expected to continue to trend higher. In the short term, the spot price of iron ore is principally affected by seasonal effects, short- term mismatches between supply and demand, and other factors. At the time of this report, the spot price of iron ore 7 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 6 was approximately US$100 per tonne, compared to approximately US$104 per tonne one year ago. In May 2021, the spot price of iron ore reached a record high of approximately US$233 per tonne. Market Participants The mining industry has strengthened since a prolonged downturn ended in early 2016. Metal prices have increased, driving higher mining equity valuations and increased financing activity. Over the past 12 months, market conditions have been favourable for both precious metals and base metals mining companies, supported by the relatively strong prices of gold and base metals. While market conditions remain favourable, metal prices have declined from early 2022 levels, and financing activity to date in 2022 has been lower compared to 2021 levels. TSX / TSX-V Mining Sector Financings (2008 to August 31, 2022) 3 000 2 500 s g n i c n a n i F f o r e b m u N 2 000 1 500 1 000 500 0 20 18 16 14 12 10 8 6 4 2 0 ) s n o i l l i B $ ( d e s i a R l a t i p a C y t i u q E 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 YTD 2022 Financings - TSXV Financings - TSX Equity Capital Raised - TSXV Equity Capital Raised - TSX Mining companies listed on the Toronto Stock Exchange (“TSX”) and the TSX-Venture Exchange (“TSX-V”) completed 753 financings and raised $4.8 billion of equity capital during the first eight months of 2022, according to TMX Group. By comparison, they completed 1,018 financings and raised $7.3 billion of equity capital in the first eight months of 2021. In the comparable period in 2020, they completed 1,064 financings and raised $4.6 billion of equity capital. Global mineral exploration activity slowed down in the summer of 2022 after a very active spring. According to S&P Capital IQ Metals and Mining Research (September 2022), drilling results were reported from 341 projects in August 2022, a small increase from 330 projects in July, which was a 19-month low. Results were reported from 376 projects in June 2022 and a record 421 projects in May 2022. The total number of drill holes reported in August 2022 was 4,059, representing a month-over-month decline of 29% from 5,679 in July. According to a report from S&P Global Market Intelligence (April 2022), global exploration budgets for nonferrous metals increased 35% to US$11.2 billion in 2021, from US$8.3 billion in 2020. The increase reflected a recovery in market conditions following the negative impact of the COVID-19 pandemic in 2020. For 2022, S&P forecasts that global exploration budgets for nonferrous metals will increase a further 5% to 15% from 2021 levels, citing strong metal 8 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 7 prices and financing activity. However, S&P noted that Russia’s invasion of Ukraine has created uncertainty over commodity markets and the broader global economy that could persist “for some time”. OVERALL PERFORMANCE Results of operations for the year ended June 30, 2022 FISCAL YEARS ENDED JUNE 30 * ($millions) Fiscal 2022 Fiscal 2021 2022 vs. 2021 Variance Revenue * Gross profit * Gross margin (%) Adjusted gross margin (%) (1) Net earnings (loss) * Net earnings (loss) per common share - Basic ($) - Diluted ($) EBITDA * (2) Metres drilled 195.5 13.7 7.0 12.2 (6.6) (0.18) (0.18) 10.0 163.3 20.3 12.4 17.9 2.3 0.06 0.06 17.6 32.2 (6.6) (5.4) (5.7) (8.9) (0.24) (0.24) (7.6) 1,813,999 1,661,396 152,603 (1) Reflects gross margin, excluding depreciation expenses. See “Reconciliation of non-IFRS financial measures” (2) EBITDA = Earnings before interest, taxes, depreciation and amortization. See “Reconciliation of non-IFRS financial measures.” During Fiscal 2022, Orbit Garant drilled 1,813,999 metres, an increase of 9.2% compared to 1,661,396 metres drilled in Fiscal 2021. Average revenue per metre drilled in Fiscal 2022 was $107.40, compared to $97.45 in Fiscal 2021. The increase in average revenue per metre drilled is primarily attributable to increased pricing on drilling contracts in Canada, partially offset by a lower proportion of specialized drilling activity. The Company had 217 drill rigs as at June 30, 2022, compared to 223 drill rigs at the end of Fiscal 2021. During Fiscal 2022, the Company purchased three new drill rigs to be used in Guinea, while six conventional drill rigs were dismantled and three were sold. Orbit Garant currently has 43 drill rigs outfitted with computerized monitoring control technology. 9 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 8 SELECTED ANNUAL FINANCIAL INFORMATION For the years ended June 30 *($millions) Fiscal 2022 Fiscal 2021 Fiscal 2020 Contract revenue Drilling Canada * Drilling International * Total * Gross profit * Gross margin (%) Adjusted gross margin (%) (1) Net earnings (loss) * Net earnings (loss) per common share ($) Net earnings (loss) per common share diluted ($) Total assets * Long-term debt including current portion * Lease liabilities including current portion* EBITDA * (2) EBITDA % (2) Total metres drilled (million) 145.2 50.3 195.5 13.7 7.0 12.2 (6.6) (0.18) (0.18) 137.1 36.9 2.1 10.0 5.1 1.8 130.0 33.3 163.3 20.3 12.4 17.9 2.3 0.06 0.06 138.1 32.4 2.0 17.6 10.9 1.7 109.0 28.8 137.8 12.9 9.4 16.3 (7.4) (0.20) (0.20) 129.8 36.7 4.6 6.8 4.9 1.3 (1) Reflects gross margin, excluding depreciation expenses. See “Reconciliation of non-IFRS financial measures” (2) EBITDA = Earnings before interest, taxes, depreciation and amortization. See “Reconciliation of non-IFRS financial measures”. RESULTS OF OPERATIONS FISCAL 2022 COMPARED TO FISCAL 2021 Contract Revenue Revenue in Fiscal 2022 totalled $195.5 million, an increase of 19.7% compared to $163.3 million in Fiscal 2021, reflecting a global increase in the Company’s drilling activities and increased pricing on contracts in Canada. Canada revenue totalled $ 145.2 million in Fiscal 2022, an increase of 11.7% compared to $130.0 million in Fiscal 2021. The increase was primarily attributable to the year-over-year increase in the price per metre drilled. International revenue increased 50.9% to $50.3 million in Fiscal 2022, compared to $33.3 million in Fiscal 2021, reflecting new, long-term contracts in Chile and Guinea. Gross Profit and Margins (see Reconciliation of non-IFRS Financial measures) Gross profit for Fiscal 2022 was $13.7 million, compared to $20.3 million in Fiscal 2021. Gross margin was 7.0% compared to 12.4% in Fiscal 2021. Depreciation expenses totalling $10.0 million are included in cost of contract revenue for Fiscal 2022, compared to $8.9 million in Fiscal 2021. Adjusted gross margin, excluding depreciation expenses, was 12.2% in Fiscal 2022, compared to 17.9% in Fiscal 2021. 10 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 9 Gross profit and margins were negatively impacted by increased driller training costs, a decline in productivity because of a higher proportion of less experienced drillers, adverse weather conditions affecting drilling operations more than usual in Q3 2022 and higher wage and project ramp-up costs in Canada. Internationally, the Company incurred significant mobilization costs related to new, long-term contracts in Guinea and Chile. Orbit Garant is also experiencing supply chain disruptions and cost inflation for materials and fuel in all the regions in which it operates, which has also negatively impacted gross margins. The Company also experienced Omicron-related work interruptions starting in late November 2021 and into Q3 2022. In addition, the cost of contract revenue was reduced by $2.9 million in Fiscal 2021 as a result of financial support recorded from the Canadian Emergency Wage Subsidy (“CEWS”) program. Orbit Garant was no longer eligible for the CEWS program in Fiscal 2022. General and Administrative Expenses General and administrative (G&A) expenses were $14.5 million in Fiscal 2022, in line with Fiscal 2021. G&A expenses decreased to 7.4% of revenues in Fiscal 2022 compared to 8.9% in Fiscal 2021. G&A expenses were reduced by $0.3 million in Fiscal 2021 resulting from financial support recorded from the CEWS program. Orbit Garant was no longer eligible for the CEWS program in Fiscal 2022. Operating Results Earnings from operations for Fiscal 2022 were $2.4 million, compared to $9.5 million in Fiscal 2021. Drilling Canada’s operating earnings totalled $12.2 million in Fiscal 2022, compared to operating earnings of $15.2 million in Fiscal 2021. The decrease is primarily attributable to increased driller training and project ramp-up costs, Omicron-related work interruptions and higher costs of materials, fuel and wages, partially offset by increased pricing on drilling contracts. The decline also reflects the $2.9 million in financial support that Orbit Garant recorded from the CEWS program in Fiscal 2021, as discussed above. The Company was no longer eligible for the program in Fiscal 2022. Drilling International’s operating loss was $9.8 million in Fiscal 2022, compared to an operating loss of $5.7 million in Fiscal 2021. The increased operating loss for Fiscal 2022 is primarily attributable to the impact of the significant mobilization costs related to new long-term contracts, Omicron-related work interruptions and higher costs of materials and fuel, as discussed above. Foreign Exchange Loss Foreign exchange loss was $0.4 million in Fiscal 2022, compared to a foreign exchange loss of $0.7 million in Fiscal 2021. Provision for litigation As disclosed in the Contingency section of the Company’s MD&A for the fiscal year ended June 30, 2021, a claim against a subsidiary of the Company was confirmed by a court in Burkina Faso. The Company recorded a provision of $1.96 million in Q4 2020 for this claim and additional legal fees. On April 1, 2021, the Court of Appeal in Burkina Faso ruled in favor of Orbit Garant and overturned the original decision. As a result, the recognized liability was reversed during Q3 2021. EBITDA (see Reconciliation of non-IFRS financial measures) EBITDA was $10.0 million for Fiscal 2022, compared to $17.6 million in Fiscal 2021. The decrease was primarily attributable to increased driller training, project ramp-up costs, new project mobilization costs, Omicron-related work interruptions and higher costs of materials, fuel and wages, partially offset by increased drilling activities globally and increased pricing on drilling contracts in Canada. EBITDA in Fiscal 2021 was positively impacted by the $3.2 million 11 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 10 in financial support that the Company recorded from the CEWS program and the reversal of the $1.96 million for litigation in Burkina Faso in Q3 2021, as discussed above. Financial Expenses Interest costs related to long-term debt, lease liabilities and bank charges were $2.2 million in Fiscal 2022, compared to $2.3 million during Fiscal 2021. Income Tax Income tax expense was $3.2 million in Fiscal 2022, compared to an income tax expense of $2.5 million in Fiscal 2021. The effective tax rate for Fiscal 2022 was negatively impacted mainly by non Canadian tax losses for which no deferred tax assets were recognized, as it was the case for a portion of Fiscal 2021. Net Earnings (Loss) Net loss for Fiscal 2022, was $6.6 million, or $0.18 per share, compared to net earnings of $2.3 million, or $0.06 per share, in Fiscal 2021. The negative variance reflects increased driller training and project ramp-up costs, new project mobilization costs, higher costs of materials, fuel and wages, the cessation of financial support from the CEWS program, the reversal of the provision for litigation in Burkina Faso recorded in Q3 2021, as discussed above, partially offset by increased drilling activity globally and increased pricing on drilling contracts in Canada. SUMMARY OF QUARTERLY RESULTS * ($millions) Contract revenue * Gross profit (1)* Gross margin % Net earnings (loss) * Net earnings (loss) per common share ($) - Basic - Diluted Fiscal 2022 Fiscal 2021 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 53.8 6.9 12.8 0.5 0.01 0.01 45.2 45.9 50.6 51.1 40.5 0.3 0.7 (4.1) (0.10) (0.10) 2.7 6.0 (1.7) (0.05) (0.05) 3.8 7.4 (1.3) (0.04) (0.04) 3.0 5.9 (2.2) (0.06) (0.06) 3.2 7.8 0.7 0.02 0.02 36.1 5.4 14.9 0.3 0.01 0.01 35.6 8.7 24.6 3.5 0.09 0.09 (1) Includes amortization and depreciation expenses related to operations. SEASONALITY The Company’s quarterly revenue reflects certain seasonal factors. In underground drilling operations, scheduled mine shutdowns over holiday and summer periods at some locations reduce revenue during these periods. In domestic and international surface drilling operations, weather conditions often cause drilling programs to pause, or to be planned around seasonal fluctuations. 12 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 11 ANALYSIS OF THE FOURTH QUARTER OF FISCAL 2022 (“Q4 2022”), COMPARED TO THE FOURTH QUARTER OF FISCAL 2021 (“Q4 2021”) Contract Revenue Revenue for Q4 2022 totalled $53.8 million, an increase of 5.3% compared to $51.1 million for Q4 2021, reflecting an increase in pricing on contracts in Canada. Canada revenue totalled $42.0 in Q4 2022, an increase of 10.4% compared to $38.1 million in Q4 2021, reflecting sustained domestic demand for the Company’s drilling services in Q4 2022 and improved pricing on drilling contracts. International revenue decreased to $11.8 million in Q4 2022 from $13.0 million in Q4 2021. The decrease reflects a reduction of drilling activity in Burkina Faso, partially offset by increased drilling activities in Guinea and Chile. Gross Profit and Margins (see Reconciliation of non-IFRS financial measures) Gross profit for Q4 2022 was $6.9 million, an increase of 130.6% from $3.0 million in Q4 2021. Gross margin for Q4 2022 was 12.8% compared to 5.9% in Q4 2021. Depreciation expenses totalling $2.3 million are included in the cost of contract revenue for Q4 2022, compared to $2.0 million in Q4 2021. Adjusted gross margin, excluding depreciation expenses, was 17.2% in Q4 2022, compared to adjusted gross margin of 9.8% in Q4 2021. The increase in gross profit, gross margin and adjusted gross margin was primarily attributable to an increase in average revenue per metre drilled, decreased project ramp-up costs in Canada, and a reduction in mobilization costs for new, long-term projects in Guinea and Chile. General and Administrative Expenses G&A expenses were $3.8 million, or 7.0% of revenue, in Q4 2022, compared to $3.9 million, or 7.7% of revenue, in Q4 2021. Operating Results Earnings from operations for Q4 2022 were $4.0 million compared to a negligible amount in Q4 2021. Drilling Canada’s operating earnings totalled $6.0 million in Q4 2022, compared to $1.6 million in Q4 2021. Canada’s drilling operating earnings in Q4 2022 were positively impacted by an increase in average revenue per metre drilled and decreased project ramp-up costs, as discussed above. Drilling International’s operating loss totalled $2.0 million in Q4 2022, compared to an operating loss of $1.6 million in Q4 2021. The negative variance was primarily attributable to the decrease in drilling activities in Burkina Faso, partially offset by increased drilling operations and a reduction in mobilization costs for new, long-term projects in Guinea and Chile. Foreign Exchange Loss (Gain) Foreign exchange loss was $0.1 million in Q4 2022, compared to $0.2 million in Q4 2021. EBITDA (see Reconciliation of non-IFRS financial measures) EBITDA totalled $5.7 million in Q4 2022, compared to $ 1.2 million in Q4 2021. The increase was primarily attributable to increased pricing on drilling contracts in Canada, as discussed above. 13 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 12 Financial Expenses Interest costs related to long-term debt and bank charges were $0.7 million in Q4 2022, compared to $0.5 million in Q4 2021. Income Tax Income tax expense was $1.9 million in Q4 2022, compared to a tax expense of $0.5 million in Q4 2021. Net Earnings (Loss) Net earnings for Q4 2022 were $0.5 million, or $0.01 per share, compared to a net loss of $2.2 million, or $0.06 per share, in Q4 2021. The positive variance is primarily attributable to increased pricing on drilling contracts, decreased project ramp-up costs in Canada, and a reduction in mobilization costs for new, long-term projects in Guinea and Chile, as discussed above. EFFECT OF EXCHANGE RATE The Company realizes portions of its business activities in the following foreign currencies: US dollars (“US $”), Chilean Pesos (“CLP”), Argentine Pesos (“ARS”), Ghanaian cedi (“GHS”), West African Francs (“XOF”), and Guinean Francs (“GNF”), and is thus exposed to foreign exchange fluctuations. Orbit Garant does not actively manage this risk. As at June 30, 2022, and 2021, the Company had the following amounts of cash and accounts receivable in foreign currencies and has provided the respective impact on earnings before income taxes ("EBIT") in Canadian dollars, if the corresponding foreign exchange rates were to change by plus or minus 10%: As at June 30, 2022 *($millions) Cash* Accounts receivable* EBIT impact +/- 10%* As at June 30, 2021 *($millions) Cash* Accounts receivable* EBIT impact +/- 10%* US $ 0.1 0.5 (0.1) US $ 1.1 1.2 0.1 CLP 42.3 1,381.8 - CLP 527.3 1,904.4 (0.3) GHS - 5.9 0.1 GHS 0.2 5.6 0.1 XOF 332.2 609.4 - GNF 1,321.6 3,656.4 0.1 XOF 3.8 1,552.5 (0.5) GNF 7,157.0 7,678.8 0.1 LIQUIDITY AND CAPITAL RESOURCES Operating Activities Cash flow from operations (before changes in non-cash operating working capital items, finance costs and income taxes paid), was $9.3 million in Fiscal 2022, compared to $15.5 million in Fiscal 2021. The change in non-cash operating working capital items was an outflow of $1.1 million, compared to an outflow of $3.4 million in Fiscal 2021.The change in non-cash operating working capital in Fiscal 2022 was primarily attributable to: 14 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 13 • • • $6.1 million related to an increase in inventory, and $0.4 million related to an increase in accounts receivable and prepaid expenses, partially offset by $5.4 million related to an increase in accounts payable Investing Activities Cash used in investing activities totalled $10.8 million in Fiscal 2022, compared to $6.7 million in Fiscal 2021. During Fiscal 2022, $12.0 million was used for the acquisition of property, plant and equipment and intangible assets, partially offset by a cash inflow of $1.2 million on disposal of investments, property plant and equipment. During Fiscal 2021, $7.9 million was used for the acquisition of property, plant and equipment, intangible assets and for deposits on purchased equipment, partially offset by a cash inflow of $1.2 million on disposal of investments, property, plant and equipment. Financing Activities During Fiscal 2022, cash flow of $2.7 million was generated from financing activities. In Fiscal 2021, the Company repaid a net amount of $3.8 million of its long-term debt and lease liabilities. Orbit Garant’s primary sources of liquidity are cash flow from operations and borrowings under a credit facility (the “Credit Facility”) with National Bank of Canada Inc., in its capacity as agent (“National Bank”). On March 8, 2021, the Company and National Bank entered into a fourth amended and restated credit agreement in respect of the Credit Facility which was subsequently amended by a first amending agreement dated as of November 22, 2021 and a second amending agreement dated as of May 10, 2022 (collectively, the “Credit Agreement”). This Credit Facility, as at June 30, 2022, consisted of a $35.0 million revolving credit facility and a US$5.0 million revolving credit facility guaranteed by Export Development Canada (“EDC”). The Credit Agreement expires on November 2, 2024 The Company withdrew a net amount of $7.3 million Fiscal 2022 on its Credit Facility, compared to a reimbursement of $4.4 million in Fiscal 2021. The Company’s long-term debt, under the Credit Facility, including US$1.0 million ($1.3 million) drawn from the US$5.0 million revolving credit facility and the current portion, was $31.5 million as at June 30, 2022, compared to $24.3 million as at June 30, 2021. The debt was used to support working capital requirements and the acquisition of capital assets, property, plant and equipment. As at June 30, 2022, the Company’s working capital totalled $53.4 million, compared to $54.0 million as at June 30, 2021. The Company’s working capital requirements are primarily related to the funding of inventory and the financing of accounts receivable. The Company believes that it will be able to generate sufficient cash flow to meet its current and future working capital expenditures and repayment of its debt obligations. The Company’s principal capital expenditures are related to the acquisition of drill rigs and related drilling equipment. Sources of Financing As at June 30, 2022, the Company complied with all covenants in the Credit Agreement and in the EDC Loan agreement. The Company expects that availability under the Credit Facility will continue to provide it with sufficient liquidity to fund its working capital and capital asset acquisition requirements. Orbit Garant’s primary sources of liquidity are cash flows from operations and borrowings under its Credit Facility. The Credit Facility matures no later than November 2, 2024. As at June 30, 2022, the Company had drawn $31.5 million ($24.3 million as at June 30, 2021) under the Credit Facility. Availability under Credit Facility is subject to a borrowing base that is determined by the value of the Company’s inventory, accounts receivable and real estate. Except as noted below, all of Orbit Garant’s assets are pledged as 15 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 14 security for the Company’s obligations under the Credit Facility. In addition, the Company’s obligations under the US$5.0 million revolving credit facility are guaranteed by EDC. The Credit Agreement contains covenants that limit the Company’s ability to undertake certain actions without prior approval of the Lender, including: i) mergers, liquidations, dissolutions and changes of ownership; ii) the incurrence of additional indebtedness; iii) encumbering the Company’s assets; iv) guarantees, loans, investments and acquisitions that may be made by the Company; v) investing in or entering into derivative instruments, paying dividends and/or making other capital distributions to related parties; vi) capital expenditures exceeding mutually agreed upon limits; and vii) certain asset sales. The Credit Agreement also contains a number of financial covenants that the Company must comply with. On December 20, 2018, Orbit Garant entered into an additional loan agreement with EDC for a term loan in the principal amount of up to US$5.15 million for the purposes of financing the acquisition of certain assets of PPI that was completed on October 11, 2018 (the “EDC Loan”). Orbit Garant is required to repay this loan in 57 consecutive monthly installments commencing May 2019, and maturing January 2024. The Company’s obligations under the EDC Loan, are secured by a third ranking hypothec over all of Orbit Garant’s assets. On January 21, 2019, an initial drawdown of US$2.575 million was used to reduce the amount drawn from the Company’s Credit Facility. On October 9, 2019, Orbit Garant withdrew an amount of $3.4 million (US$2.575 million) to fund the final payment in connection with the acquisition of certain assets of PPI. On April 23, 2020, the Company and EDC made arrangements whereby, among other things, all payments of principal and interest under the EDC Loan were deferred until October 16, 2020, and therefore the terms of these loans were extended by six months. Orbit Garant’s long-term debt under the EDC Loan including the current portion amounted to $3.0 million as at June 30, 2022 ($4.3 million as at June 30, 2021). In May 2020, OG Chile obtained a total of approximately $1.7 million in loans from Banco Scotiabank. The loans bear interest at a rate of 3.5% per annum, have a term of 36 months and are 70% guaranteed by the Chilean government. The loans had no capital repayments for the first six months and the interest over such period is capitalised over the remaining term of the loans. In February 2021, OG Chile, entered into a financing agreement with Banco Scotiabank for a total of approximately $2.6 million in order to purchase the office building it had rented for several years. This agreement bears interest at a rate of 3.3% per annum, has a term of 84 months and is guaranteed by OG Chile’s real estate assets. On September 9, 2022, the Company entered into an additional loan agreement with the Business Development Bank of Canada (the “BDC Loan Agreement”) which provides for a term loan in the principal amount of $8.47 million. The loan bears interest at a fixed rate of 6.70% per year, has a 20 year term and is repayable by way of 240 consecutive monthly payments from November 2022 until October 2042. The fixed interest rate may be reduced by 0.20% from November 2023, if certain financial covenants are met by the Company. The Company's obligations under the BDC Loan Agreement are secured: (a) by a first ranking immovable hypothec on the building serving as the Company's head office located in Val-d'Or, Quebec (the “Property”); and (b) guaranteed on a solidary (joint and several) basis by certain of the Company’s subsidiaries. As a result of the Company entering into the BDC Loan Agreement and in order to extract the Property from the borrowing base under the Credit Agreement the Company entered into a third amending agreement to the Credit Agreement with National Bank on September 9, 2022 (the “Third Amending Agreement”), pursuant to which the amount available for borrowing under the revolving facility contemplated under the Credit Agreement was reduced, as of that date, from $35.0 to $30.0 million. Other noteworthy amendments made pursuant to the Third Amending Agreement include consents by National Bank to authorize the first ranking immovable hypothec on the Property pursuant to the BDC Loan Agreement and modifications to certain financial covenants of the Company applicable to the Company’s first fiscal quarter of 2023 and future quarters. Orbit Garant believes that it will continue to meet its payment terms under its credit facilities and have sufficient resources to carry on its business operations. 16 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 15 As at June 30, 2022, the Company had future contractual obligations as follows: ($000s) Long-term debt Lease liabilities Operating leases Total Total 37,213 2,066 171 39,450 Less than 1 year 2,222 675 132 3,029 1-3 years 33,588 709 39 34,336 4-5 years 186 292 - 478 Subsequent years 1,217 390 - 1,607 OUTSTANDING SECURITIES AS AT SEPTEMBER 20, 2022 Number of common shares Number of options Fully diluted 37,372,756 3,243,500 40,616,256 During Fiscal 2022, the Company cancelled 99,000 options. RELATED PARTY TRANSACTIONS The Company is related to Dynamitage Castonguay Ltd., a company in which a director has an interest. During the twelve-month periods ended June 30, 2022 and June 30, 2021, the Company entered into the following transactions with its related company and with persons related to directors: ($000s) Revenue Expenses 12 months ended June 30, 2022 31 172 12 months ended June 30, 2021 10 162 As at June 30, 2022, a negligible amount was a receivable resulting from these transactions (a negligible amount as at June 30, 2021) All these related party transactions made in the normal course of business measured at the exchange amount, which is the amount established and agreed to by the parties. Key management personnel and directors’ transactions The definition of key management includes the close members of the family of key personnel and any entity over which key management exercises control. The key management personnel have been identified as directors of the Company and key management staff. Close members of the family are those family members who may be expected to influence, or be influenced by that individual in their dealings with the Company. Compensation paid to key management personnel and directors is as follows: ($000s) Salaries and fees Share-based compensation Total 12 months ended June 30, 2022 1,054 84 1,138 17 12 months ended June 30, 2021 1,187 42 1,229 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 16 CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGMENTS The significant accounting policies are described in note 4 of the Fiscal 2022 audited consolidated financial statements. The preparation of financial statements in accordance with IFRS requires the Company's Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and contingent liabilities on the reporting date and amounts of revenues and expenses for the relevant period. Although Management regularly reviews its estimates, actual results may differ. The impact of changes to accounting estimates is recognized in the period during which the change occurs, and in the affected future periods, when applicable. Areas in which the estimates and assumptions are significant, or which are complex, are presented as follows: A- CRITICAL ACCOUNTING ESTIMATES Inventories Part of the inventory was estimated based on the number of drills on mining site. In estimating the cost of this inventory, management takes into account the estimated amount of inventory per drill, based on the most reliable evidence available at the time the estimate was made. Impairment of non-financial assets The Company also uses its judgment to determine whether an impairment test must be performed due to the presence of potential impairment indicators. In applying its judgment, the Company relies primarily on its knowledge of its business and the economic environment. Significant management estimates are required to determine the recoverable amount of the cash-generating unit ("CGU") including estimates of future cash flows. Differences in estimates could affect whether tangible and intangible assets are in fact impaired and the dollar amount of that impairment. Significant assumptions are used by management to determine the projected revenue, operating expenses, utilization, discount rates and market pricing. Notably, these estimates are made in the context of COVID-19, an unprecedented global pandemic, resulting in a higher degree of uncertainty. Consequently, the impact on the Consolidated Financial Statements of future periods could be material. Deferred income tax assets The assessment of the probability in which deferred tax assets can be utilized is based on the Company’s latest approved budget forecast, which is adjusted for significant non-taxable income (and expenses) and specific limits to the use of any unused tax loss or credit. The tax rules in the numerous jurisdictions in which the Company operates are also carefully taken into consideration. If a forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilized without a time limit, that deferred tax asset is usually recognized in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties is assessed individually by Management based on specific facts and circumstances. Income taxes The Company is subject to income taxes in various jurisdictions. Judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due in the future. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities. 18 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 17 B- JUDGMENTS Functional currency In determining the functional currency of its foreign subsidiaries, the Company needs to evaluate different factors such as the currency that mainly influences sales prices and costs, the economic environment and the degree of autonomy of the subsidiary. Following the evaluation of the different factors, when the functional currency is not obvious, the Company uses its judgment to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. Significant judgment in determining the lease term of contracts with renewal options The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. After the commencement date, the Company reassesses the lease term for whether significant event of change in circumstances that is within its control and affects its ability to exercise (or not exercise) the option to renew has occurred. RECONCILIATION OF NON - IFRS FINANCIAL MEASURES Financial data has been prepared in conformity with IFRS. However, certain measures used in this discussion and analysis do not have any standardized meaning under IFRS and could be calculated differently by other companies. The Company believes that certain non-IFRS financial measures, when presented in conjunction with comparable IFRS financial measures, are useful to investors and other readers because the information is an appropriate measure to evaluate the Company’s operating performance. Internally, the Company uses this non-IFRS financial information as an indicator of business performance. These measures are provided for information purposes, in addition to, and not as a substitute for, measures of financial performance prepared in accordance with IFRS. EBITDA: Net earnings (loss) before interest, taxes, depreciation and amortization. Adjusted gross profit and margin: Contract revenue less operating costs. Operating expenses comprise material and service expenses, personnel expenses, other operating expenses, excluding depreciation. EBITDA Management believes that EBITDA is an important measure when analyzing its operating profitability, as it removes the impact of financing costs, certain non-cash items and income taxes. As a result, Management considers it a useful and comparable benchmark for evaluating the Company’s performance, as companies rarely have the same capital and financing structure. 19 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 18 Reconciliation of EBITDA (unaudited) (in millions of dollars) Net earnings (loss) for the period Add: Finance costs Income tax expense Depreciation and amortization EBITDA 3 months ended June 30, 2022 3 months ended June 30, 2021 12 months ended June 30, 2022 12 months ended June 30, 2021 12 months ended June 30, 2020 0.5 0.7 1.9 2.6 5.7 (2.2) (6.6) 0.5 0.5 2.4 1.2 2.2 3.2 11.2 10.0 2.3 2.3 2.5 10.5 17.6 (7.4) 2.7 0.2 11.3 6.8 Adjusted Gross Profit and Margin Although adjusted gross profit and margin are not recognized financial measures defined by IFRS, Management considers them to be important measures as they represent the Company’s core profitability, without the impact of depreciation expense. As a result, Management believes they provide a useful and comparable benchmark for evaluating the Company’s performance. Reconciliation of Adjusted Gross Profit and Margin (unaudited) (in millions of dollars) 3 months ended June 30, 2022 3 months ended June 30, 2021 12 months ended June 30, 2022 12 months ended June 30, 2021 12 months ended June 30, 2020 Contract revenue Cost of contract revenue (including depreciation) Less depreciation Direct costs Adjusted gross profit Adjusted gross margin (%) (1) 53.8 46.8 (2.3) 44.5 9.3 17.2 (1) Adjusted gross profit, divided by contract revenue X 100 RISK FACTORS 51.1 48.1 (2.0) 46.1 5.0 9.8 195.5 181.7 (10.0) 171.7 23.8 12.2 163.3 143.1 (8.9) 134.2 29.1 17.9 137.8 124.9 (9.5) 115.4 22.4 16.3 The following are certain factors relating to the Company’s business and the industry within which it operates. The following information is a summary only of certain risk factors and is qualified in its entirety by reference to, and should be read in conjunction with, the detailed information appearing elsewhere in this report and in the Company’s Annual Information Form dated September 20, 2022. These risks and uncertainties are not the only ones relevant to the Company. Additional risks and uncertainties not currently known to the Company, or that the Company currently deems immaterial, may also impair the operations of the Company. If any such risks actually occur, the business, financial condition, liquidity and results of operations of the Company could be affected materially and adversely. Pandemics, Force Majeure and Natural Disasters The Company may be affected by pandemics such as the COVID-19 coronavirus, force majeure events and natural disasters. The likelihood and magnitude of such events are inherently difficult to predict, and their significance is highly uncertain and may depend on factors beyond the Company and its control. A prolonged economic disruption, following 20 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 19 such an event or disaster, including the ongoing COVID-19 outbreak, may have a material and adverse impact on revenues, cash flow and profitability of the Company, including, without limitation, by compromising employee health and productivity in the workplace, disruption of supply chains and the business of the Company's customers. With respect to the ongoing COVID-19 outbreak, the Company continues to closely monitor the impact of the pandemic in the jurisdictions in which it operates and across the organization, ensuring that policies, procedures and plans are in place to help minimize the negative impact that the outbreak has on its business and workforce. Risk Related to Structure to the Business and Industry Cyclical Downturns Demand for drilling services and products depends significantly on the level of mineral exploration and development activities conducted by mining companies, which in turn, are driven significantly by commodity prices. There is a continued risk that low commodity prices could substantially reduce future exploration and drilling expenditures by mining companies, which in turn, could result in a decline in the demand for the drilling services offered by the Company and would materially impact the Company’s revenue, financial condition, cash flows and growth prospects. Sensitivity to General Economic Conditions The operating and financial performance of Orbit Garant is influenced by a variety of international and country-specific general economic and business conditions (including inflation, interest rates and exchange rates), access to debt and capital markets, as well as monetary and regulatory policies. Deterioration in domestic or international general economic conditions, including an increase in interest rates or a decrease in consumer and business demand, could have a material adverse effect on the financial performance and condition, cash flows and growth prospects of the Company. Reliance on and Retention of Employees In addition to the availability of capital for equipment, a key limiting factor in the growth of drilling services companies is the supply of qualified drillers, on whom the Company relies upon to operate its drills. As such, the ability to attract, train and retain high quality drillers is a high priority for all drilling services providers. A failure by the Company to retain qualified drillers or attract and train new qualified drillers could have a material adverse effect on the Company’s financial performance, financial condition, cash flows and growth prospects. In addition, rising rates paid to drillers and helpers will exert pressure on the Company’s profit margins if it is unable to pass on such higher costs to its customers through price increases. Increased Cost of Sourcing Consumables When bidding on an underground drilling contract, the cost of sourcing consumables is a key consideration in deciding upon the pricing. Underground drilling contracts are typically for one to two years and expose the Company to an increase in the cost of consumables and labor during that period. A material increase in the cost of labor or consumables during that period could result in materially higher costs and could materially reduce the Company’s financial performance, financial condition, cash flows and growth prospects. Country Risks The Company does business internationally in numerous regions of different countries and with this comes the risk of dealing with business and political systems in a variety of jurisdictions. Unanticipated events in a country (precipitated by developments within or external to the country), such as economic, political, legal, tax related, regulatory or legal changes (or changes in interpretation), could, directly or indirectly, have a material negative impact on operations and assets. The risks include, but are not limited to, military repression, extreme fluctuations in currency exchange rates, high rates of inflation, changes in mining or investment policies, nationalization/expropriation of projects or assets, 21 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 20 corruption, delays in obtaining or inability to obtain necessary permits, nullification of existing mining claims or interests therein, hostage takings, labour unrest, opposition to mining from environmental or other non-governmental organisations or shifts in political attitude that may adversely affect the business. There has been an emergence of a trend by governments to increase their participation in the industry and thereby their revenues through increased taxation, expropriation, or otherwise. This could negatively impact the level of foreign investment in mining and exploration activities and thus drilling demand in these regions. Such events could result in reductions in revenue and additional transition costs as equipment is shifted to other locations. Nationalization/expropriation of mining projects has a direct impact on suppliers (such as the Company) to the mining industry. While the Company works to mitigate its exposure to potential country risk events, the impact of any such event is mostly not under the Company’s control, is highly uncertain and unpredictable and will be based on specific facts and circumstances. As a result, the Company can give no assurance that it will not be subject to any country risk event, directly or indirectly, in the jurisdictions in which it operates. Tax Risks Orbit Garant operates in many countries and is therefore subject to many different forms of taxation in various jurisdictions throughout the world, including but not limited to, property tax, income tax, withholding tax, commodity tax, social security and other payroll related taxes, foreign currency and capital repatriation laws. An unfavorable interpretation of the current tax legislation could have a material adverse effect on the profitability of the Company or may lead to disagreements with tax authorities regarding the interpretation of tax law. Tax law and its administration are extremely complex and often require the Company to make subjective determinations. The Company must make assumptions about, but not limited to, the tax rates in various jurisdictions, the effect of tax treaties between jurisdictions and taxable income projections due to tax law and its administration which are extremely complex. To the extent that such assumptions differ from actual results, or if such jurisdictions were to change or modify such laws or the current interpretation thereof, the Company may have to record additional tax expenses and liabilities, including interest and penalties. Moreover, there is a risk in which the countries where the Company operates may change their current tax regime with little prior notice or that the tax authorities in these jurisdictions may attempt to claim tax on the global revenues of the Company. Leverage and Restrictive Covenants Orbit Garant entered into the Credit Agreement in order to provide it with credit facilities to fund, among other things, working capital and acquisitions. The degree to which Orbit Garant is leveraged could have important consequences, including: i) Orbit Garant’s ability to obtain additional financing for working capital, capital expenditures or acquisitions in the future may be limited; ii) a significant portion of Orbit Garant’s cash flow from operations may be dedicated to the payment of the principal of and interest on its indebtedness, thereby reducing funds available for future operations; and iii) certain of Orbit Garant’s borrowings (including borrowings under the Credit Agreement) will be at variable rates of interests, which exposes Orbit Garant to the risk of increased interest rates which may have an adverse effect on Orbit Garant’s financial condition. The Credit Agreement contains numerous restrictive covenants that limit the discretion of Orbit Garant’s Management with respect to certain business matters. These covenants place significant restrictions on, among other things, changes in ownership and the ability of Orbit Garant to create liens or other encumbrances, to pay dividends or make certain other payments, investments, acquisitions, capital expenditures, loans and guarantees and to sell or otherwise dispose of assets and merge with another entity. In addition, the Credit Agreement contains financial covenants that require Orbit Garant to meet certain financial ratios and financial condition tests. A failure to comply with the obligations in the Credit Agreement could result in a default that, if not cured or waived, could permit acceleration of the relevant indebtedness. If the indebtedness under the Credit Agreement were to be accelerated, there can be no assurance that the assets of Orbit Garant would be sufficient to repay in full that indebtedness. In addition, the Credit Agreement will mature no later than November 2, 2024. There can be no assurance that future borrowings or equity financing will be available to Orbit Garant or available on acceptable terms, in an amount sufficient to repay the Credit Agreement at 22 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 21 maturity or to fund Orbit Garant’s needs thereafter. This could have a material adverse effect on the business, financial condition and results of operations of Orbit Garant. Access of Customers to Equity Markets Economic factors may make it more difficult for mining companies, particularly junior mining companies, to raise money to fund exploration activity. This difficulty would have an adverse impact on the demand for drilling services and could have a material adverse effect on the financial performance, financial condition, cash flows and growth prospects of the Company. Acquisitions Orbit Garant is continuously seeking business acquisitions. It may be exposed to business risks or liabilities for which it may not be fully indemnified or insured. The ongoing integration of existing and new computer systems, equipment and personnel may impact the success of the acquisitions. Any issues arising from the integration of the acquired businesses, including the integration of the accounting software, may require significant management, financial or personnel resources that would otherwise be available for ongoing development and expansion of the Company’s existing operations. If this happens, it may have a material adverse effect on the financial performance, financial condition, cash flows and growth prospects of the Company. Supply of Consumables If the Company should grow, it could put pressure on its ability to manufacture or otherwise obtain new drills and consumables required to conduct the Company’s drilling operations. This could constrain Orbit Garant’s ability to increase its capacity and increase or maintain revenue and profitability. Competition The Company faces competition from several large drilling services companies and many smaller, regional competitors. Some of the Company’s competitors have been in the drilling services industry for a longer period and have substantially greater financial and other resources than the Company has. Increased competition in the drilling services market may adversely affect the Company’s current market share, profitability and growth opportunities. The capital cost to acquire drilling rigs is relatively low, enabling competitors to finance expansion and providing opportunity for new competitors to enter the market. This dynamic exposes the Company to the risk of reduced market share and scope for geographic growth, as well as lower revenue and margin for its existing business. A significant portion of the drilling services business is a result of being awarded contracts through a competitive tender process. It is possible that the Company will lose potential new contracts to competitors if it is unable to demonstrate reliable performance, technical competence and competitive pricing as part of the tender process or if mining companies elect not to undertake a competitive tender process. Ability to Sustain and Manage Growth Orbit Garant’s ability to grow will depend on a number of factors, many of which are beyond the Company’s control, including, but not limited to, commodity prices, the ability of mining companies to raise financing and the demand for raw materials from large, emerging economies such as Brazil, Russia, India and China (“BRIC’’) economies. In addition, the Company is subject to a variety of business risks generally associated with growing companies. Future growth and expansion could place significant strain on the Company’s Management personnel and likely will require the Company to recruit additional management personnel. There can be no assurance that the Company will be able to: i) manage its expanding operations (including any acquisitions) effectively; ii) sustain or accelerate its growth or that such growth, if achieved, will result in profitable operations; iii) attract and retain sufficient management personnel necessary for continued growth; or, iv) successfully 23 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 22 make strategic investments or acquisitions. The failure to accomplish any of the foregoing could have a material adverse effect on the Company’s financial performance, financial condition, cash flows and growth prospects. Future Acquisition Strategy Orbit Garant intends to grow through acquisitions in addition to organic growth. There is considerable competition within the drilling services industry for attractive acquisition targets. It is not possible to ensure that future acquisition opportunities will exist on acceptable terms, or that newly acquired or developed entities will be successfully integrated into the Company’s operations. Additionally, the Company cannot give assurances that it will be able to secure the adequate financing on acceptable terms to pursue this strategy. Customer Contracts The Company’s surface drilling customer contracts are typically for a term of six (6) to twelve (12) months and its underground drilling customer contracts are typically for a term of one to two years and can be cancelled by the customer on short notice in prescribed circumstances with limited or no amounts payable to the Company. There is a risk that existing contracts may not be renewed or replaced. The failure to renew or replace some or all of these existing contracts and cancellation of existing contracts could have a material adverse effect on the Company’s financial performance, financial condition, cash flows and growth prospects. In addition, consolidation by the Company’s customers could materially and adversely affect the Company’s results of operations and financial condition. International Expansion and Instability Expansion internationally entails additional political and economic risk. Some of the countries and areas targeted by the Company for expansion are undergoing industrialization and urbanization and do not have the economic, political or social stability that many developed nations now possess. Other countries have experienced political or economic instability in the past and may be subject to risks beyond the Company’s control, such as war or civil disturbances, political, social and economic instability, corruption, nationalization, terrorism, expropriation without fair compensation or cancellation of contract rights, significant changes in government policies, breakdown of the rule of law and regulations and new tariffs, taxes and other barriers. There is a risk that the Company’s operations, assets, employees or repatriation of revenue could be impaired or adversely affected by factors related to the Company’s international expansion and have a material adverse effect on the financial performance, financial condition, cash flow and growth prospects of the Company. Operational Risks and Liability Risks associated with drilling include, in the case of employees, personal injury and loss of life and, in the case of the Company, damage and destruction to property, equipment, release of hazardous substances to the environment and interruption or suspension of drill site operation due to unsafe drill operations. The occurrence of any of these events may have an adverse effect on the Company, including financial loss, key personnel loss, legal proceedings and damage to the Company’s reputation. In addition, poor or failed internal processes, people or systems, along with external events could negatively impact the Company’s operational and financial performance. The risk of this loss, known as operational risk, is present in all aspects of the business of the Company, including, but not limited to, business disruptions, technology failures, theft and fraud, damage to assets, employee safety, regulatory compliance issues or business integration issues. The number and significance of the changes and the possibility that the Company may not be able to successfully implement the changes made, may adversely affect the performance of the business and its financial condition, cash flows and growth prospects of the Company. 24 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 23 Currency Exposure Orbit Garant conducts some of its activities in US $, CLP, ARS, GHS, XOF and GNF and is thus exposed to foreign exchange fluctuations. As at June 30, 2022, the Company had the following currency risk exposure related to financial assets and liabilities in US $, CLP, ARS, GHS, XOF and GNF of approximately: $(1.1), $(0.5), $0.0, $1.3, $(0.4) and $0.1 million, respectively in Canadian dollars ($1.2, $(3.6), $0.0, $1.8, $(7.4) and $1.4 respectively in Canadian dollars as at June 30, 2021). This exposure could change in the future and a significant portion of our revenue could potentially be denominated in currencies other than the Canadian dollar, fluctuations of which could cause a negative impact on our financial performance. Business Interruptions Business interruptions can occur as a result of a variety of factors, including regulatory intervention, delays in necessary approvals and permits, health and safety issues or product input supply bottlenecks. In addition, the Company operates in a variety of geographic locations, some of which are prone to inclement weather conditions, natural or other disasters. The occurrence of such conditions or any business interruption could have a material adverse effect on the Company’s financial performance, financial condition, cash flows and growth prospects. Risk to the Company’s Reputation Risks to the Company’s reputation could include any negative publicity, whether true or not, and could cause a decline in the Company’s customer base and have a material adverse impact on the Company’s financial performance, financial condition, cash flows and growth prospects. All risks have an impact on reputation, and as such, reputational risk cannot be managed in isolation from other types of risk. Every employee and representative of the Company is charged with upholding its strong reputation by complying with all applicable policies, legislation and regulations as well as creating positive experiences with the Company’s customers, stakeholders and the public. Corruption, Bribery and Fraud Orbit Garant is required to comply with the Canadian Corruption of Foreign Public Officials Act (“CFPOA”) as well as similar applicable laws in other jurisdictions, which prohibit companies from engaging in bribery or other prohibited payments or gifts to foreign public officials for the purpose of retaining or obtaining business. The Company’s policies mandate compliance with these laws. However, there can be no assurance that the policies and procedures and other safeguards that the Company has implemented in relation to its compliance with these laws will be effective or that Company employees, agents, suppliers or other industry partners have not engaged or will not engage in such illegal conduct for which the Company may be held responsible. Violations of these laws could disrupt the Company’s business and result in a material adverse effect on its business and operations. Environment, Health and Safety Requirements and Related Considerations The Company’s operations are subject to a broad range of federal, provincial, state and local laws and regulations as well as permits and other approvals, including those relating to the protection of the environment and workers’ health and safety governing, among other things, air emissions, water discharges, non-hazardous and hazardous waste (including waste water), storage, handling, disposal and clean-up of dangerous goods and hazardous materials such as chemicals, remediation of releases and workers’ health and safety in Canada and elsewhere (the ‘‘Environment, Health and Safety Requirements’’). As a result of the Company’s operations, it may be involved from time to time in administrative and judicial proceedings and inquiries relating to Environment, Health and Safety Requirements. Future proceedings or inquiries could have a material adverse effect on the Company’s business, financial condition and results of operations. The activities at clients’ worksites may involve operating hazards that can result in personal injury and loss of life. There can be no assurance that the Company’s insurance will be sufficient or effective under all circumstances or against all claims or hazards to which it may be subject or that it will be able to continue to obtain adequate insurance 25 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 24 protection. A successful claim or damage resulting from a hazard for which it is not fully insured could adversely affect the Company’s results of operations. In addition, if the Company is seen not to adequately implement health and safety and environmental policies, its relationships with its customers may deteriorate, which may result in the loss of contracts and restrict its ability to obtain new contracts. Climate Change Risk Orbit Garant operates in various regions and jurisdictions where environmental laws are evolving and may be different according to each jurisdiction. Several governments or governmental bodies have introduced or are contemplating regulatory changes in response to the potential impact of climate change, such as regulation relating to emission levels. If the current regulatory trend continues, this may result in increased cost in some of the Company’s operations. In addition, the physical effect of climate change, such as extreme weather conditions, natural disasters, resource shortages and changing sea levels could have an adverse financial impact on operations located in the regions where these conditions occur. Insurance Limits The Company maintains property, general liability and business interruption insurance. However, there can be no assurance that such insurance will continue to be offered on an economically feasible basis, that all events that could give rise to a loss or liability are insurable, or that the amounts of insurance will at all times be sufficient to cover each and every loss or claim that may occur involving the assets or operations of the Company. Legislative and Regulatory Changes Changes to any of the laws, rules, regulations or policies affecting the business of the Company would have an impact on the Company’s business and may significantly and adversely affect the operations and financial performance of the Company. Legal and Regulatory Risk The mining and drilling industries are highly regulated by legal, environmental and health and safety regulations. Failure to comply with such regulations could lead to penalties, including fines or suspension of operations which could have a significant impact on the financial strength and future earnings potential of the Company. Furthermore, the Company’s mineral exploration customers are also subject to similar legal, regulatory, health and safety regulations which could materially affect their decision to go ahead with mineral exploration or mine development and thereby indirectly negatively impact the Company. Cyber-Security Risk While information systems are integral to supporting the Company’s business, due to the nature of the Company’s services, it is not considered to be subject to the same level of cyber security risks as companies operating in sectors where sensitive information is at the core of their business. Nevertheless, the Company is potentially exposed to risks ranging from internal human error to uncoordinated individual attempts to gain unauthorised access to its information technology systems, to sophisticated and targeted measures directed at the Company and its systems, clients or service providers. Any such disruptions in the Company’s systems or the failure of the systems to operate as expected could, depending on the magnitude of the problem, result in the loss of client information, a loss of current or future business, reputational harm and/or potential claims against the Company, all of which could have an adverse effect on the Company’s business, financial condition and operating results. The Company continues to enhance its efforts to mitigate these risks. It invests in technology security initiatives to better identify and address any vulnerability including periodic third-party vulnerability assessments, testing user knowledge of cyber security best practices, and audits of security processes and procedures. In addition, the Company continues to increase the employees’ awareness of security policies through ongoing communications. 26 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 25 Risk Related to Structure and Common Shares Equity Market Risks There is a risk associated with any investment in shares. The market price of securities such as the Common Shares of the Company are affected by numerous factors including, but not limited to, general market conditions, actual or anticipated fluctuations in the Company’s results of operations, changes in estimates of future results of operations by the Company or securities analysts, risks identified in this section and other factors. In addition, the financial markets have experienced significant price and volume fluctuations that have sometimes been unrelated to the operating performance of the issuers or the industries in which they operate. Consequently, the trading price of the Common Shares may fluctuate. Influence of Existing Shareholders As of September 20, 2022, Pierre Alexandre, Vice Chairman and Vice President of Corporate Development of the Company, holds or controls, directly or indirectly, approximately 23% of Orbit Garant’s outstanding Common Shares. As a result, this shareholder has the ability to influence Orbit Garant’s strategic direction and policies, including any merger, consolidation or sale of all or substantially all of its assets, and the election and composition of Orbit Garant’s Board of Directors. The foregoing ability to affect the control and direction of Orbit Garant could reduce its attractiveness as a target for potential takeover bids and business combinations, and correspondingly affect its share price. Future Sales of Common Shares by the Company’s Existing Shareholders Certain shareholders, including Pierre Alexandre, hold or control significant blocks of shares of the Company. The decision of any of these shareholders to sell a substantial number of Common Shares in the public market could result in a material imbalance in demand for the Company’s shares and therefore a decline in the market price of the Common Shares. In addition, the perception among the public that such sales may occur could also result in a reduction in the market price of the Common Shares. Dilution Orbit Garant may raise additional funds in the future by issuing equity securities. Holders of Common Shares will have no pre-emptive rights in connection with such further issuances. Additional Common Shares may be issued by Orbit Garant in connection with the exercise of options granted. Such additional equity issuances could, depending on the price at which such securities are issued, substantially dilute the interests of the holders of Common Shares. Dividend Payments Orbit Garant does not expect to pay dividends as it intends to use cash for future growth or debt repayment. In addition, the Credit Agreement places restrictions on the ability of Orbit Garant to declare or pay dividends. Credit Risk The Company provides credit to its customers in the normal course of its operations. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. It carries out, on a continuing basis, credit checks on its customers and maintains provisions for contingent credit losses. Demand for the Company’s drilling services depends upon the level of mineral exploration and development activities conducted by mining companies, particularly with respect to gold, nickel and copper. During these unprecedented market challenges, COVID-19 may adversely affect the Company's customers and their solvency. Our customers' financial difficulties can negatively impact the Company's results of operations and financial 27 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 26 condition, especially if those customers were to delay or default in payment owed to the Company. Collection of trade and other receivables from third parties remains a priority for the Company under the current situation. In order to reduce the credit risk, the Company is using insurance coverage from EDC on certain accounts receivable from its customers. The insurance program provides under certain terms and conditions an insurance coverage amount of up to 90% of unpaid accounts. As at June 30, 2022, the amount of the insurance coverage from EDC represents 4% of the accounts receivable (6% as at June 30, 2021). As at June 30, 2022, 73% (75% as at June 30, 2021) of the trade accounts receivable are aged as current and 1% are impaired (1% as at June 30, 2021). One major customer represents 12% of the trade accounts receivable as at June 30, 2022 (two major customers represented 15% as at June 30, 2021). One major customer represents 13% of the contract revenue for the year ended June 30, 2022 (for the year ended June 30, 2021, one major customer represented 12% of the contract revenue). Credit risk also arises from cash and cash equivalents with banks and financial institutions. This risk is limited because the counterparties are mainly Canadian banks with high credit ratings. The Company does not enter into derivatives to manage credit risk. Interest Rate Risk The Company is subject to interest rate risk since a significant part of the long-term debt bears interest at variable rates. As at June 30, 2022, the Company estimates that a 100 basis point increase or decrease in interest rates would have caused a corresponding annual increase or decrease in net earnings (loss) and comprehensive earnings (loss) of $0.3 million ($0.2 million as at June 30, 2021). Equity Market Risk Equity market risk is defined as the potential adverse impact on the Company's earnings due to movements in individual equity prices or general movements in the level of the stock market. The Company closely monitors the general trends in the stock markets and individual equity movements and determines the appropriate course of actions to be taken by the Company. Fair Value The fair value of cash and equivalents, trade and other receivables, trade and other payables and factoring liability is approximately equal to their carrying values due to their short-term maturity. The fair value of long-term debt approximates its carrying value as most of it bears interest at a variable rate and has financing conditions similar to those currently available to the Company. OUTLOOK Orbit Garant continues to monitor market conditions in the mining sector and the impact of the COVID-19 pandemic on its business. Orbit Garant’s business activity in Canada and West Africa has now surpassed pre-pandemic levels, while the Company’s business activity in Chile, which began to ramp up in the latter half of Q4 2021, has returned to pre-pandemic levels. The current high level of customer demand in Canada has resulted in a shortage of experienced 28 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 27 drillers, which has impeded productivity levels in the near term. Further, the shortage has resulted in increased wage costs for experienced drillers. The Company is not experiencing a shortage of experienced drillers in its international operations. Orbit Garant is addressing the shortage of experienced drillers in Canada through its driller training program, increased wages and its computerized drilling technology. The impact of the pandemic on global supply chains has resulted in higher costs for supplies and materials. To offset the increased wage costs in Canada and the higher costs of materials globally, the Company is implementing price increases on its drilling contracts. Orbit Garant expects to gradually increase its capacity utilization and driller productivity as the mining cycle progresses, driving growth in margins. While market conditions may fluctuate in the near term, Management believes that the longer-term outlook for drilling in the gold industry is positive, as many mining companies are facing declining reserves. Accordingly, increased spending on exploration and mine development will be required for the industry to remain viable in the long term. The current strong price of gold may incentivize mining companies to increase exploration and development spending on gold projects in the near term. Orbit Garant is well positioned to benefit from increased drilling services demand in the gold sector as it derives approximately 71% of its revenue from gold related projects. S&P Global Market Intelligence forecasts that Canada is the only major gold-producing country in the world in which output is expected to increase significantly through 2024. Orbit Garant generated approximately 74% of its revenue from its Canadian operations in Fiscal 2022 and is well positioned to benefit from the positive outlook for the gold mining sector in Canada. An additional positive factor for mining companies operating in Canada is the current lower value of the Canadian dollar relative to the US dollar, as their expenses are typically in Canadian dollars and their revenues are denominated in US dollars. At the time of this report, the value of the Canadian dollar was approximately $0.75 US dollars. While the current price of copper at approximately US$3.52 per pound remains relatively strong and well above its price of US$2.10 per pound at the onset of the pandemic in March 2020, it is down approximately 15% from a year ago. This decline reflects the current negative investor sentiment towards the global economic outlook amid a rising interest rate environment. Many industry analysts expect that declining global copper reserves may necessitate increased exploration and development spending for copper over the near to long term. Orbit Garant is well positioned for increased spending on copper exploration and development projects due to its presence in Chile, which is the global leader in copper production. Orbit Garant’s international operations provide enhanced market, customer and commodity diversification, as well as increased access to higher margin specialized drilling activity. In South America, Orbit Garant is currently working on projects in Chile and Guyana. In West Africa, the Company is currently working on projects in Burkina Faso and Guinea. In January 2022, members of Burkina Faso’s military ousted the country’s President in a coup, citing his inability to stem the violence from Islamic extremists. The military junta appointed a new President, who stated that he would restore security and order in the country. However, while Orbit Garant’s drilling projects in Burkina Faso are in areas of the country that have historically experienced fewer incidents of violence, the Company did experience delays to its drilling operations in the fourth quarter of Fiscal 2022. The Company continues to monitor the political situation in Burkina Faso. Orbit Garant’s policy is to only work in jurisdictions where the security of its employees can be appropriately maintained. In September 2021, members of Guinea’s military ousted the country’s President in a coup, following widespread civil protests against the former President extending his tenure beyond the two-term limit. A new interim President was appointed by the country’s military in October 2021. Orbit Garant’s operations have not been impacted by the change in political leadership in Guinea and the Company continues to monitor the situation. 29 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. YEAR END AND FOURTH QUARTER 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS Orbit Garant Drilling Inc. 28 DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING The CEO and the CFO of the Company are responsible for establishing and maintaining disclosure controls and procedures (DC&P) for the Company as defined under Multilateral Instrument 52-109 issued by the Canadian Securities Administrators. The CEO and the CFO have designed such DC&P, or caused them to be designed under their supervision, to provide reasonable assurance that information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in the securities legislation and includes controls and procedures designed to ensure that information required to be disclosed by an issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is accumulated and communicated to the Company’s management, including its certifying officers, as appropriate to allow timely decisions regarding required disclosure. As at June 30, 2022, the CEO and CFO evaluated the design and operation of the Company’s DC&P. Based on that evaluation, the CEO and CFO concluded that the Company’s DC&P was effective as at June 30, 2022. The CEO and the CFO are responsible for designing internal controls over financial reporting (“ICFR”) or causing them to be designed under their supervision. The Company’s ICFR are designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and its preparation of financial statements for external purposes in accordance with IFRS. As discussed above, the inherent limitations in all control systems are such that they can provide only reasonable, not absolute, assurance that all control issues and instances of fraud or error, if any, within the Company, have been detected. Therefore, no matter how well designed, ICFR have inherent limitations and can provide only reasonable assurance with respect to financial statement preparation and may not prevent and detect all misstatements. During Fiscal 2022, Management, including its CEO and CFO, evaluated the existence and design of the Company's ICFR and confirmed there were no changes to the ICFR that have occurred during the year which materially affected, or are reasonably likely to materially affect, the Company's ICFR. The Company continues to review and document its disclosure controls and its ICFR, and may, from time to time make changes aimed at enhancing their effectiveness and to ensure that its systems evolve with the business. As of June 30, 2022, an evaluation was carried out, under the supervision of the CEO and CFO, of the effectiveness of the Company's ICFR as defined in NI 52-109. Based on this evaluation the CEO and the CFO concluded that the design and operation of these ICFR were effective. The evaluations were conducted in accordance with the framework and criteria established in Internal Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"), a recognized control model, and the requirements of NI 52-109. 30 Year End and Fourth Quarter 2022Management’s Discussion and AnalysisOrbit Garant Drilling Inc. KPMG LLP 600 de Maisonneuve Blvd. West Suite 1500, Tour KPMG Montréal (Québec) H3A 0A3 Canada Telephone Fax Internet (514) 840-2100 (514) 840-2187 www.kpmg.ca INDEPENDENT AUDITORS’ REPORT To the Shareholders of Orbit Garant Drilling Inc. Opinion We have audited the consolidated financial statements of Orbit Garant Drilling Inc. (the "Entity"), which comprise: • • • • the consolidated statements of financial position as at June 30, 2022 and 2021; the consolidated statements of earnings (loss) and comprehensive earnings (loss) for the years then ended; the consolidated statements of changes in equity for the years then ended; the consolidated statements of cash flows for the years then ended; • and notes to the consolidated financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at June 30, 2022 and 2021, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditors’ Responsibilities for the Audit of the Financial Statements" section of our auditors’ report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP. Page 2 Key Audit Matter Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended June 30, 2022. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matter described below to be the key audit matters to be communicated in our auditors’ report. Assessment of the Accuracy of Mining Site Inventories Description of the matter We draw attention to Note 4 and Note 8 to the consolidated financial statements. The Entity’s inventories mainly include spare parts and consumables. As at June 30, 2022, the Entity holds inventories of $49.01 million, a portion of which consists of mining site inventories. Inventories are valued at the lower of cost and net realizable value. Cost is determined on the first-in, first-out basis. Why the matter is a key audit matter We identified the assessment of the accuracy of mining site inventories as a key audit matter. This matter represented an area of higher assessed risk of material misstatement given the magnitude of the inventory balance and the extent of audit effort needed to address the matter. In addition, significant auditor judgment was required in evaluating the results of our audit procedures over the first-in, first-out cost basis of the mining site inventories. How the matter was addressed in the audit The following are the primary procedures we performed to address this key audit matter: We sorted mining site inventories by items and by location, to calculate movements during the year for items held in inventory at year-end. We performed substantive analytical procedures on the first-in, first-out cost basis for these items, using data including purchase costs and mining site inventory quantities at year-end. To evaluate the reliability of the data used in the substantive analytical procedures described above: • We tested a sample of inventory purchases to invoices. • For a selection of mining site locations, we observed the Entity’s physical inventory counts at year-end and performed independent test counts for a sample of items which we compared to the Entity’s records. 32 Page 3 Other Information Management is responsible for the other information. Other information comprises: • • the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions. the information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled "Annual Report". Our opinion on the financial statements does not cover the other information and we do not, and will not, express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated. We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditors’ report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditors’ report. We have nothing to report in this regard. The information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled "Annual Report" is expected to be made available to us after the date of this auditors’ report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards (IFRS), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity’s financial reporting process. Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. 33 Page 4 Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one intentional omissions, resulting misrepresentations, or the override of internal control. involve collusion, from error, as fraud may forgery, • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. • Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 34 Page 5 • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. The engagement partner on the audit resulting in this auditors’ report is Alain Bessette. Montréal, Canada September 20, 2022 *CPA auditor, public accountancy permit No. A115894 35 ORBIT GARANT DRILLING INC. Consolidated Statements of (Loss) Earnings For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share) Contract revenue Cost of contract revenue Gross profit Expenses (income) General and administrative expenses Foreign exchange loss Finance costs Litigation (Loss) earnings before income taxes Income tax expense Current Deferred Net (loss) earnings Net (loss) earnings per share Basic Diluted Notes 24 6, 7 6 7 17 16 June 30 2022 $ June 30 2021 $ 195,473 163,294 181,732 13,741 143,004 20,290 14,523 392 2,235 - 17,150 (3,409) 598 2,640 3,238 (6,647) (0.18) (0.18) 14,497 712 2,290 (1,962) 15,537 4,753 461 1,998 2,459 2,294 0.06 0.06 See accompanying notes to consolidated financial statements. Page 7 36 ORBIT GARANT DRILLING INC. Consolidated Statements of (Loss) Earnings For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share) ORBIT GARANT DRILLING INC. Consolidated Statements of Comprehensive (Loss) Earnings For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars) Contract revenue Cost of contract revenue Gross profit Expenses (income) General and administrative expenses Foreign exchange loss Finance costs Litigation (Loss) earnings before income taxes Income tax expense Current Deferred Net (loss) earnings Net (loss) earnings per share Basic Diluted Notes 24 6, 7 6 7 17 16 June 30 2022 $ June 30 2021 $ 195,473 163,294 181,732 13,741 143,004 20,290 14,523 392 2,235 - 17,150 (3,409) 598 2,640 3,238 (6,647) (0.18) (0.18) 14,497 712 2,290 (1,962) 15,537 4,753 461 1,998 2,459 2,294 0.06 0.06 Net (loss) earnings Other comprehensive loss Cumulative translation adjustments Other comprehensive loss, net of income tax Comprehensive (loss) earnings June 30 June 30 2022 $ (6,647) (1,402) (1,402) (8,049) 2021 $ 2,294 (442) (442) 1,852 See accompanying notes to consolidated financial statements. Page 7 See accompanying notes to consolidated financial statements. Page 8 37 ORBIT GARANT DRILLING INC. Consolidated Statements of Changes in Equity For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars) Year ended June 30, 2022 Balance as at July 1, 2021 Total comprehensive loss Net loss Other comprehensive loss Cumulative translation adjustments Other comprehensive loss Transactions with shareholders, recorded directly in equity (Note 16) Share-based compensation Stock options cancelled Total transactions with shareholders Balance as at June 30, 2022 Year ended June 30, 2021 Balance as at July 1, 2020 Total comprehensive earnings (loss) Net earnings Other comprehensive loss Cumulative translation adjustments Other comprehensive loss Transactions with shareholders, recorded directly in equity (Note 16) Share-based compensation Stock options issued Stock options exercised Stock options cancelled Total transactions with shareholders Balance as at June 30, 2021 See accompanying notes to consolidated financial statements. Share capital $ (Note 16) 59,204 - - - - - - 59,204 Share capital $ (Note 16) 58,857 - - - - - 347 - 347 59,204 38 Equity-settled reserve $ Retained earnings $ Accumulated other comprehensive loss $ Total Shareholders' equity $ 1,452 12,342 (2,650) 70,348 - - - 206 (34) 172 1,624 (6,647) - - - - 34 34 5,729 (1,402) (1,402) - - - (4,052) (6,647) (1,402) (1,402) 206 - 206 62,505 Total Equity-settled reserve $ Retained earnings $ Accumulated other comprehensive loss $ Shareholders' equity $ 1,309 10,047 (2,208) 68,005 - - - 232 330 (88) (331) 143 1,452 2,294 - 2,294 - - - (330) - 331 1 12,342 (442) (442) - - - - - (2,650) (442) (442) 232 - 259 - 491 70,348 Page 9 ORBIT GARANT DRILLING INC. Consolidated Statements of Changes in Equity For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars) Year ended June 30, 2022 Balance as at July 1, 2021 Total comprehensive loss Net loss Other comprehensive loss Cumulative translation adjustments Other comprehensive loss Transactions with shareholders, recorded directly in equity (Note 16) Share-based compensation Stock options cancelled Total transactions with shareholders Balance as at June 30, 2022 Year ended June 30, 2021 Balance as at July 1, 2020 Total comprehensive earnings (loss) Net earnings Other comprehensive loss Cumulative translation adjustments Other comprehensive loss Equity-settled reserve $ Retained earnings $ comprehensive Shareholders' Accumulated other loss $ 1,452 12,342 (2,650) 70,348 Share capital $ (Note 16) 59,204 - - - - - - - - - - - - 59,204 (4,052) 62,505 Equity-settled reserve $ Retained earnings $ comprehensive Shareholders' Accumulated other loss $ 1,309 10,047 (2,208) 68,005 Share capital $ (Note 16) 58,857 206 (34) 172 1,624 - - - - - - - - - - - - - (6,647) 34 34 5,729 2,294 (330) 331 1 12,342 (1,402) (1,402) - - - - - - - - - - (442) (442) Total equity $ (6,647) (1,402) (1,402) 206 - 206 Total equity $ 2,294 (442) (442) 232 259 - - 491 Transactions with shareholders, recorded directly in equity (Note 16) Share-based compensation Stock options issued Stock options exercised Stock options cancelled Total transactions with shareholders Balance as at June 30, 2021 347 347 59,204 232 330 (88) (331) 143 1,452 (2,650) 70,348 ORBIT GARANT DRILLING INC. Consolidated Statements of Financial Position As at June 30, 2022 and June 30, 2021 (in thousands of Canadian dollars) ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Income taxes receivable Prepaid expenses Non-current assets Investments Deposit on equipment purchase Property, plant and equipment Right-of-use assets Intangible assets Deferred tax assets Total assets LIABILITIES Current liabilities Trade and other payables Income taxes payable Factoring liability Current portion of long-term debt Current portion of lease liabilities Non-current liabilities Deferred tax liabilities Long-term debt Lease liabilities EQUITY Share capital Equity-settled reserve Retained earnings Accumulated other comprehensive loss Equity attributable to shareholders Total liabilities and equity Contingencies and commitments (notes 19 and 20) APPROVED BY THE BOARD (signed) Éric Alexandre Éric Alexandre, Director Notes (Recast - Note 2) June 30 2021 $ June 30 2022 $ 8 9 10 11 12 17 23 13 14 17 13 14 16 1,018 39,401 49,006 664 1,077 91,166 146 - 41,403 2,388 320 1,636 137,059 33,578 12 1,317 2,222 675 37,804 657 34,702 1,391 74,554 59,204 1,624 5,729 (4,052) 62,505 137,059 3,256 40,724 44,684 1,112 796 90,572 259 1,909 38,838 2,106 561 3,897 138,142 30,486 7 2,880 2,524 635 36,532 - 29,901 1,361 67,794 59,204 1,452 12,342 (2,650) 70,348 138,142 (signed) Nicole Veilleux Nicole Veilleux, Director See accompanying notes to consolidated financial statements. Page 9 See accompanying notes to consolidated financial statements. Page 10 39 ORBIT GARANT DRILLING INC. Consolidated Statements of Cash Flows For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars) OPERATING ACTIVITIES (Loss) earnings before income taxes Items not affecting cash Depreciation of property, plant and equipment Depreciation of right-of-use assets Amortization of intangible assets Gain on disposal of property, plant and equipment Gain on disposal of right-of-use assets Share-based compensation Finance costs Net change in fair value of investments Litigation Changes in non-cash operating working capital items Income taxes paid Finance costs paid INVESTING ACTIVITIES Acquisition of investments Proceeds from disposal of investments Deposit on equipment purchase Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Acquisition of intangible assets FINANCING ACTIVITIES Proceeds from stock options exercised Proceeds from factoring Repayment on factoring Proceeds from long-term debt Repayment of long-term debt Repayment of lease liabilities Effect of exchange rate changes on cash and cash equivalent Decrease in cash and cash equivalent Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Notes 10 11 12 10 11 16 9 18 9 9 10, 18 12 (Recast - Note 2) June 30 2021 $ 4,753 9,298 591 646 (346) - 232 2,290 (2) (1,962) 15,500 (3,362) (93) (2,250) 9,795 (54) 310 (1,909) (5,889) 908 (64) (6,698) 259 4,896 (1,984) 79,495 (85,777) (677) (3,788) (1,049) (1,740) 4,996 3,256 June 30 2022 $ (3,409) 10,307 515 321 (908) (7) 206 2,235 85 - 9,345 (1,087) (187) (2,215) 5,856 - 28 - (11,899) 1,192 (99) (10,778) - 11,613 (12,829) 102,094 (97,425) (742) 2,711 (27) (2,238) 3,256 1,018 See accompanying notes to consolidated financial statements. Page 11 40 ORBIT GARANT DRILLING INC. Consolidated Statements of Cash Flows For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars) ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) (Recast - Note 2) 1. DESCRIPTION OF BUSINESS OPERATING ACTIVITIES (Loss) earnings before income taxes Items not affecting cash Depreciation of property, plant and equipment Depreciation of right-of-use assets Amortization of intangible assets Gain on disposal of property, plant and equipment Gain on disposal of right-of-use assets Share-based compensation Finance costs Net change in fair value of investments Litigation Changes in non-cash operating working capital items Income taxes paid Finance costs paid INVESTING ACTIVITIES Acquisition of investments Proceeds from disposal of investments Deposit on equipment purchase Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Acquisition of intangible assets FINANCING ACTIVITIES Proceeds from stock options exercised Proceeds from factoring Repayment on factoring Proceeds from long-term debt Repayment of long-term debt Repayment of lease liabilities Effect of exchange rate changes on cash and cash equivalent Decrease in cash and cash equivalent Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Notes 10 11 12 10 11 16 9 18 9 9 12 10, 18 June 30 2022 $ (3,409) 10,307 515 321 (908) (7) 206 2,235 85 - 9,345 (1,087) (187) (2,215) 5,856 28 (11,899) 1,192 (99) (10,778) - - - 11,613 (12,829) 102,094 (97,425) (742) 2,711 (27) (2,238) 3,256 1,018 June 30 2021 $ 4,753 9,298 591 646 (346) - 232 2,290 (2) (1,962) 15,500 (3,362) (93) (2,250) 9,795 (54) 310 (1,909) (5,889) 908 (64) (6,698) 259 4,896 (1,984) 79,495 (85,777) (677) (3,788) (1,049) (1,740) 4,996 3,256 Orbit Garant Drilling Inc. (the "Company"), amalgamated under the Canada Business Corporations Act , mainly operates a surface and underground diamond drilling business. The Company has operations in Canada, the United States, Central and South America and West Africa. The Company's head office is located at 3200, boul. Jean-Jacques Cossette, Val-d'Or (Québec), Canada. The Company holds interests in several entities. The percentage of voting rights in its subsidiaries and its associates is as follows: Orbit Garant Drilling Services Inc. 9116-9300 Québec inc. Drift Exploration Drilling Inc. Drift de Mexico SA de CV Orbit Garant Chile S.A. Orbit Garant Drilling Ghana Limited Perforación Orbit Garant Peru S.A.C. OGD Drilling (Guyana) Inc. Forage Orbit Garant BF S.A.S. Forage Orbit Garant Guinée SARLU Sarliaq-Orbit Garant Inc. Tumiit Orbit Garant Inc. 2. BASIS OF PREPARATION Basis of presentation % of voting rights 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 49% 49% These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"). The IFRS accounting policies set out below were consistently applied to all periods presented. The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates, assumptions and judgments. It also requires management to exercise its judgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant, are disclosed in Note 5. These consolidated financial statements have been prepared on a historical cost basis except for the investments, which are measured at fair value, and share-based compensation which is measured in accordance with IFRS 2, Share-Based Payment . They are presented in Canadian dollars, which are the currency of the primary economic environment in which the Company operates ("functional currency"). All values are rounded to the nearest thousand dollars, except where otherwise indicated. These consolidated financial statements were approved for issue by the Board of Directors of Orbit Garant Drilling Inc. on September 20, 2022. Recast of June 30, 2021 Financial Position The comparative figures have been adjusted in these consolidated financial statements to reclassify Property, plant and equipment of $420 to Intangible assets as at June 30, 2021. The correction of this immaterial error had the following impact on the statements: Caption Statements and notes As reported As adjusted Property, plant and equipment Intangible assets Depreciation of property, plant and equipment Amortization of intangible assets Acquisition of property, plant and equipment Acquisition of intangible assets Financial position, Notes 10 and 24 Financial position, Notes 12 and 24 Cash flows Cash flows Cash flows Cash flows 39,258 141 9,503 441 (5,953) - 38,838 561 9,298 646 (5,889) (64) Page 12 41 See accompanying notes to consolidated financial statements. Page 11 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 3. COVID-19 Since February 29, 2020, the outbreak of the novel strain of coronavirus, specifically identified as "COVID-19", has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, temporary restriction on all non-essential business, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. The Company’s priority is to ensure the health of its employees and business partners as well as ensure the continuity of its business operations and support its customers in their mining operations. The impact of the pandemic has negatively affected the Company’s activities in 2020 and December 2021 through March 2022 as some projects were put on hold or postponed and some efficiencies were not as optimized. As at June 30, 2022, activity levels have returned to pre-pandemic levels in most regions the Company operates in. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company. A subsidiary is an entity controlled by the Company. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee, independently of its percentage of participation. The existence and effect of potential voting rights are considered when the Company controls another entity. Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statements of (loss) earnings from the effective date of acquisition to the effective date of disposal, as appropriate. Intercompany transactions and balances are eliminated on consolidation. Foreign currency translation Transactions denominated in a currency other than the functional currency of the Company or of a foreign subsidiary whose functional currency is the Canadian dollar, are accounted for using the exchange rate prevailing on the transaction date. On each reporting date, monetary items denominated in a foreign currency are translated using the exchange rate prevailing on that date, and non-monetary items that are measured at historical cost are not adjusted. Exchange differences are recognized in net earnings in the period during which they occur. The assets and liabilities of foreign subsidiaries whose functional currency is not the Canadian dollar are translated into Canadian dollars by applying the exchange rate prevailing at the reporting date. Revenue and expense items are translated at the average exchange rate for the period. Exchange differences are recognized in OCI under "Cumulative translation adjustments" and are accumulated in equity. The accumulated amount of exchange differences is reclassified in net earnings upon loss of control of a foreign operation. Additionally, foreign exchange gains and losses related to certain intercompany loans that are permanent in nature are included in OCI under "Cumulative translation adjustments" and are accumulated in equity. Financial instruments Financial assets and financial liabilities are initially recognized at fair value and their subsequent measurement is dependent on their classification as described below. Their classification depends on the purpose for which the financial instruments were acquired or issued, their characteristics and the Company’s designation of such instruments. Financial instruments are recognized when the Company becomes a party to the contractual provisions of the instrument. 42 Page 13 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 3. COVID-19 Since February 29, 2020, the outbreak of the novel strain of coronavirus, specifically identified as "COVID-19", has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, temporary restriction on all non-essential business, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. The Company’s priority is to ensure the health of its employees and business partners as well as ensure the continuity of its business operations and support its customers in their mining operations. The impact of the pandemic has negatively affected the Company’s activities in 2020 and December 2021 through March 2022 as some projects were put on hold or postponed and some efficiencies were not as optimized. As at June 30, 2022, activity levels have returned to pre-pandemic levels in most regions the Company operates in. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company. A subsidiary is an entity controlled by the Company. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee, independently of its percentage of participation. The existence and effect of potential voting rights are considered when the Company controls another entity. Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statements of (loss) earnings from the effective date of acquisition to the effective date of disposal, as appropriate. Intercompany transactions and balances are eliminated on consolidation. ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) Asset/Liability Cash and equivalents Trade and other receivables Investments Trade and other payables Factoring liability Long-term debt Classification Amortized cost Amortized cost Fair value through profit or loss Amortized cost Amortized cost Amortized cost Financial assets measured at amortized cost A financial asset is subsequently measured at amortized cost, using the effective interest method and net of any impairment loss, if (a) The asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and (b) The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and/or interest. Financial assets measured at fair value These assets are measured at fair value and changes therein, including any interest or dividend income, are recognized in net income. However, for investments in equity instruments that are not held for trading, the Company may elect at initial recognition to present gains and losses in other comprehensive income. For such investments measured at fair value through other comprehensive income, gains and losses are never reclasified to net income, and no impairment is recognized in net income. Foreign currency translation Financial liabilities measured at amortized cost Transactions denominated in a currency other than the functional currency of the Company or of a foreign subsidiary whose functional currency is the A financial liability is subsequently measured at amortized cost, using the effective interest method. Canadian dollar, are accounted for using the exchange rate prevailing on the transaction date. On each reporting date, monetary items denominated in a foreign currency are translated using the exchange rate prevailing on that date, and non-monetary items that are measured at historical cost are not Financial liabilities measured at fair value adjusted. Exchange differences are recognized in net earnings in the period during which they occur. The assets and liabilities of foreign subsidiaries whose functional currency is not the Canadian dollar are translated into Canadian dollars by applying the exchange rate prevailing at the reporting date. Revenue and expense items are translated at the average exchange rate for the period. Exchange differences are recognized in OCI under "Cumulative translation adjustments" and are accumulated in equity. The accumulated amount of exchange differences is reclassified in net earnings upon loss of control of a foreign operation. Additionally, foreign exchange gains and losses related to certain intercompany loans that are permanent in nature are included in OCI under "Cumulative translation adjustments" and are accumulated in equity. Financial instruments instrument. Financial assets and financial liabilities are initially recognized at fair value and their subsequent measurement is dependent on their classification as described below. Their classification depends on the purpose for which the financial instruments were acquired or issued, their characteristics and the Company’s designation of such instruments. Financial instruments are recognized when the Company becomes a party to the contractual provisions of the liabilities measured at fair value are initially recognized at fair value and are remeasured at each reporting date with any changes therein Financial recognized in net income. The Company has no financial liabilities measured at fair value. The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired. Financial assets and liabilities are offset and the net amount presented in the consolidated statements of financial position when and only when the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. Amortized cost and effective interest method The effective interest method is a method of calculating the amortized cost of a financial instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash flows (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Cash and cash equivalents Cash and cash equivalents consist of cash on hand, bank overdraft and short-term deposits with original maturities of three months or less. Page 13 Page 14 43 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Trade and other receivables Trade and other receivables consist of amounts due from normal business activities. An allowance for expected credit losses is maintained to reflect an impairment risk for trade and other receivables based on an expected credit loss model which factors in changes in credit quality since the initial recognition of trade accounts receivable based on customer risk categories. Bad debts are also provided for based on collection history and specific risks identified on a customer-by-customer basis. Employee benefits Employee benefits are all forms of consideration given by an entity in exchange for services rendered by employees or for the termination of employment. Wages, paid leaves, bonuses and non-monetary benefits are short-term employee benefits, and they are recorded in the annual reporting period in which the employees of the Company render the related services. Inventories The Company maintains an inventory of operating supplies, motors, drill rods and drill bits on mining sites and warehouses. These inventories are valued at the lower of cost and net realizable value. Net realizable value is determined using the estimated selling price less estimated costs to complete the sale. Cost is determined on the first-in, first-out basis. Used and revised inventories are adjusted to reflect consumption and the level of refurbishment. The amount of any write-down of inventories can be reversed when the circumstances that led to the write-down no longer exist. Investments Investments in publicly traded securities are classified as fair value through profit or loss. Fair value through profit or loss investments are recorded at fair value, with changes in fair value recognized in profit or loss. Investment in an associate An associate is an entity over which the Company has significant influence. The Company has significant influence when it has the power to participate in the financial and operating policy decisions of the investee, but does not have control or joint control. The Company accounts for its investment in an associate using the equity method. Under the equity method, the investment is initially recognized at cost. Subsequent to initial recognition, distributions received from an associate reduce the carrying amount of the investment. The consolidated statements of comprehensive(loss) earnings include the Company's share of any amounts recognized by its associate in profit or loss and in other comprehensive loss, if any. Intercompany balances between the Company and its associate are not eliminated. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost represents the acquisition costs, net of government grants and investment tax credits, or manufacturing costs, including preparation, installation and testing costs. The manufacturing costs for drilling equipment include the material, direct labour and indirect specific costs. Borrowing costs are also included in the cost of self-constructed property, plant and equipment. Future expenditures, such as maintenance and repairs, are expensed as incurred. Significant improvements are capitalized and amortized over the useful life of the asset. Property, plant and equipment are recorded at cost and depreciation is calculated using the straight-line method based on their estimated useful life using the following periods: Buildings and components Drilling equipment Vehicles Other Useful life 5 to 40 years 5 to 10 years 5 years 3 to 10 years Residual value - 0 - 20% - - Page 15 44 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Trade and other receivables ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Property, plant and equipment (continued) Trade and other receivables consist of amounts due from normal business activities. An allowance for expected credit losses is maintained to reflect an impairment risk for trade and other receivables based on an expected credit loss model which factors in changes in credit quality since the initial recognition of trade accounts receivable based on customer risk categories. Bad debts are also provided for based on collection history and specific risks identified on a customer-by-customer basis. Employee benefits Employee benefits are all forms of consideration given by an entity in exchange for services rendered by employees or for the termination of employment. Wages, paid leaves, bonuses and non-monetary benefits are short-term employee benefits, and they are recorded in the annual reporting period in which the employees of the Company render the related services. Inventories Investments The Company maintains an inventory of operating supplies, motors, drill rods and drill bits on mining sites and warehouses. These inventories are valued at the lower of cost and net realizable value. Net realizable value is determined using the estimated selling price less estimated costs to complete the sale. Cost is determined on the first-in, first-out basis. Used and revised inventories are adjusted to reflect consumption and the level of refurbishment. The amount of any write-down of inventories can be reversed when the circumstances that led to the write-down no longer exist. Investments in publicly traded securities are classified as fair value through profit or loss. Fair value through profit or loss investments are recorded at fair value, with changes in fair value recognized in profit or loss. Investment in an associate An associate is an entity over which the Company has significant influence. The Company has significant influence when it has the power to participate in the financial and operating policy decisions of the investee, but does not have control or joint control. The Company accounts for its investment in an associate using the equity method. Under the equity method, the investment is initially recognized at cost. Subsequent to initial recognition, distributions received from an associate reduce the carrying amount of the investment. The consolidated statements of comprehensive(loss) earnings include the Company's share of any amounts recognized by its associate in profit or loss and in other comprehensive loss, if any. Intercompany balances between the Company and its associate are not eliminated. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost represents the acquisition costs, net of government grants and investment tax credits, or manufacturing costs, including preparation, installation and testing costs. The manufacturing costs for drilling equipment include the material, direct labour and indirect specific costs. Borrowing costs are also included in the cost of self-constructed property, plant and equipment. Future expenditures, such as maintenance and repairs, Significant improvements are capitalized and amortized over the useful life of the asset. Property, plant and equipment are recorded at cost and depreciation is calculated using the straight-line method based on their estimated useful life using are expensed as incurred. the following periods: Buildings and components Drilling equipment Vehicles Other Useful life 5 to 40 years 5 to 10 years 5 years 3 to 10 years Residual value 0 - 20% - - - The depreciation is calculated on the cost of an asset less its residual value and begins when the property, plant and equipment are ready for their intended use. Land is not depreciated. Depreciation methods, residual values and the useful lives of significant property, plant and equipment are reviewed at each financial year-end. Any change is accounted for prospectively as a change in accounting estimate. Intangible assets Intangible assets are accounted for at cost. Amortization is based on their estimated useful life using the straight-line method and the following periods: Software Patents Customer relationship 3 to 5 years 10 years 3 years Amortization methods, residual values and the useful accounted for prospectively as a change in accounting estimate. lives of significant intangible assets are reviewed at each financial year-end. Any change is Government assistance Government grants are recognized when there is reasonable assurance that the Company has complied with the conditions attached to the grant. When the grant is related to an expensed item, it is recognized as a reduction of the related expense. When the grant is to property, plant and equipment, it is recognized against the net book value of the asset and recognized over the expected useful life as a reduction of asset depreciation. Impairment of non-financial assets For the purposes of assessing impairment, assets are grouped in cash-generating units ("CGU"), which represent the lowest levels for which there are separately identifiable cash inflows generated by those assets. The Company reviews, at the end of each reporting period, whether events or circumstances have occurred to indicate that the carrying amounts of its non-financial assets with finite useful lives may be less than their recoverable amounts. Goodwill, other intangible assets having an indefinite useful life, and intangible assets not yet available for use are tested for impairment on June 30 of each financial year or whenever there is an indication that the carrying amount of the asset, of the CGU to which an asset has been allocated, exceeds its recoverable amount. The recoverable amount is the higher of the fair value, less costs of disposal, and the value in use of the asset or the CGU. Fair value, less costs of disposal, represents the amount an entity could obtain at the valuation date from the asset’s disposal in an arm’s length transaction between knowledgeable, willing parties, after deducting the costs of disposal. The value in use represents the present value of the future cash flows expected to be derived from the asset or the CGU. An impairment loss is recognized in the amount by which the carrying amount of an asset or a CGU exceeds its recoverable amount. When the recoverable amount of a CGU to which goodwill has been allocated is lower than the CGU’s carrying amount, the related goodwill is first impaired. Any excess amount of impairment is recognized and attributed to assets in the CGU, prorated to the carrying amount of each asset in the CGU. An impairment loss recognized in prior periods for non-financial assets with finite useful lives and intangible assets having an indefinite useful life, other than goodwill, can be reversed through the consolidated statements of (loss) earnings to the extent that the carrying amount at the date that the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. Income taxes Current income taxes are recognized with respect to amounts expected to be paid or recovered under the tax rates and laws that have been enacted or substantively enacted at the reporting date. Page 15 Page 16 45 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Income taxes (continued) Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities in the consolidated financial statements and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted or substantively enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred income tax assets and liabilities is recognized in earnings in the period that includes the substantive enactment date. A deferred tax asset is recognized initially when it is probable that future taxable income will be sufficient to use the related tax benefits. A deferred tax expense or benefit is recognized in other comprehensive loss or otherwise directly in equity to the extent that it relates to items that are recognized in other comprehensive loss or directly in equity in the same or a different period. In the course of the Company’s operations, there are a number of uncertain tax positions due to the complexity of certain transactions and due to the fact that related tax interpretations and legislation are continually changing. When a tax position is uncertain, the Company recognizes an income tax benefit or reduces an income tax liability only when it is probable that the tax benefit will be realized in the future or that the income tax liability is no longer probable. Financing fees Financing fees related to long-term debt are capitalized in reduction of long-term debt and amortized using the effective interest rate. Leases At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Right-of-use assets on leases Right-of-use assets are initially measured at cost, comprised of the initial measurement of the corresponding lease liabilities, lease payments made on or before the commencement date and any initial direct costs incurred, less any lease incentives received. They are subsequently depreciated on a straight- line basis on the lease term and reduced by impairment losses, if any. If it is reasonably certain that the Company will exercise the purchase options, the underlying asset is depreciated on the basis of its estimated useful life. Right-of-use assets may also be adjusted to reflect the re-measurement of related lease liabilities. The lease term includes the renewal option only if it is reasonably certain to be exercised. The lease terms range from 2 to 11 years for land and buildings and from 1 to 4 years for vehicles. The Company has elected not to recognize a right-of-use asset and liability for leases where the total lease term is less than or equal to twelve months and for leases of low value assets. The lease payments associated with these leases are recognized as an expense on a straight-line basis over the lease term. Lease liabilities At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable, variable lease payments that depend on an index and the exercise price of a purchase option reasonably certain to be exercised. Subsequently, the lease liability is measured at amortized cost using the effective interest method and adjusted for interest and lease payments. In calculating the present value of lease payments, the Company uses the incremental borrowing rate as at the lease commencement date if the interest rate implicit in the lease is not readily determinable. Subsequently, the carrying amount of the lease liability is remeasured if there has been a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to exercise a purchase option for the underlying asset. Revenue recognition Revenue from drilling contracts and ancillary services is recognized on the basis of actual metres drilled for each contract, which corresponds to the amount to which the entity has a right to invoice. 46 Page 17 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Income taxes (continued) ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Earnings per share Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities in the consolidated financial statements and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted or substantively enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred income tax assets and liabilities is recognized in earnings in the period that includes the substantive enactment date. A deferred tax asset is recognized initially when it is probable that future taxable income will be sufficient to use the related tax benefits. A deferred tax expense or benefit is recognized in other comprehensive loss or otherwise directly in equity to the extent that it relates to items that are recognized in other comprehensive loss or directly in equity in the same or a different period. In the course of the Company’s operations, there are a number of uncertain tax positions due to the complexity of certain transactions and due to the fact that related tax interpretations and legislation are continually changing. When a tax position is uncertain, the Company recognizes an income tax benefit or reduces an income tax liability only when it is probable that the tax benefit will be realized in the future or that the income tax liability is no longer probable. Earnings per share are calculated using the weighted average number of shares outstanding during the year. Diluted earnings per share are determined as net earnings (loss), divided by the weighted average number of diluted common shares outstanding for the period. Diluted common shares reflect the potential dilutive effect of exercising the share options based on the treasury share method. Share options The Company uses the fair value method under IFRS 2 to account for share options. In accordance with this method, compensation cost is measured at the fair value of the option at the grant date using the Black-Scholes option pricing model and is amortized to earnings over the vesting period. The fair value is recognized as an expense with a corresponding increase in equity-settled reserve. The amount recognized as an expense is adjusted to reflect the number of share options expected to vest and is net of share options cancelled prior to being vested. When unexercised share options are forfeited or expired, the amounts are transferred to retained earnings. Financing fees related to long-term debt are capitalized in reduction of long-term debt and amortized using the effective interest rate. 5. CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGMENTS At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Right-of-use assets are initially measured at cost, comprised of the initial measurement of the corresponding lease liabilities, lease payments made on or before the commencement date and any initial direct costs incurred, less any lease incentives received. They are subsequently depreciated on a straight- line basis on the lease term and reduced by impairment losses, if any. If it is reasonably certain that the Company will exercise the purchase options, the underlying asset is depreciated on the basis of its estimated useful life. Right-of-use assets may also be adjusted to reflect the re-measurement of related The preparation of financial statements in accordance with IFRS requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and contingent liabilities on the reporting date, and amounts of revenues and expenses for the relevant period. Although management regularly reviews its estimates, actual results may differ. The impact of changes to accounting estimates is recognized in the period during which the change occurs, and in the affected future periods, when applicable. Areas in which the estimates and assumptions are significant or which are complex, are presented as follows: A) CRITICAL ACCOUTING ESTIMATES Inventories Part of the inventory was estimated based on the number of drills on minings sites. In estimating the cost of this inventory, management takes into account the estimated amount of inventory per drill, based on the most reliable evidence available at the time the estimate was made. The lease term includes the renewal option only if it is reasonably certain to be exercised. The lease terms range from 2 to 11 years for land and buildings Impairment of non-financial assets The Company also uses its judgment to determine whether an impairment test must be performed due to the presence of potential impairment indicators. In applying its judgment, the Company relies primarily on its knowledge of its business and the economic environment. Significant management estimates are required to determine the recoverable amount of the cash-generating unit ("CGU") including estimates of future cash flows. Differences in estimates could affect whether tangible and intangible assets are in fact impaired and the dollar amount of that impairment. Significant assumptions are used by management to determine the projected revenue, operating expenses, utilization, discount rates and market pricing. Notably, these estimates are made in the context of COVID-19, an unprecedented global pandemic, resulting in a higher degree of uncertainty. Consequently, the impact on the Consolidated Financial Statements of future periods could be material. Financing fees Leases Right-of-use assets on leases lease liabilities. and from 1 to 4 years for vehicles. term. Lease liabilities The Company has elected not to recognize a right-of-use asset and liability for leases where the total lease term is less than or equal to twelve months and for leases of low value assets. The lease payments associated with these leases are recognized as an expense on a straight-line basis over the lease At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable, variable lease payments that depend on an index and the exercise price of a purchase option reasonably certain to be exercised. Subsequently, the lease liability is measured at amortized cost using the effective interest method and adjusted for interest and lease payments. In calculating the present value of lease payments, the Company uses the incremental borrowing rate as at the lease commencement date if the interest rate implicit in the lease is not readily determinable. Subsequently, the carrying amount of the lease liability is remeasured if there has been a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to exercise a purchase option for the underlying asset. Revenue recognition amount to which the entity has a right to invoice. Revenue from drilling contracts and ancillary services is recognized on the basis of actual metres drilled for each contract, which corresponds to the Page 17 Page 18 47 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 5. CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGMENTS (continued) A) CRITICAL ACCOUTING ESTIMATES (continued) Deferred income tax assets The assessment of the probability in which deferred tax assets can be utilized is based on the Company’s latest approved budget forecast, which is adjusted for significant non-taxable income (and expenses) and specific limits to the use of any unused tax loss or credit. The tax rules in the numerous jurisdictions in which the Company operates are also carefully taken into consideration. If a forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilized without a time limit, that deferred tax asset is usually recognized in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties is assessed individually by management based on specific facts and circumstances. Income taxes The Company is subject to income taxes in various jurisdictions. Judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due in the future. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities. B) JUDGMENTS Functional currency In determining the functional currency of its foreign subsidiaries, the Company needs to evaluate different factors such as the currency that mainly influences sales prices and costs, the economic environment and the degree of autonomy of the subsidiary. Following the evaluation of the different factors, when the functional currency is not obvious, the Company uses its judgment to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. Significant judgment in determining the lease term of contracts with renewal options The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. After the commencement date, the Company reassesses the lease term for whether significant event of change in circumstances that is within its control and affects its ability to exercise (or not exercise) the option to renew has occurred. 48 Page 19 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) A) CRITICAL ACCOUTING ESTIMATES (continued) Deferred income tax assets circumstances. Income taxes B) JUDGMENTS Functional currency ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 5. CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGMENTS (continued) 6. GOVERNMENT ASSISTANCE The assessment of the probability in which deferred tax assets can be utilized is based on the Company’s latest approved budget forecast, which is adjusted for significant non-taxable income (and expenses) and specific limits to the use of any unused tax loss or credit. The tax rules in the numerous jurisdictions in which the Company operates are also carefully taken into consideration. If a forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilized without a time limit, that deferred tax asset is usually recognized in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties is assessed individually by management based on specific facts and The Company was eligible for Canada Emergency Wage Subsidy (“CEWS”) during fiscal 2021, but not in 2022. For the year ended June 30, 2022, income relating to CEWS of $0 was recognized as a reduction of cost of contract revenue and $0 as a reduction of general and administrative expenses ($2,901 and $270, respectively, for the year ended June 30, 2021). 7. EXPENSES BY NATURE Detail of the depreciation and amortization expenses The depreciation expense of property, plant and equipment, the depreciation expense of right-of-use assets and the amortization expense of intangible assets have been charged to the consolidated statements of (loss) earnings as follows: The Company is subject to income taxes in various jurisdictions. Judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due in the future. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities. Cost of contract revenue General and administrative expenses Total depreciation and amortization Principal expenses by nature June 30 2022 $ 10,046 1,097 11,143 Cost of contract revenue, general and administrative expenses, foreign exchange loss and finance costs and litigation by nature are as follows: In determining the functional currency of its foreign subsidiaries, the Company needs to evaluate different factors such as the currency that mainly influences sales prices and costs, the economic environment and the degree of autonomy of the subsidiary. Following the evaluation of the different factors, when the functional currency is not obvious, the Company uses its judgment to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. Significant judgment in determining the lease term of contracts with renewal options The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. After the commencement date, the Company reassesses the lease term for whether significant event of change in circumstances that is within its control and affects its ability to exercise (or not exercise) the option to renew has occurred. Depreciation and amortization Employee benefits expense Cost of inventories Other expenses Total cost of contract revenue, general and administrative expenses, foreign exchange loss, finance costs and litigation Cost of contract revenue General and administrative expenses, foreign exchange loss, finance costs and litigation Total cost of contract revenue, general and administrative expenses, foreign exchange loss, finance costs and litigation June 30 2022 $ 11,143 99,610 44,438 43,691 198,882 181,732 17,150 198,882 June 30 2021 $ 8,858 1,677 10,535 June 30 2021 $ 10,535 78,466 36,807 32,733 158,541 143,004 15,537 158,541 Page 19 Page 20 49 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 8. INVENTORIES Spare parts Consumables Other June 30 2022 $ 18,007 29,951 1,048 49,006 Spare parts mainly include motors and machine parts. Consumables mainly include limited life tools, rods, hammers, wire lines and casings. The cost of inventories recognized as an expense and included in cost of contract revenue has been recorded as follows: June 30 2022 $ 44,438 June 30 2021 $ 14,408 29,709 567 44,684 June 30 2021 $ 36,807 During the year, an amount of $0 (2021: $150) has been accounted for as a write-down of inventories as a result of net realizable value being lower than cost. As at June 30, 2022 and 2021, no amount has been accounted as a reversal of a write-down of inventory. The Company's credit facilities are in part secured by a general assignment of the Company's inventories. 9. INVESTMENTS Investments in public companies, beginning of the year Acquisition of investments Conversion of trade receivables Proceeds from disposal of investments Change in fair value of investments measured at fair value through profit or loss Investments in public companies, end of the year June 30 2022 $ 259 - - (28) (85) 146 June 30 2021 $ 317 54 196 (310) 2 259 The Company holds common shares in publicly traded companies. These shares are classified as fair value through profit or loss and are reported at fair value, reflecting their quoted share price at the reporting date. The change in fair value of investments is included in general and administrative expenses. The cost is $455 ($465 as at June 30, 2021). 50 Page 21 8. INVENTORIES Spare parts Consumables Other 9. INVESTMENTS June 30 2022 $ 18,007 29,951 1,048 49,006 June 30 2022 $ 44,438 June 30 2022 $ 259 - - (28) (85) 146 June 30 2021 $ 14,408 29,709 567 44,684 June 30 2021 $ 36,807 June 30 2021 $ 317 54 196 (310) 2 259 Spare parts mainly include motors and machine parts. Consumables mainly include limited life tools, rods, hammers, wire lines and casings. The cost of inventories recognized as an expense and included in cost of contract revenue has been recorded as follows: During the year, an amount of $0 (2021: $150) has been accounted for as a write-down of inventories as a result of net realizable value being lower than cost. As at June 30, 2022 and 2021, no amount has been accounted as a reversal of a write-down of inventory. The Company's credit facilities are in part secured by a general assignment of the Company's inventories. Investments in public companies, beginning of the year Acquisition of investments Conversion of trade receivables Proceeds from disposal of investments Change in fair value of investments measured at fair value through profit or loss Investments in public companies, end of the year The Company holds common shares in publicly traded companies. These shares are classified as fair value through profit or loss and are reported at fair value, reflecting their quoted share price at the reporting date. The change in fair value of investments is included in general and administrative expenses. The cost is $455 ($465 as at June 30, 2021). ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 10. PROPERTY, PLANT AND EQUIPMENT Cost Balance as at July 1, 2021 Additions Disposals and write-offs Effect of movements in exchange rates Balance as at June 30, 2022 Accumulated Depreciation Balance as at July 1, 2021 Depreciation Disposals and write-offs Effect of movements in exchange rates Balance as at June 30, 2022 Cost Balance as at June 30, 2020 Transfer to intangible assets Balance as at July 1, 2020 Additions Transfer from right-of-use assets Disposals and write-offs Effect of movements in exchange rates Balance as at June 30, 2021 Accumulated Depreciation Balance as at June 30, 2020 Transfer to intangible assets Balance as at July 1, 2020 Depreciation Transfer from right-of-use assets Disposals and write-offs Effect of movements in exchange rates Balance as at June 30, 2021 June 30, 2021: Net book value June 30, 2022: Net book value Land $ 2,515 - - (309) 2,206 - - - - - Land $ 804 - 804 - 1,779 - (68) 2,515 - - - - - - - - 2,515 2,206 Buildings and components $ Drilling equipment $ 11,540 52 (10) (149) 11,433 5,825 399 - (42) 6,182 86,943 10,348 (3,586) (2,612) 91,093 61,795 7,216 (3,320) (2,434) 63,257 Buildings and components $ Drilling equipment $ 10,676 - 10,676 196 684 - (16) 11,540 5,130 - 5,130 624 72 - (1) 5,825 5,715 5,251 86,791 - 86,791 4,089 - (4,380) 443 86,943 59,422 - 59,422 6,020 - (4,019) 372 61,795 25,148 27,836 Vehicles $ 20,945 3,377 (2,062) (166) 22,094 15,920 2,564 (2,053) (126) 16,305 Other $ 2,114 31 (2) (80) 2,063 1,679 128 (2) (63) 1,742 Total $ 124,057 13,808 (5,660) (3,316) 128,889 85,219 10,307 (5,375) (2,665) 87,486 (Recast - Note 2) (Recast - Note 2) Vehicles $ 20,677 - 20,677 1,536 307 (1,306) (269) 20,945 14,371 - 14,371 2,527 240 (1,106) (112) 15,920 5,025 5,789 Other $ 4,205 (2,156) 2,049 68 - (1) (2) 2,114 3,151 (1,597) 1,554 127 - - (2) 1,679 435 321 Total $ 123,153 (2,156) 120,997 5,889 2,770 (5,687) 88 124,057 82,074 (1,597) 80,477 9,298 312 (5,125) 257 85,219 38,838 41,403 The gain on disposal of property, plant and equipment totalling $908 for the year ended June 30, 2022 (a gain of $346 for the year ended June 30, 2021) is included in cost of contract revenue. Drilling equipment includes construction work in progress for an amount of $816 ($0 as at June 30, 2021). Page 21 Page 22 51 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 11. RIGHT-OF-USE ASSETS Cost Balance as at July 1, 2021 Additions Disposals and write-offs Variable lease payment adjustment Effect of movements in exchange rates Balance as at June 30, 2022 Accumulated Depreciation Balance as at July 1, 2021 Depreciation Disposals and write-offs Effect of movements in exchange rates Balance as at June 30, 2022 Cost Balance as at July 1, 2020 Additions Disposals and write-offs Transferred to property, plant and equipment Effect of movements in exchange rates Balance as at June 30, 2021 Accumulated Depreciation Balance as at July 1, 2020 Depreciation Disposals and write-offs Transferred to property, plant and equipment Effect of movements in exchange rates Balance as at June 30, 2021 June 30, 2021: Net book value June 30, 2022: Net book value Buildings and components $ Land $ - - - - - - - - - - - Land $ 1,672 - - (1,779) 107 - - - - - - - - - 1,668 104 (101) - - 1,671 430 263 (101) - 592 Buildings and components $ 2,280 234 (203) (684) 41 1,668 384 322 (203) (72) (1) 430 1,238 1,079 Vehicles $ 1,215 731 (285) 8 (44) 1,625 347 252 (252) (31) 316 Vehicles $ 1,228 310 (17) (307) 1 1,215 310 269 - (240) 8 347 868 1,309 Total $ 2,883 835 (386) 8 (44) 3,296 777 515 (353) (31) 908 Total $ 5,180 544 (220) (2,770) 149 2,883 694 591 (203) (312) 7 777 2,106 2,388 The gain on disposal of right-of-use-assets totalling $7 for the year ended June 30, 2022 ($0 for the year ended June 30, 2021) is included in cost of contract revenue. 52 Page 23 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 11. RIGHT-OF-USE ASSETS 12. INTANGIBLE ASSETS Cost Balance as at July 1, 2021 Additions Disposals and write-offs Variable lease payment adjustment Effect of movements in exchange rates Balance as at June 30, 2022 Accumulated Depreciation Balance as at July 1, 2021 Depreciation Disposals and write-offs Effect of movements in exchange rates Balance as at June 30, 2022 Cost Balance as at July 1, 2020 Additions Disposals and write-offs Transferred to property, plant and equipment Effect of movements in exchange rates Balance as at June 30, 2021 Accumulated Depreciation Balance as at July 1, 2020 Depreciation Disposals and write-offs Transferred to property, plant and equipment Effect of movements in exchange rates Balance as at June 30, 2021 June 30, 2021: Net book value June 30, 2022: Net book value of contract revenue. Buildings and components Land $ Buildings and components Land $ 1,672 (1,779) 107 $ 1,668 104 (101) - - 1,671 430 263 (101) - 592 $ 2,280 234 (203) (684) 41 1,668 384 322 (203) (72) (1) 430 1,238 1,079 - - - - - - - - - - - - - - - - - - - - - - Vehicles $ 1,215 731 (285) 8 (44) 1,625 347 252 (252) (31) 316 Vehicles $ 1,228 310 (17) (307) 1 1,215 310 269 - (240) 8 347 868 1,309 Total $ 2,883 835 (386) 8 (44) 3,296 777 515 (353) (31) 908 Total $ 5,180 544 (220) (2,770) 149 2,883 694 591 (203) (312) 7 777 2,106 2,388 Cost Balance as at July 1, 2021 Additions Effect of movements in exchange rates Balance as at June 30, 2022 Accumulated Depreciation Balance as at July 1, 2021 Depreciation Effect of movements in exchange rates Balance as at June 30, 2022 Cost Balance as at June 30, 2020 Transfer from property, plant and equipment Balance as at July 1, 2020 Additions Effect of movements in exchange rates Balance as at June 30, 2021 Accumulated Depreciation Balance as at June 30, 2020 Transfer from property, plant and equipment Balance as at July 1, 2020 Depreciation Effect of movements in exchange rates Balance as at June 30, 2021 June 30, 2021: Net book value June 30, 2022: Net book value Software $ Patents $ Customer relationship $ 2,203 70 (19) 2,254 1,799 186 (11) 1,974 19 29 48 - 3 5 8 - 1,311 - (146) 1,165 1,170 130 (135) 1,165 Total $ 3,533 99 (165) 3,467 2,972 321 (146) 3,147 (Recast - Note 2) (Recast - Note 2) Customer (Recast - Note 2) Software $ Patents $ relationship $ - 2,137 2,137 64 2 2,203 - 1,596 1,596 203 - 1,799 404 280 - - - - - 19 19 19 1 1 2 3 16 40 1,317 - 1,317 - (6) 1,311 729 - 729 441 - 1,170 141 - Total $ 1,317 2,156 3,473 64 (4) 3,533 729 1,597 2,326 646 - 2,972 561 320 The gain on disposal of right-of-use-assets totalling $7 for the year ended June 30, 2022 ($0 for the year ended June 30, 2021) is included in cost Page 23 Page 24 53 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 13. LONG-TERM DEBT Loan of US$1,000 (June 30, 2021: US$1,000) authorized for a maximum amount of $6,443 (US$5,000), bearing interest at base rate plus 0.25%, effective rate as at June 30, 2022 of 5.50% (June 30, 2021: interest at base rate plus 0.75%, effective rate of 4.50%), maturing in November 2024, secured by a first rank hypothec on the universality of all present and future assets (c) Loan authorized for a maximum amount of $35,000, bearing interest at prime rate plus 3.75%, effective rate as at June 30, 2022 of 7.45% (June 30, 2021: interest at prime rate plus 2.00%, effective rate of 4.45%), maturing in November 2024, secured by a first rank hypothec on the universality of all present and future assets (a) (b) (c) Loan, bearing interest at prime rate plus 4.50% Loan of US$2,320 (June 30, 2021: US$3,480), bearing interest at prime rate plus 2.75%, effective rate as at June 30, 2022 of 7.50% (June 30, 2021: bearing interest at prime rate plus 2.75%, effective rate of 6.00%), payable in monthly instalments of $125 (US$97) (June 30, 2021 : $120 (US$97)), maturing in July 2024, secured by a third rank hypothec on the universality of all present and future assets Loans of CLP$400,925 (June 30, 2021: CLP$804,941), bearing interest at rates of 3.50%, payable in monthly instalments of $50 (CLP$35,501) (June 30, 2021: $60 (CPL$35,501)), maturing in June 2023. Loan of CLF 46 (June 30, 2021: CLF 50), bearing interest at rates of 3.30%, payable in monthly instalments of $22 (CLF 0.43), maturing in February 2028, secured by land and building. (d) Current portion June 30 2022 $ June 30 2021 $ 1,289 1,239 30,003 - 22,794 260 2,990 4,313 558 1,368 2,084 36,924 (2,222) 34,702 2,451 32,425 (2,524) 29,901 (a) (b) (c) (d) The Loans bear interest at either (a) the bank's prime rate plus an applicable margin based on a financial covenant or (b) the banker's acceptance rate plus an applicable margin based on a financial covenant. In addition, the Corporation incurs commitment fees, varying between 0.35% to 1.07%. The rate is variable based on the quarterly calculation of a financial ratio and can vary from (a) prime rate plus 0.50% to 3.75% or (b) 1.50% to 4.75%. An unamortized amount of $254 ($230 as at June 30, 2021), representing financing fees, has been netted against the long-term debt. This amount is being amortized to earnings over the term of the debt, using the effective interest method. On May 10, 2022, the Company signed an amendment to the Fourth Amended and Restated Credit Agreement with National Bank of Canada, consisting of a revolving credit facility in the amount of $35,000 along with a revolving credit facility in the amount of US$5,000, that will expire November 2, 2024. On September 9, 2022, as a consequence of securing a new term loan with Business Development Bank of Canada, the amended and restated Credit Agreement has been modified (see Note 25). An unamortized amount of $35 ($50 as at June 30, 2021), representing financing fees, has been netted against the long-term debt. This amount is being amortized to earnings over the term of the debt, using the effective interest method. Page 25 54 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 13. LONG-TERM DEBT 13. LONG-TERM DEBT (continued) Loan of US$1,000 (June 30, 2021: US$1,000) authorized for a maximum amount of $6,443 (US$5,000), bearing interest at base rate plus 0.25%, effective rate as at June 30, 2022 of 5.50% (June 30, 2021: interest at base rate plus 0.75%, effective rate of 4.50%), maturing in November 2024, secured by a first rank hypothec on the universality of all present and future assets (c) Loan authorized for a maximum amount of $35,000, bearing interest at prime rate plus 3.75%, effective rate as at June 30, 2022 of 7.45% (June 30, 2021: interest at prime rate plus 2.00%, effective rate of 4.45%), maturing in November 2024, secured by a first rank hypothec on the universality of all present and future assets (a) (b) (c) Loan, bearing interest at prime rate plus 4.50% Loan of US$2,320 (June 30, 2021: US$3,480), bearing interest at prime rate plus 2.75%, effective rate as at June 30, 2022 of 7.50% (June 30, 2021: bearing interest at prime rate plus 2.75%, effective rate of 6.00%), payable in monthly instalments of $125 (US$97) (June 30, 2021 : $120 (US$97)), maturing in July 2024, secured by a third rank hypothec on the universality of all present and future assets Loans of CLP$400,925 (June 30, 2021: CLP$804,941), bearing interest at rates of 3.50%, payable in monthly instalments of $50 (CLP$35,501) (June 30, 2021: $60 (CPL$35,501)), maturing in June 2023. Loan of CLF 46 (June 30, 2021: CLF 50), bearing interest at rates of 3.30%, payable in monthly instalments of $22 (CLF 0.43), maturing in February 2028, secured by land and building. (d) June 30 2022 $ June 30 2021 $ 1,289 1,239 30,003 - 22,794 260 2,990 4,313 558 1,368 2,084 36,924 (2,222) 34,702 2,451 32,425 (2,524) 29,901 Under the terms of the long-term debt agreements, the Company must satisfy certain restrictive covenants as to minimum financial ratios (Note 15). As at June 30, 2022, the Company was compliant with its financial covenants (June 30, 2021: the Company was compliant with its financial covenants). As at June 30, 2022, the prime rate in Canada was 3.70% for Canadian loans (2.45% as at June 30, 2021) and the prime rate in United States was 4.75% and the base rate in the United States was 5.25% for US loans (3.25% and 3.75% respectively as at June 30, 2021). As at June 30, 2022, principal payments required in the next years are as follows: Within one year Later than one year and no later than five years More than five years Long-term debt before unamortized financing costs by currency and by term are as follows: As at June 30, 2022 $000s CAN US (US$3,520) Chilean UF (CLF 46) Chilean pesos (CLP$400,925) Total $ 30,000 4,536 2,119 558 37,213 Within one year $ - 1,495 169 558 2,222 Later than one but no later than five years $ 30,000 3,041 733 - 33,774 Reconciliation of movements of long-term debt to cash flows arising from financing activities: Balance, beginning of year Transfer from lease liabilities , including related finance costs Net change in the revolving credit facility Repayment of other long-term debts Transaction costs related to loans Amortization of transaction costs related to loans Impact of the change in foreign exchange rates on the foreign currency debts Balance, end of year 2022 $ 32,425 - 7,186 (2,517) (226) 206 (150) 36,924 $ 2,222 33,774 1,217 37,213 Later than five years $ - - 1,217 - 1,217 2021 $ 36,738 2,632 (4,313) (1,969) (203) 190 (650) 32,425 55 Page 26 Current portion (a) (b) (c) The Loans bear interest at either (a) the bank's prime rate plus an applicable margin based on a financial covenant or (b) the banker's acceptance rate plus an applicable margin based on a financial covenant. In addition, the Corporation incurs commitment fees, varying between 0.35% to 1.07%. The rate is variable based on the quarterly calculation of a financial ratio and can vary from (a) prime rate plus 0.50% to 3.75% or (b) 1.50% to 4.75%. An unamortized amount of $254 ($230 as at June 30, 2021), representing financing fees, has been netted against the long-term debt. This amount is being amortized to earnings over the term of the debt, using the effective interest method. On May 10, 2022, the Company signed an amendment to the Fourth Amended and Restated Credit Agreement with National Bank of Canada, consisting of a revolving credit facility in the amount of $35,000 along with a revolving credit facility in the amount of US$5,000, that will expire November 2, 2024. On September 9, 2022, as a consequence of securing a new term loan with Business Development Bank of Canada, the amended and restated Credit Agreement has been modified (see Note 25). (d) An unamortized amount of $35 ($50 as at June 30, 2021), representing financing fees, has been netted against the long-term debt. This amount is being amortized to earnings over the term of the debt, using the effective interest method. Page 25 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 14. LEASE LIABILITIES The summary of of the activity related to the lease liabilities for the years ended June 30, 2022 and 2021 is as follows: Lease liabilities recognized, beginning of year Additions Disposals Finance costs Payment of lease liabilities, including related finance costs Exercise of a purchase option financed by long-term debt Variable lease payment adjustment Reassessment of lease term Foreign exchange differences Current portion Balance, end of year Lease payments required in the next years are as follows: Within one year Later than one year and no later than five years Later than five years Less: discounting impact Present value of lease payments 2022 $ 1,996 837 (40) 139 (881) - 8 6 1 2,066 675 1,391 2021 $ 4,603 392 (62) 415 (1,092) (2,534) - 147 127 1,996 635 1,361 June 30 2022 $ 784 1,213 424 2,421 (355) 2,066 56 Page 27 Lease liabilities recognized, beginning of year Additions Disposals Finance costs Payment of lease liabilities, including related finance costs Exercise of a purchase option financed by long-term debt Variable lease payment adjustment Reassessment of lease term Foreign exchange differences Current portion Balance, end of year Lease payments required in the next years are as follows: Within one year Later than five years Later than one year and no later than five years Less: discounting impact Present value of lease payments 2022 $ 1,996 837 (40) 139 (881) - 8 6 1 2,066 675 1,391 2021 $ 4,603 392 (62) 415 (1,092) (2,534) - 147 127 1,996 635 1,361 June 30 2022 $ 784 1,213 424 2,421 (355) 2,066 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 14. LEASE LIABILITIES 15. CAPITAL MANAGEMENT The summary of of the activity related to the lease liabilities for the years ended June 30, 2022 and 2021 is as follows: The Company includes long-term debt, lease liabilities, factoring liability, share capital, equity-settled reserve, retained earnings, accumulated other comprehensive loss and cash and equivalents in its definition of capital. The Company's capital structure is as follows: Long-term debt Lease liabilities Factoring liability Share capital Equity-settled reserve Retained earnings Accumulated other comprehensive loss Cash and equivalents June 30 2022 $ 36,924 2,066 1,317 59,204 1,624 5,729 (4,052) (1,018) 101,794 June 30 2021 $ 32,425 1,996 2,880 59,204 1,452 12,342 (2,650) (3,256) 104,393 The Company's objective when managing its capital structure is to maintain financial flexibility in order to i) preserve access to capital markets; ii) meet financial obligations; and iii) finance internally generated growth and potential new acquisitions. To manage its capital structure, the Company may adjust spending, issue new shares, issue new debt or repay existing debts. Under the terms of certain of the Company's debt agreements, the Company must satisfy certain financial covenants, such as Senior debt to earnings before income taxes, interest, depreciation and amortization ratio, Senior debt to capitalization ratio and fixed charge coverage ratio. Such agreements also limit, among other things, the Company's ability to incur additional indebtedness, create liens, engage in mergers or acquisitions and make dividend and other payments. As at June 30, 2022, as mentioned in Note 13, the Company complied with its financial covenants (June 30, 2021: the Company was compliant with its financial covenants). In order to facilitate the management of its capital requirements, the Company prepares annual budgets that are updated as necessary, dependent on various factors. The Company's objectives with regards to capital management remain unchanged from the prior year. Page 27 Page 28 57 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 16. SHARE CAPITAL Authorized, an unlimited number of common and preferred shares: Common shares, participating and voting, without nominal or par value Preferred shares rights privileges, restrictions and conditions must be adopted before their issuance by a resolution of the Board of Directors of the Company. Common shares Balance, beginning of the year Shares issued: For stock options exercised Balance, end of the year June 30, 2022 June 30, 2021 Number of shares $ Number of shares 37,372,756 59,204 37,021,756 - 37,372,756 - 59,204 351,000 37,372,756 $ 58,857 347 59,204 Net (loss) earnings per share Diluted net (loss) earnings per common share was calculated based on net earnings divided by the average number of common shares outstanding using the treasury stock method. For 2022, stock options are not included in the computation of diluted net loss per share as their inclusion would be anti- dilutive. Net (loss) earnings per share - basic Net (loss) earnings attributable to common shareholders Weighted average basic number of common shares outstanding Net (loss) earnings per share - basic Net (loss) earnings per share - diluted Net (loss) earnings attributable to common shareholders Weighted average basic number of common shares outstanding Adjustment to average number of common share - stock options Weighted average diluted number of common shares outstanding Net (loss) earnings per share - diluted June 30 2022 June 30 2021 $ (6,647) $ 2,294 37,372,756 (0.18) $ 37,051,928 0.06 $ June 30 2022 June 30 2021 $ (6,647) $ 2,294 37,372,756 37,051,928 - 169,328 37,372,756 (0.18) $ 37,221,256 0.06 $ 58 Page 29 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 16. SHARE CAPITAL Authorized, an unlimited number of common and preferred shares: Common shares, participating and voting, without nominal or par value Preferred shares rights privileges, restrictions and conditions must be adopted before their issuance by a resolution of the Board of Directors of the June 30, 2022 June 30, 2021 Number of shares $ Number of shares 37,372,756 59,204 37,021,756 - 37,372,756 - 59,204 351,000 37,372,756 $ 58,857 347 59,204 Diluted net (loss) earnings per common share was calculated based on net earnings divided by the average number of common shares outstanding using the treasury stock method. For 2022, stock options are not included in the computation of diluted net loss per share as their inclusion would be anti- Company. Common shares Balance, beginning of the year Shares issued: For stock options exercised Balance, end of the year Net (loss) earnings per share dilutive. Net (loss) earnings per share - basic Net (loss) earnings attributable to common shareholders Weighted average basic number of common shares outstanding Net (loss) earnings per share - basic Net (loss) earnings per share - diluted Net (loss) earnings attributable to common shareholders Weighted average basic number of common shares outstanding Adjustment to average number of common share - stock options Weighted average diluted number of common shares outstanding Net (loss) earnings per share - diluted June 30 2022 June 30 2021 $ (6,647) $ 2,294 37,372,756 37,051,928 $ (0.18) $ 0.06 June 30 2022 June 30 2021 $ (6,647) $ 2,294 - 169,328 37,372,756 37,221,256 $ (0.18) $ 0.06 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 16. SHARE CAPITAL (continued) Stock option plan On June 26, 2008, the Company established an equity-settled option plan (the Stock Option Plan), which is intended to aid in attracting, retaining and motivating the Company’s officers, employees, directors and consultants. The option plan has been prepared in accordance with the TSX’s policies on listed company security-based compensation arrangements. Persons eligible to be granted options under the option plan are: any director, officer or employee of Orbit Garant or of any subsidiary company controlled by any such person or a family trust of which at least one trustee is any such person and all of the beneficiaries of which are such person and his or her spouse or children. The aggregate number of common shares which may be issued from treasury upon the exercise of options under the Stock Option Plan shall not exceed 10% of the issued and outstanding common shares. The number of common shares which may be reserved for issuance pursuant to options granted under the option plan, together with common shares reserved for issuance from treasury under any other employee-related plan of the Company, or options for services granted by the Company to any one person, shall not exceed 5% of the then aggregate issued and outstanding common shares. The Board of Directors, through the recommendation of the Corporate Governance and Compensation Committee, manages the Stock Option Plan and determines, among other things, optionees, vesting periods, exercise price and other attributes of the options, in each case pursuant to the 2008 Share Option Plan, applicable securities legislation and the rules of the TSX. Options vest at a rate ranging from 20% to 33% per annum commencing 12 months after the date of grant and expire no later than 7 years after the grant date. Options are forfeited when the option holder ceases to be a director, officer or employee of the Company. The exercise price for any option may not be less than the fair market value (the closing price of the common shares on the TSX on the last trading day on which common shares traded prior to such day, or the average of the closing bid and ask prices over the last five trading days, if no trades accrued over that period) of the common shares at the time of the grant of the option. All stock options outstanding are granted to directors, officers and employees. Details regarding the stock options outstanding are as follows: Outstanding at the beginning of the year Granted during the year Exercised during the year (a) Cancelled during the year Outstanding at end of the year Exercisable at end of the year Number of options 3,342,500 June 30, 2022 Weighted average exercise price $ 1.24 - - (99,000) 3,243,500 2,256,502 - - 1.11 1.24 1.40 Number of options 3,155,000 1,185,000 (351,000) (646,500) 3,342,500 1,464,834 June 30, 2021 Weighted average exercise price $ 1.28 0.89 0.74 1.06 1.24 1.56 37,372,756 37,051,928 (a) For the year ended June 30, 2021, the weighted average market share price at the date of exercise was $1.25. Page 29 Page 30 59 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 16. SHARE CAPITAL (continued) The following table summarizes information on share options outstanding as at June 30, 2022: Range of exercise price $ 0.50 - 1.49 1.50 - 2.49 Outstanding at June 30, 2022 Weighted average remaining life (years) Weighted average exercise price $ Exercisable at June 30, 2022 Weighted average exercise price $ 2,007,500 1,236,000 3,243,500 2.88 1.09 0.86 1.87 1,020,502 1,236,000 2,256,502 0.83 1.87 The Company's calculations of the fair value of options granted were made using the Black-Scholes option-pricing model. The following table summarizes the grant date fair value calculations with weighted average assumptions: Risk-free interest rate Expected life (years) Expected volatility (based on historical volatility) Expected dividend yield Fair value of options granted Granted in 2021 0.32% to 0.75% 3 40.90% to 44.38% 0% $0.24 to $0.39 During the years mentioned below, the total expense related to share-based compensation to employees and directors has been recorded and presented in general and administrative expenses as follows: Expense related to share-based compensation June 30 2022 $ 206 June 30 2021 $ 232 60 Page 31 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 16. SHARE CAPITAL (continued) The following table summarizes information on share options outstanding as at June 30, 2022: ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 17. INCOME TAXES Income tax expense (recovery) comprises the following: Range of exercise price Outstanding at June 30, 2022 Weighted average Weighted average remaining life exercise price Exercisable at June 30, 2022 Weighted average exercise price $ 0.50 - 1.49 1.50 - 2.49 2,007,500 1,236,000 3,243,500 (years) 2.88 1.09 $ 0.86 1.87 1,020,502 1,236,000 2,256,502 The Company's calculations of the fair value of options granted were made using the Black-Scholes option-pricing model. The following table summarizes the grant date fair value calculations with weighted average assumptions: Current tax Current year Prior years adjustments Deferred tax Current year Prior years adjustements Risk-free interest rate Expected life (years) Expected volatility (based on historical volatility) Expected dividend yield Fair value of options granted Expense related to share-based compensation During the years mentioned below, the total expense related to share-based compensation to employees and directors has been recorded and presented in general and administrative expenses as follows: 0.32% to 0.75% (Loss) earnings before income taxes Statutory rates Income taxes based on statutory rates Increase (decrease) of income taxes due to the following: Non-deductible expenses Non-deductible share-based compensation expense Difference of income tax rates between territories Withholding taxes Income tax assets unrecognized Non-taxable portion of capital gain Prior years adjustments Other Total income tax expense $ 0.83 1.87 Granted in 2021 3 0% 40.90% to 44.38% $0.24 to $0.39 June 30 2022 $ 206 June 30 2021 $ 232 June 30 2022 $ 367 231 598 2,760 (120) 2,640 3,238 June 30 2022 $ (3,409) 26.50% (903) 92 54 137 251 3,547 (49) 111 (2) 3,238 June 30 2021 $ 481 (20) 461 1,932 66 1,998 2,459 June 30 2021 $ 4,753 26.50% 1,260 139 61 (25) 180 848 29 (46) 13 2,459 Page 31 Page 32 61 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 17. INCOME TAXES (continued) Deferred income taxes are based on differences between the accounting and tax values of assets and liabilities and consist of the following at the dates presented: Deferred income tax assets: Intangible assets Loss carried forward Non-deductible provisions Investments Total deferred income tax assets Deferred income tax liabilities: Property, plant and equipment Total deferred income tax liabilities Net deferred income tax assets Deferred income tax assets: Intangible assets Loss carried forward Non-deductible provisions Investments Total deferred income tax assets Deferred income tax liabilities: Property, plant and equipment Total deferred income tax liabilities Net deferred income tax assets As presented in the consolidated statements of financial position: Deferred tax assets Deferred tax liabilities Net deferred tax assets July 1 2021 $ 22 4,410 1,374 27 5,833 1,936 1,936 3,897 July 1 2020 $ 13 5,967 1,822 10 7,812 1,922 1,922 5,890 Recognized in statements of earnings (loss) $ Exchange rate change $ 7 (3,771) 480 14 (3,270) (630) (630) (2,640) - - (335) - (335) (57) (57) (278) Recognized in statements of earnings (loss) $ Exchange rate change $ 9 (1,560) (445) 17 (1,979) 19 19 (1,998) - - - 3 (3) (5) (5) 5 June 30 2022 $ 1,636 (657) 979 June 30 2022 $ 29 639 1,519 41 2,228 1,249 1,249 979 June 30 2021 $ 22 4,410 1,374 27 5,833 1,936 1,936 3,897 June 30 2021 $ 3,897 - 3,897 The Company recognized a deferred income tax asset on non-capital losses because it is probable that sufficient taxable profit will be available from future oprations. 62 Page 33 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 17. INCOME TAXES (continued) presented: Deferred income tax assets: Intangible assets Loss carried forward Non-deductible provisions Investments Total deferred income tax assets Deferred income tax liabilities: Property, plant and equipment Total deferred income tax liabilities Net deferred income tax assets Deferred income tax assets: Intangible assets Loss carried forward Non-deductible provisions Investments Total deferred income tax assets Deferred income tax liabilities: Property, plant and equipment Total deferred income tax liabilities Net deferred income tax assets Deferred tax assets Deferred tax liabilities Net deferred tax assets oprations. July 1 2021 $ 22 4,410 1,374 27 5,833 1,936 1,936 3,897 July 1 2020 $ 13 5,967 1,822 10 7,812 1,922 1,922 5,890 $ 7 (3,771) 480 14 (3,270) (630) (630) (2,640) $ 9 (1,560) (445) 17 (1,979) 19 19 (1,998) $ - - - (335) (335) (57) (57) (278) - - - $ 3 (3) (5) (5) 5 June 30 2022 $ 1,636 (657) 979 June 30 2022 $ 29 639 1,519 41 2,228 1,249 1,249 979 June 30 2021 $ 22 4,410 1,374 27 5,833 1,936 1,936 3,897 June 30 2021 $ 3,897 - 3,897 The Company recognized a deferred income tax asset on non-capital losses because it is probable that sufficient taxable profit will be available from future Deferred income taxes are based on differences between the accounting and tax values of assets and liabilities and consist of the following at the dates Tax losses, for which no deferred tax assets were recognized, expire as follows: ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 17. INCOME TAXES (continued) Recognized in statements of earnings (loss) Exchange rate change June 30, 2024 June 30, 2025 June 30, 2026 June 30, 2027 No expiry date 18. ADDITIONAL INFORMATION RELATING TO THE STATEMENTS OF CASH FLOWS Changes in non-cash operating working capital items: Recognized in statements of earnings (loss) Exchange rate change Trade and other receivables Inventories Prepaid expenses Trade and other payables Chile - - - - 5,220 Guinea 938 2,590 - - - June 30 2022 $ (130) (6,074) (328) 5,445 (1,087) Burkina Faso $ 206 5,854 - 8,606 - June 30 2021 $ (19,798) 4,371 31 12,034 (3,362) During the year, the deposit on equipment purchase was transferred to property, plant and equipment totalling $1,909. This information is presented as a non-monetary transaction in consolidated statements of cash flows. 19. CONTINGENCIES The Company is subject to various claims that arise in the normal course of business. Management believes that adequate provisions have been made in the accounts where appropriate. Although it is not possible to estimate the extent of potential costs and losses, if any, management believes that the ultimate resolution of such contingencies will not have a material adverse effect on the financial position of the Company. As presented in the consolidated statements of financial position: 20. COMMITMENTS AND GUARANTEES Commitments The Company has entered into short-term and low asset value lease agreements expiring between 2023 and 2024 which call for total lease payments of $171 for the rental of offices. None of the lease agreements contain renewal or purchase options or escalation clauses or any restrictions. Lease payments recognized as an expense during the year amount to $13,858 (year ended June 30, 2021: $8,899). This amount consists of minimum lease payments. No sublease payments or contingent rent payments were made or received. No sublease income is expected as all assets held under lease agreements are used exclusively by the Company. Guarantees As at June 30, 2022, the Company issued some bank guarantees in favor of customers for a total amount of $1,644 (year ended June 30, 2021: $2,669), maturing between September 2022 and December 2022. For the years ended June 30, 2021 and 2022, the Company has not made any payments in connection with these guarantees. Page 33 Page 34 63 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 21. RELATED AND ASSOCIATE PARTY TRANSACTIONS Transactions with related parties The Company is related to Dynamitage Castonguay Ltd., a company in which a director has an interest. The Company entered into the following transactions with its related companies and with persons related to directors: Revenues Expenses June 30 2022 $ 31 172 June 30 2021 $ 10 162 As at June 30, 2022, an amount of $0 was receivable resulting from these transactions (June 30, 2021: $0). In addition, for the twelve-month period ended June 30, 2022, repayments of a lease liability totalling $84 were made to Dynamitage Castonguay Ltd. (June 30, 2021 : $63). Transactions with associate parties The Company entered into the following transactions with its associate parties: Revenues June 30 2022 $ 26,256 June 30 2021 $ 20,252 As at June 30, 2022, trade and other receivables included an amount receivable of $4,322 from one of the Company's associates (June 30, 2021: $3,065). As at June 30, 2022, investment in an associate totalling $0 in financial statement (June 30, 2021: $0). All of these related and associate parties transactions made in the normal course of business were measured at the exchange amount, which is the amount established and agreed to by the parties. 22. KEY MANAGEMENT COMPENSATION The compensation recognized for key management remuneration and director's fees is as follows: Salaries and fees Share-based compensation 23. FINANCIAL INSTRUMENTS June 30 2022 $ 1,054 84 1,138 June 30 2021 $ 1,187 42 1,229 The Company is exposed to various risks related to its financial assets and liabilities. There have been no substantive changes in the Company’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks, or the methods used to measure them, from previous years, unless otherwise stated in this note. Page 35 64 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 21. RELATED AND ASSOCIATE PARTY TRANSACTIONS 23. FINANCIAL INSTRUMENTS (continued) Transactions with related parties The Company is related to Dynamitage Castonguay Ltd., a company in which a director has an interest. The Company is exposed to various risks related to its financial assets and liabilities. There have been no substantive changes in the Company’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks, or the methods used to measure them, from previous years, unless otherwise stated in this note. The Company entered into the following transactions with its related companies and with persons related to directors: Currency risk Revenues Expenses Revenues As at June 30, 2022, an amount of $0 was receivable resulting from these transactions (June 30, 2021: $0). In addition, for the twelve-month period ended June 30, 2022, repayments of a lease liability totalling $84 were made to Dynamitage Castonguay Ltd. (June 30, 2021 : $63). Transactions with associate parties The Company entered into the following transactions with its associate parties: As at June 30, 2022, trade and other receivables included an amount receivable of $4,322 from one of the Company's associates (June 30, 2021: $3,065). As at June 30, 2022, investment in an associate totalling $0 in financial statement (June 30, 2021: $0). All of these related and associate parties transactions made in the normal course of business were measured at the exchange amount, which is the amount established and agreed to by the parties. 22. KEY MANAGEMENT COMPENSATION The compensation recognized for key management remuneration and director's fees is as follows: June 30 2022 $ 1,054 84 1,138 June 30 2021 $ 1,187 42 1,229 Salaries and fees Share-based compensation 23. FINANCIAL INSTRUMENTS The Company is exposed to various risks related to its financial assets and liabilities. There have been no substantive changes in the Company’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks, or the methods used to measure them, from previous years, unless otherwise stated in this note. June 30 2022 $ 31 172 June 30 2021 $ 10 162 The Company realizes a part of its activities in US dollars (US $), in Chiliean Pesos (CLP), in Argentine Pesos (ARS), in Ghanaian cedi (GHS cedi), in West African Francs (XOF) and in Guinean Francs(GNF). The Company's exposure to currency risk on its consolidated financial statements was as follows as at June 30, 2022: Cash and equivalents Trade receivables Income tax receivable (payable) Accounts payable and accrued liabilities Current portion of long-term debt and lease liabilities Net balance exposure Equivalent in Canadian dollars US $ $000s 111 476 (2) (278) (1,193) (886) (1,142) CLP $000s ARS $000s GHS cedi 000s XOF 000s GNF 000s 42,374 1,381,790 (6,854) (1,250,245) (560,400) (393,335) (548) - - - - - 8 8 7 5,881 2,102 (42) - 7,948 1,272 332,228 609,384 154,662 (1,269,751) - (173,477) (356) 1,321,553 3,656,404 - (4,047,341) - 930,616 136 June 30 2022 $ 26,256 June 30 2021 $ 20,252 The Company has estimated that a 10% increase or decrease in the foreign exchange rates would have caused a corresponding annual change in net earnings (loss) and comprehensive loss of: Change in net income in Canadian dollars US $ (84) CLP (40) ARS GHS cedi - 94 XOF (26) GNF 10 The Company's exposure to currency risk on its consolidated financial statements was as follows as at June 30, 2021: Cash and equivalents Trade receivables Income tax receivable (payable) Accounts payable and accrued liabilities Current portion of long-term debt and lease liabilities Net balance exposure Equivalent in Canadian dollars US $ $000s 1,120 1,231 39 (193) (1,190) 1,007 1,248 CLP $000s ARS $000s GHS cedi 000s XOF 000s GNF 000s 527,258 1,904,362 98,333 (4,087,692) (553,148) (2,110,887) (3,586) - - - - - 8 8 163 5,636 2,970 (47) - 8,722 1,836 3,840 1,552,524 118,220 (4,983,675) - 7,157,028 7,678,761 - (3,251,573) - (3,309,091) (7,426) 11,584,216 1,448 The Company has estimated that a 10% increase or decrease in the above foreign exchange rates would have caused a corresponding annual change in net earnings (loss) and comprehensive earnings (loss) of: Change in net income in Canadian dollars US $ 92 CLP (264) ARS GHS cedi - 135 XOF (546) GNF 106 Page 35 Page 36 65 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 23. FINANCIAL INSTRUMENTS (continued) Credit risk The Company provides credit to its customers in the normal course of its operations. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. It carries out, on a continuing basis, credit checks on its customers and maintains provisions for contingent credit losses. Demand for the Company’s drilling services depends upon the level of mineral exploration and development activities conducted by mining companies, particularly with respect to gold, nickel and copper. During these unprecedented market challenges, COVID-19 may adversely affect the Company's customers and their solvency. Our customers' financial difficulties can negatively impact the Company's results of operations and financial condition, especially if those customers were to delay or default in payment owed to the Company. Collection of trade and other receivables from third parties remains a priority for the Company under the current situation. In order to reduce the credit risk, the Company is using insurance coverage from Export Development Canada ("EDC") on certain accounts receivable from its customers. The insurance program provides under certain terms and conditions an insurance coverage amount of up to 90% of certain accounts receivable. As at June 30, 2022, the amount of the insurance coverage from EDC represents 4% of the accounts receivable (6% as at June 30, 2021). The carrying amounts for accounts receivable are net of allowances for doubtful accounts, which are estimated based on aging analysis of receivables, past experience, specific risks associated with the customer and other relevant information. The maximum exposure to credit risk is the carrying value of the financial assets. The allowance for doubtful accounts is established based on the Company's best estimate on the recovery of balances for which collection may be uncertain. Uncertainty of collection may become apparent from various indicators, such as a deterioration of the credit situation of a given client or delay in collection when the aging of invoices exceeds the normal payment terms. Management regularly reviews accounts receivable and assesses the appropriateness of the allowance for doubtful accounts. The aging of trade receivable balances and the allowance for doubtful accounts as at June 30, 2022 and June 30, 2021 were as follows: Current Past due 0-30 days Past due more than 30 days Total trade receivables Less: allowance for doubtful accounts The change in the allowance for doubtful accounts is detailed below: Balance at beginning of year Change in allowance, other than write-offs and recoveries Write-offs of accounts receivable Recoveries Foreign exchange translation differences Balance at end of year June 30 2022 $ 32,247 2,155 3,020 37,422 281 37,141 June 30 2022 $ 407 7 - (121) (12) 281 June 30 2021 $ 30,728 2,707 6,153 39,588 407 39,181 June 30 2021 $ 786 210 (450) (139) - 407 As at June 30, 2022, 73% (June 30, 2021: 75%) of the trade and other receivables are aged as current and 1% are impaired (June 30, 2021: 1%). Given that expected credit losses are minimal, the expected credit losses by trade accounts receivable aging have not been presented. One major customers represents 12% of the trade accounts receivable as at June 30, 2022 (June 30, 2021, Two major customer represented 15% of these accounts). Page 37 66 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 23. FINANCIAL INSTRUMENTS (continued) Credit risk (continued) The Company provides credit to its customers in the normal course of its operations. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. It carries out, on a continuing basis, credit checks on its customers and maintains provisions for contingent credit losses. Demand for the Company’s drilling services depends upon the level of mineral exploration and development activities conducted by mining companies, particularly with respect to gold, nickel and One major customer represents 13% of the contract revenue for the year ended June 30, 2022 (year ended June 30, 2021, one major customer represented 12%). Credit risk also arises from cash and cash equivalents with banks and financial institutions. This risk is limited because the counterparties are mainly Canadian banks with high credit ratings. During these unprecedented market challenges, COVID-19 may adversely affect the Company's customers and their solvency. Our customers' financial The Company does not enter into derivatives to manage credit risk. difficulties can negatively impact the Company's results of operations and financial condition, especially if those customers were to delay or default in Interest rate risk payment owed to the Company. Collection of trade and other receivables from third parties remains a priority for the Company under the current situation. In order to reduce the credit risk, the Company is using insurance coverage from Export Development Canada ("EDC") on certain accounts receivable from its customers. The insurance program provides under certain terms and conditions an insurance coverage amount of up to 90% of certain accounts receivable. As at June 30, 2022, the amount of the insurance coverage from EDC represents 4% of the accounts receivable (6% as at June 30, 2021). The carrying amounts for accounts receivable are net of allowances for doubtful accounts, which are estimated based on aging analysis of receivables, past experience, specific risks associated with the customer and other relevant information. The maximum exposure to credit risk is the carrying value of the financial assets. The allowance for doubtful accounts is established based on the Company's best estimate on the recovery of balances for which collection may be uncertain. Uncertainty of collection may become apparent from various indicators, such as a deterioration of the credit situation of a given client or delay in collection when the aging of invoices exceeds the normal payment terms. Management regularly reviews accounts receivable and assesses the appropriateness of the allowance for doubtful accounts. The aging of trade receivable balances and the allowance for doubtful accounts as at June 30, 2022 and June 30, 2021 were as follows: The Company is subject to interest rate risk since a significant part of the long-term debt bears interest at variable rates. As at June 30, 2022, the Company has estimated that a 100 basis point increase or decrease in interest rates would have caused a corresponding annual increase or decrease in net (loss) earnings and comprehensive (loss) earnings of $254 (June 30, 2021, $238). Equity market risk Equity market risk is defined as the potential adverse impact on the Company's earnings due to movements in individual equity prices or general movements in the level of the stock market. The Company closely monitors the general trends in the markets and individual equity movements, and determines the appropriate course of actions to be taken by the Company. Fair value The fair value of cash and equivalents, trade and other receivables, trade and other payables and factoring liability is approximately equal to their carrying values due to their short-term maturity. The fair value of long-term debt approximates its carrying value as most of it bears interest at a variable rate and has financing conditions similar to those currently available to the Company. ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 23. FINANCIAL INSTRUMENTS (continued) Credit risk copper. Current Past due 0-30 days Past due more than 30 days Total trade receivables Less: allowance for doubtful accounts The change in the allowance for doubtful accounts is detailed below: Balance at beginning of year Change in allowance, other than write-offs and recoveries Write-offs of accounts receivable Recoveries Foreign exchange translation differences Balance at end of year As at June 30, 2022, 73% (June 30, 2021: 75%) of the trade and other receivables are aged as current and 1% are impaired (June 30, 2021: 1%). Given that expected credit losses are minimal, the expected credit losses by trade accounts receivable aging have not been presented. One major customers represents 12% of the trade accounts receivable as at June 30, 2022 (June 30, 2021, Two major customer represented 15% of these accounts). 67 Page 38 June 30 2022 $ 32,247 2,155 3,020 37,422 281 37,141 June 30 2022 $ 407 7 - (121) (12) 281 June 30 2021 $ 30,728 2,707 6,153 39,588 407 39,181 June 30 2021 $ 786 210 (450) (139) - 407 Page 37 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 23. FINANCIAL INSTRUMENTS (continued) Fair value hierarchy The methodology used to measure the Company's financial instruments accounted for at fair value is determined based on the following hierarchy: Level Level 1 Level 2 Level 3 Basis for determination of fair value Quoted prices in active markets for identical assets or liabilities. Inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability. Inputs for the asset or liability that are not based on observable market data. The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in measuring fair value. As at June 30, 2022, the investments are measured at fair value and are classified as a Level 1 financial instrument as their fair value is determined using quoted prices in the active markets. As at June 30, 2022 Financial assets measured at amortized cost Cash and cash equivalents Trade and other receivables Financial assets measured at fair value Investments Financial liabilities measured at amortized cost Trade and other payables Factoring Liability Long-term debt As at June 30, 2021 Financial assets measured at amortized cost Cash and cash equivalents Trade and other receivables Financial assets measured at fair value Investments Financial liabilities measured at amortized cost Trade and other payables Factoring Liability Long-term debt Carrying value Fair value $ $ Level 1 $ Level 2 $ Level 3 $ 1,018 39,401 1,018 39,401 146 146 146 - - 33,578 1,317 36,924 33,578 1,317 36,924 Carrying value Fair value $ $ Level 1 $ Level 2 $ Level 3 $ 3,256 40,724 3,256 40,724 259 259 259 - - 30,486 2,880 32,425 30,486 2,880 32,425 There were no transfers of amounts between Level 1, Level 2 and Level 3 financial instruments for the year ended June 30, 2022. 68 Page 39 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 23. FINANCIAL INSTRUMENTS (continued) Fair value hierarchy ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 23. FINANCIAL INSTRUMENTS (continued) Liquidity risk The methodology used to measure the Company's financial instruments accounted for at fair value is determined based on the following hierarchy: Level Level 1 Level 2 Level 3 Basis for determination of fair value Quoted prices in active markets for identical assets or liabilities. Inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability. Inputs for the asset or liability that are not based on observable market data. The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in measuring fair value. Liquidity risk arises from the Company’s management of working capital, the finance costs and principal repayments on its debt instruments. that the Company will not be able to meet its financial obligations as they fall due. It is the risk The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. In Note 13 are details of undrawn facilities that the Company has at its disposal to further reduce liquidity risk. The Company enters into receivable purchase agreements (commonly referred to as "factoring agreements") with different banks as part of its normal working capital financing. The Company receives 100% of the value of the specific sales invoice less a charge between 0.21% and 0.94%. As at June 30, 2022, trade receivables include $1,317 related to factored accounts ($2,880 as at June 30, 2021 ). As at June 30, 2022, the investments are measured at fair value and are classified as a Level 1 financial instrument as their fair value is determined The following tables present the contractual cash flows for the financial liabilities based on their remaining contractual maturities: using quoted prices in the active markets. As at June 30, 2022 Financial assets measured at amortized cost Cash and cash equivalents Trade and other receivables Financial assets measured at fair value Investments Financial liabilities measured at amortized cost Trade and other payables Factoring Liability Long-term debt As at June 30, 2021 Financial assets measured at amortized cost Cash and cash equivalents Trade and other receivables Financial assets measured at fair value Investments Financial liabilities measured at amortized cost Trade and other payables Factoring Liability Long-term debt Carrying value Fair value $ $ Level 1 $ Level 2 $ Level 3 $ Carrying value Fair value $ $ Level 1 $ Level 2 $ Level 3 $ 146 146 146 1,018 39,401 1,018 39,401 33,578 1,317 36,924 33,578 1,317 36,924 3,256 40,724 3,256 40,724 30,486 2,880 32,425 30,486 2,880 32,425 - - - - There were no transfers of amounts between Level 1, Level 2 and Level 3 financial instruments for the year ended June 30, 2022. Trade and other payables Factoring liability Long-term debt Lease liabilities Trade and other payables Factoring liability Long-term debt Lease liabilities Total $ 33,578 1,317 37,213 2,066 74,174 Total 30,486 2,880 32,703 1,996 68,065 0 - 1 year $ 33,578 1,317 2,222 675 37,792 0 - 1 year $ 30,486 2,880 2,524 635 36,525 2 - 3 years $ - - 33,396 709 34,105 2 - 3 years $ - 28,112 595 28,707 4 - 5 years $ As at June 30, 2022 More than 5 years $ - - 1,595 292 1,887 - - - 390 390 4 - 5 years $ As at June 30, 2021 More than 5 years $ - - 2,067 236 2,303 - - - 530 530 259 259 259 24. SEGMENTED INFORMATION The Company is separated into two geographical reportable segments: Canada and International (US, Central and South America and West Africa). The elements of the results and the financial situation are divided between the segments, based on destination of contracts or profits. Data by geographical areas follow the same accounting rules as those used for the consolidated accounts. Transfers between segments are carried out at market prices. Operational sectors are presented using the same criteria as for the production of the internal report to the chief operating decision maker, who allocates the resources and evaluates the performance of the operational sectors. The chief operating decision maker is considered to be the President and Chief Executive Officer, who evaluates the performance of both segments by the revenues of ordinary activities from external clients and earnings (loss) from operations. Page 39 Page 40 69 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 24. SEGMENTED INFORMATION (continued) Data relating to each of the Company's reportable operating segments are presented as follows: Contract revenue Canada International (1) Earnings (loss) from operations Canada International General and corporate expenses related to head office(2) Finance costs Income tax expense Net (loss) earnings (1) The International operating segment included Chilean revenue West African revenue June 30 2022 $ 145,201 50,272 195,473 12,188 (9,799) 2,389 3,563 2,235 3,238 9,036 (6,647) 27,135 18,111 (2) General and corporate expenses include expenses for corporate offices, share options, provision for litigation and certain unallocated costs. Depreciation and amortization Canada International Total depreciation and amortization included in earnings (loss) from operations Unallocated and corporate assets Total depreciation and amortization 6,349 3,697 10,046 1,097 11,143 June 30 2021 $ 129,976 33,318 163,294 15,202 (5,707) 9,495 2,452 2,290 2,459 7,201 2,294 12,517 14,530 5,601 3,257 8,858 1,677 10,535 70 Page 41 Contract revenue Canada International (1) Earnings (loss) from operations Canada International Finance costs Income tax expense Net (loss) earnings General and corporate expenses related to head office(2) (1) The International operating segment included Chilean revenue West African revenue Depreciation and amortization Canada International (loss) from operations Unallocated and corporate assets Total depreciation and amortization Total depreciation and amortization included in earnings June 30 2022 $ 145,201 50,272 195,473 12,188 (9,799) 2,389 3,563 2,235 3,238 9,036 (6,647) 27,135 18,111 6,349 3,697 10,046 1,097 11,143 June 30 2021 $ 129,976 33,318 163,294 15,202 (5,707) 9,495 2,452 2,290 2,459 7,201 2,294 12,517 14,530 5,601 3,257 8,858 1,677 10,535 (2) General and corporate expenses include expenses for corporate offices, share options, provision for litigation and certain unallocated costs. ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 24. SEGMENTED INFORMATION (continued) 24. SEGMENTED INFORMATION (continued) Data relating to each of the Company's reportable operating segments are presented as follows: Identifiable assets Canada Chile West Africa International - Other Property, plant and equipment Canada Chile West Africa International - Other Right-of-use assets Canada Chile West Africa International - Other Intangible assets Canada Chile West Africa As at June 30, 2022 $ (Recast - Note 2) As at June 30, 2021 $ 92,099 15,906 26,090 2,964 137,059 26,168 5,296 9,785 154 41,403 1,424 83 819 62 2,388 219 85 16 320 85,421 20,815 26,729 5,177 138,142 25,635 7,002 5,280 921 38,838 1,002 73 930 101 2,106 258 42 261 561 The amounts in the comparative period for identifiable assets and property, plant and equipment have been recast to better reflect their geographical locations. Non-current assets acquisitions Canada International Unallocated and corporate assets June 30 2022 $ 7,564 5,220 49 12,833 June 30 2021 $ 4,153 4,222 31 8,406 Page 41 Page 42 71 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 25. SUBSEQUENT EVENTS On September 9, 2022, the Company entered into a additional loan agreement with the Business Development Bank of Canada (the “BDC Loan Agreement”) for a term loan in the principal amount of $8,470. The loan bears interest at a fixed rate of 6.70% per year, has a duration of 240 consecutive monthly payments from November 2022 until October 2042. The fixed rate may be reduced by 0.20% from November 2023, if certain covenants of a financial nature are met. The Company's obligations under the BDC Loan Agreement are secured by a first ranking hypothec on the building serving as the Company's head office located in Val-d'Or. Consequently, as of September 9, 2022, the amended and restated Credit Agreement has been reduced from $35,000 to $30,000. Other amendments have been made to allow the first ranking hypothec applicable to the Loan Agreement BDC above and to modify certain of the financial covenants applicable to the Fiscal 2023 first quarter and future quarters. 72 Page 43 ORBIT GARANT DRILLING INC. Notes to Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (in thousands of Canadian dollars, except for data per share and option data) 25. SUBSEQUENT EVENTS On September 9, 2022, the Company entered into a additional loan agreement with the Business Development Bank of Canada (the “BDC Loan Agreement”) for a term loan in the principal amount of $8,470. The loan bears interest at a fixed rate of 6.70% per year, has a duration of 240 consecutive monthly payments from November 2022 until October 2042. The fixed rate may be reduced by 0.20% from November 2023, if certain covenants of a financial nature are met. The Company's obligations under the BDC Loan Agreement are secured by a first ranking hypothec on the building serving as the Company's head office located in Val-d'Or. Consequently, as of September 9, 2022, the amended and restated Credit Agreement has been reduced from $35,000 to $30,000. Other amendments have been made to allow the first ranking hypothec applicable to the Loan Agreement BDC above and to modify certain of the financial covenants applicable to the Fiscal 2023 first quarter and future quarters. Shareholder Information Orbit Garant Drilling Inc. Directors Jean-Yves Laliberté 1, 2 Corporate Director and Consultant Chair of the Board of Directors Pierre Rougeau 1, 2* Corporate Director and Consultant Nicole Veilleux 1*, 2 Corporate Director and Consultant Pierre Alexandre Vice Chair and Vice President of Corporate Development, Orbit Garant Drilling Inc. Eric Alexandre President and Chief Executive Officer, Orbit Garant Drilling Inc. 1 Member of Audit Committe. 2 Member of Corporate Governance and Compensation Committee. * Denotes Committee Chair. Officers Eric Alexandre President and Chief Executive Officer Pierre Alexandre Vice Chair and Vice President of Corporate Development Daniel Maheu Chief Financial Officer Head Office 3200 Jean-Jacques Cossette Blvd. Val-d’Or, Quebec J9P 6Y6 Tel: 866-824-2707 Fax: 801-824-2195 www.orbitgarant.com Stock Exchange Listing Toronto Stock Exchange Trading Symbol: OGD Common Shares Outstanding 37,372,756 (as at June 30, 2022) Investor Relations Daniel Maheu Tel: 819-824-2707 Email: investors@orbitgarant.com Bruce Wigle Tel: 647-496-7856 Email: investors@orbitgarant.com Transfer Agent and Registrar TSX Trust Company 2001 Robert-Bourassa Blvd., Suite 1600 Montreal, QC H3A 2A6 Tel: 1-800-387-0825 General Counsel Gowling WLG (Canada) LLP Auditors KPMG LLP Annual Meeting Thursday, December 1, 2022 Orbit Garant Head Office 3200 Jean-Jacques Cossette Blvd. Val-d’Or, Quebec The meeting will commence at 10:00 a.m. (ET) Page 43 COORDONNÉES CONTACT Si vous avez des questions concernant Forage Orbit Garant et ses activités, n’hésitez pas à Should you have any questions regarding Orbit Garant Drilling and its operations, please prendre contact avec nous à nos bureaux dont les coordonnées figurent ci-dessous. Nous do not hesitate to contact us at one of our offices listed below. It will be our pleasure nous ferons un plaisir de vous aider et nous nous réjouissons à l’idée de travailler avec vous to assist you and we look forward to working with you to address your specific needs. pour répondre à vos besoins spécifiques. HEAD OFFICE NEW BRUNSWICK WEST AFRICA Orbit Garant Drilling Services Inc. TORONTO 398 Dover Road Dieppe (New Brunswick) Services de Forage Orbit Garant inc. E1A 7L6 130, rue King, bureau 3680 Canada C.P. 99 T: 506 853-9131 Toronto (Ontario) F: 506 856-4570 M5X 1B1 Canada UNITED STATES Tél. : 416 889-7429 NEVADA Drift Exploration Drilling Inc. SUDBURY 6120 Pedroli Lane Services de Forage Orbit Garant inc. Winnemucca (Nevada) 90 Red Deer Lake Road North 89445 Wahnapitae (Ontario) United States P0M 3C0 T: +1 819 824-2707 Tél. : 705 694-5959 F: +1 819 824-2195 Téléc. : 705 694-4784 SOUTH AMERICA VAL-D’OR CHILE .cni tnaraG tibrO egaroF ed secivreS Orbit Garant Chile S.A. 3200, boul. Jean-Jacques Cossette Avda. Los Cerrillos 998 Val-d’Or (Québec) Cerrillos (Santiago) J9P 6Y6 Chile Canada T: +56 2 2411 5900 Tél. : 866 824-2707 C: +56 9 9624 0421 Téléc. : 819 824-1595 GUYANA VAL-D’OR OGD Drilling (Guyana) Inc. 31 Belair Spring Soudure Royale Concept East Coast Demerara 3200, boul. Jean-Jacques Cossette Georgetown Val-d’Or (Québec) Guyana J9P 6Y6 C Guyana: +592 629 6133 Canada T Canada: +1 819 824-2707 Tél. : 819 825-5399 F Canada: +1 819 824-1595 Téléc. : 819 825-7088 GHANA GUYANA Orbit Garant Drilling Ghana Limited OGD Drilling (Guyana) Inc. PT 178 Inchaban Hills 157 C Waterloo Street, P.O. Box WQ 104, Takoradi North Cummingsburg, Ghana Georgetown, T Ghana: 00 233 540 125 670 Guyana T Ghana: +226 76 35 88 11 Tél. au Canada : 819 824-2707 C Canada: +1 819 860-4258 Téléc. au Canada : 819 824-2195 BURKINA FASO CHILI Forage Orbit Garant BF S.A.S. 737, boulevard Tansoba-KOSSODO Orbit Garant Chile S.A. 12 B.P. 197 Ouagadougou 12 Avda. Los Cerrillos 998, Ouagadougou Cerrillos, Santiago, Burkina Faso Chile T Burkina Faso: +226 54 69 02 80 T Chile: 562 2411-5900 T Burkina Faso: +226 76 35 88 11 C Canada: +1 819 860-4258 GHANA GUINEA Orbit Garant Drilling Ghana Ltd. Plot. 35 Funko Beach Forage Orbit Garant Guinee SARLU Takoradi Cite chemin de fer WQ 104 Takoradi, Ghana Immeuble Mamou C2A Tél. au Ghana : +233 (0) 303 960 889 Conakry Cellulaire au Canada : 506 863-9503 Guinea Cellulaire au Ghana : +233 (0) 270-334-162 T Guinea: +224 629 800 860 C Canada : +1 819 860-4258 BURKINA FASO Forage Orbit Garant BF SAS 737, boulevard Tansoba-KOSSODO 12 B.P. 197 Ouagadougou 12 Ouagadougou, Burkina Faso Téléphone +226 54 69 02 80 PÉROU Perforacion Orbit Garant Peru S.A.C. Av. De La Floresta 497 San Borja, Lima Pérou Tél. au Canada: 819 824-2707 Téléc. au Canada: 819-824-2195 Orbit Garant Drilling Inc. SIÈGE SOCIAL 3200 Jean-Jacques Cossette Blvd. 3200, boul. Jean-Jacques Cossette Val-d’Or (Québec) Val-d’Or (Quebec) J9P 6Y6 J9P 6Y6 Canada Canada T: 819-824-2707 Tél : 866-824-2707 T: 866-824-2707 Téléc : 819-824-2195 F: 819-824-2195 info@orbitgarant.com info@orbitgarant.com ALBERTA CANADA Drift Exploration Drilling Inc. QUEBEC PO Box 5184, 803, 9 Ave. S.E. Orbit Garant Drilling Services Inc. High River (Alberta) 3200 Jean-Jacques Cossette Blvd. T1V 1K5 Val-d’Or (Québec) Canada J9P 6Y6 Tél. : 403-652-3046 Canada Téléc. : 403-652-3238 T : 819 824-2707 T: 866 824-2707 NÉVADA F: 819 824-2195 Drift Exploration Drilling Inc. ONTARIO 6120 Pedroli Lane Winnemucca (Névada) Orbit Garant Drilling Services Inc. 89446 640 Garson Coniston Road États-Unis Sudbury (Ontario) Tél. : 403 601-4374 P3L 1R3 Canada T: 705 694-5959 NOUVEAU-BRUNSWICK F: 705 694-4784 .cni tnaraG tibrO egaroF ed secivreS 398, chemin Dover Orbit Garant Drilling Services Inc. Dieppe (Nouveau-Brunswick) 3661 Mount Albert Road E1A 7L6 R.R. #1, Sharon (Ontario) Canada L0G 1V0 Tél. : 506 853-9131 Canada T: 905 478-2243 F: 905 478-2249 ROUYN-NORANDA .cni tnaraG tibrO egaroF ed secivreS 1905, boul. Rideau, C.P. 5131 Rouyn-Noranda (Québec) J0Z 1Y1 Canada Tél. : 809 768-3690 ORBITGARANT.COM 

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