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http://us4.campaign-archive1.com/?u=ea1ed614a184dec77e57a3c0b&id=7a2f03a252&e=f658dfadc6 Cabo President’s Perspective Fiscal 2012 began with a bang in the Summer of 2011 and demand for our service has continued strongly since.

Our first quarter of fiscal 2012 was a record setting quarter, with revenues of $16.93 million, a 65% increase over the same period of the previous fiscal year. Numerous other milestones were accomplished during our first quarter, including our highest ever net after tax income and EBITDA.

These milestones are the result of the dedication of our people and initiatives taken during 2010 and early 2011 to position Cabo to increase its gross margin, increase drill utilization and return to profitability.

Additionally, our efforts to improve our administrative practices and cut costs have been successful.

Consequently, our percentage gross margin improved from 24.0% in the comparable quarter in the previous year to 24.6% for the first quarter of fiscal 2012. The Company’s strategy of focusing on mid-tier, higher quality juniors and medium to higher level quality exploration/mining companies has paid off and we will continue that strategy in 2012.

In spite of ongoing economic uncertainty, the drilling outlook for 2012 suggests that the more mature juniors and seniors are not holding onto their cash for fear they won’t be able to either earn more or raise more in the near future, as they did in 2009-2010. During the challenging times of late 2008 through 2011, inventories of industrial metals were drawn down by the manufacturing sector, but at the same time mills and mines were shut down and exploration programs were put on hold.

As OECD economies have begun to recover, we are noting that the manufacturers are again increasing production and replenishing their inventories, resulting in an increased demand for commodities and a commensurate rise in metals prices.

This is spurring the exploration sector and driving strong demand for drilling.

We are also observing that many of the major mining companies are striving to replenish or increase their reserves and, accordingly, we expect strong demand for drilling services to continue as exploration programs are expanded throughout 2012 and 2013. Our contemporaries in the drilling industry are also experiencing strong demand for drill rigs, as noted by the President of Major Drilling, Francis McGuire, in a recent mineweb.com article, "the market (for drilling services) at this point is probably the strongest weve seen it" (Keen, 2012).

In the same article, another industry player remarked that if he was approached with a significant order, his company would have to refuse at this juncture. Bolstering these observations, figures from the November/December Metals Economics Group (MEG) Industry Monitor report that “November & December had a combined 19 initial resource announcements, bringing 2011’s total to 108, or nine per month – a substantial improvement over 76 announcements (six per month) in 2010.” The MEG also offers a positive projection for 2012 in their report where they maintain that “if metals prices hold – particularly gold – we expect the number to trend upwards in 2012, given the healthy number of initial finds and new zones reported throughout 2011.” It is interesting to note, from a market trend perspective, that exploration activities are more focused on searches for deeper deposits at existing mines or previously abandoned mines, as well as more remote areas of Canada and other areas of the world.

In 2011-2012, we have experienced more requests for drilling services around older mining projects, often requiring larger drills for deep drilling and for helicopter support drilling in remote areas of Canada and the USA.

This suggests that increased metals prices are supporting more costly project development and that existing ore reserves are not only depleting at a higher rate, but that new deposit discoveries are less frequent and more difficult to find.

This bodes well for the longer term growth in drilling services revenues, but the drilling industry is also facing significant challenges in recruiting, training and retaining drillers and helpers who have the skill sets required for the more difficult deep drill holes or who can properly carry out the more complex helicopter support drill programs in areas where man portable rigs are not a viable option. At Cabo, we are also experiencing another interesting phenomena, where demand for larger drill rigs and helicopter support rigs is growing in developing countries, as an alternative to the man portable rigs, primarily because the man portable rigs cannot achieve the drill hole depths that the geologists are requesting.

We believe that many opportunities exist for finding new mineral discoveries internationally, using all types of rigs that will comply with environmental regulations and best practices.

Cabo has chosen to explore opportunities in locations such as East Europe, Turkey, Panama and Colombia, where human rights are not undermined, environmental standards are balanced and social conditions are good for our employees. During the next quarter, the Company will continue to focus on cost and spending controls, improved drill capacity and best risk management practices.

The emphasis on very good safety procedures will continue and will not be compromised by cost controls.

The Company will also continue to train our people to practice excellent customer and employee relations, improved communication and showing respect to each other, to our client personnel, and to the community people with whom we are in continuing contact. Please feel free to direct any inquiries to [2] or contact Sheri Barton at (403)217-5830.

As always, you can contact me at (778)999-4997 or at [3]. Links: 2.

mailto: 3.

mailto: Thank you for your support! Most Sincerely, John A.

Versfelt President and CEO Cabo Drilling Corp. [4]www.cabo.ca Links: 4.

http://www.cabo.ca Reference: Keen, K.

(2012, Feb 3).

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