Exhibit
1
















Table of contents



|CORPORATE STRUCTURE                                        | 9  
|---------------------------------------------------------- | ---
|GENERAL DEVELOPMENT OF THE BUSINESS                        | 10 
|Developments – Mines and Projects                          | 10 
|Developments – Financial                                   | 12 
|DESCRIPTION OF THE BUSINESS                                | 13 
|Specialized Skills and Knowledge                           | 13 
|Principal Products                                         | 13 
|Competitive Conditions                                     | 14 
|Operations                                                 | 14 
|Technical Information                                      | 16 
|Summary of Mineral Reserve and Mineral Resource Estimates  | 16 
|MINERAL PROPERTIES                                         | 22 
|New Afton Mine, Canada                                     | 22 
|Mesquite Mine, United States                               | 27 
|Peak Mines, Australia                                      | 31 
|Cerro San Pedro Mine, Mexico                               | 34 
|Rainy River Project, Canada                                | 35 
|Blackwater Project, Canada                                 | 43 
|RISK FACTORS                                               | 46 
|NOTES                                                      | 65 
|DIVIDENDS                                                  | 66 
|DESCRIPTION OF CAPITAL STRUCTURE                           | 66 
|MARKET FOR SECURITIES                                      | 68 
|DIRECTORS AND OFFICERS                                     | 69 
|LEGAL PROCEEDINGS AND REGULATORY ACTIONS                   | 76 
|INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS | 76 
|TRANSFER AGENT AND REGISTRAR                               | 77 
|MATERIAL CONTRACTS                                         | 77 
|TECHNICAL REPORTS                                          | 77 
|SCHEDULE A – Audit Committee Charter                       | A-1
|SCHEDULE B – Definitions                                   | B-1
|SCHEDULE C – Abbreviations and Measurement Conversion      | C-1
|SCHEDULE D – Exchange Rate and Metal Price Information     | D-1



2







Annual information form
for the financial year ended december 31, 2016



All information in this annual information form (“Annual Information
Form”) is as at December 31, 2016 unless otherwise indicated.



Cautionary Note Regarding Forward-Looking
Statements



Certain information contained in this Annual Information Form, including any
information relating to New Gold’s future financial or operating performance are “forward looking”. All statements
in this Annual Information Form, other than statements of historical fact, which address events, results, outcomes or developments
that New Gold expects to occur are “forward-looking statements”. Forward-looking statements are statements that are
not historical facts and are generally, but not always, identified by the use of forward-looking terminology such as “plans”,
“expects”, “is expected”, “budget”, “scheduled”, “targeted”, “estimates”,
“forecasts”, “intends”, “anticipates”, “projects”, “potential”, “believes”
or variations of such words and phrases or statements that certain actions, events or results “may”, “could”,
“would”, “should”, “might” or “will be taken”, “occur” or “be
achieved” or the negative connotation of such terms. Forward-looking statements in this Annual Information Form include those
under the headings “General Developments of the Business”, “Description of the Business” and “Mineral
Properties” and include, among others, statements with respect to: guidance for production, operating expenses per gold ounce
sold, total cash costs and all-in sustaining costs, and the factors contributing to those expected results, as well as expected
capital expenditures; mine life; Mineral Reserve and Mineral Resource estimates; grades expected to be mined at the Company’s
operations; the expected production, costs, economics and operating parameters of Rainy River, Blackwater and New Afton C-zone;
planned activities for 2017 and beyond at the Company’s operations and projects, as well as planned exploration activities
and expenses; planned preparations for operations at the Rainy River Project, including the mining rate, removal of overburden
and waste and storage of water prior to commissioning and timing expectations regarding the receipt of the Schedule 2 Amendment
(defined below); the expected capital costs and contingency amounts as well as production, costs, economics, grade and other operating
parameters of the Rainy River Project; the capacity of the starter dam at the Rainy River Project; targeted timing for permits
and development activities, commissioning, start-up and commercial production for the Rainy River Project; and net present value,
internal rate of return and payback period for the Rainy River Project and New Afton C-zone and the assumed metal prices, exchange
rates, capital costs and operating expenses included in these calculations.



All forward-looking statements in this Annual Information Form are based on
the opinions and estimates of management as of the date such statements are made and are subject to important risk factors and
uncertainties, many of which are beyond New Gold’s ability to control or predict. Certain material assumptions regarding
such forward-looking statements are discussed in this Annual Information Form, New Gold’s annual and quarterly management’s
discussion and analysis (“MD&A”) and its Technical Reports filed on SEDAR at www.sedar.com. In addition
to, and subject to, such assumptions discussed in more detail elsewhere, the forward-looking statements in this Annual Information
Form are also subject to the following assumptions: (1) there being no significant disruptions affecting New Gold’s operations;
(2) political and legal developments in jurisdictions where New Gold operates, or may in the future operate, being consistent with
New Gold’s current expectations; (3) the accuracy of New Gold’s current Mineral Reserve and Mineral Resource estimates;
(4) the exchange rate between the Canadian dollar, Australian dollar, Mexican peso and U.S. dollar being approximately consistent
with current levels; (5) prices for diesel, natural gas, fuel oil, electricity and other key supplies being approximately consistent
with current levels; (6) equipment, labour and material costs increasing on a basis consistent with New Gold’s current expectations;
(7) arrangements with First Nations and other Aboriginal groups in respect of Rainy River and Blackwater being consistent with
New Gold’s current expectations; (8) all required permits, licenses and authorizations being obtained from the relevant governments
and other relevant stakeholders within the expected





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timelines; (9) the results of the feasibility studies for Rainy River, the
New Afton C-zone and Blackwater being realized; (10) in the case of production, cost and expenditure outlooks at operating mines
for 2017, commodity prices and exchange rates being consistent with those estimated for the purposes of 2017 guidance and (11)
in the case of net present value, internal rate of return and payback period estimates for the Rainy River Project and New Afton
C-zone, commodities prices, exchange rates and capital costs and operating expenses being consistent with those estimated for the
purposes of those calculations.



Forward-looking statements are necessarily based on estimates and assumptions
that are inherently subject to known and unknown risks, uncertainties and other factors that may cause actual results, level of
activity, performance or achievements to be materially different from those expressed or implied by such forward-looking statements.
Such factors include, without limitation: significant capital requirements and the availability and management of capital resources;
additional funding requirements; price volatility in the spot and forward markets for metals and other commodities; fluctuations
in the international currency markets and in the rates of exchange of the currencies of Canada, the United States, Australia and
Mexico; discrepancies between actual and estimated production, between actual and estimated Mineral Reserves and Mineral Resources
and between actual and estimated metallurgical recoveries; changes in national and local government legislation in the countries
in which New Gold does or may in the future carry on business; taxation; controls, regulations and political or economic developments
in the countries in which New Gold does or may in the future carry on business; the speculative nature of mineral exploration and
development, including the risks of obtaining and maintaining the validity and enforceability of the necessary licenses and permits
and complying with the permitting requirements of each jurisdiction in which New Gold operates, including, but not limited to:
in Canada, obtaining the necessary permits for the Rainy River, Blackwater and New Afton C-zone projects; the uncertainties inherent
to current and future legal challenges to which New Gold is or may become a party; diminishing quantities or grades of Mineral
Reserves and Mineral Resources; competition; inherent uncertainties with cost estimates and estimated schedule for construction
and commencement of production at the Rainy River Project as contemplated; loss of key employees; rising costs of labour, supplies,
fuel and equipment; actual results of current exploration or reclamation activities; uncertainties inherent to mining economic
studies including the feasibility studies for the Rainy River and Blackwater projects and the C-zone at the New Afton Mine; the
uncertainty with respect to prevailing market conditions necessary for a positive development or construction decision at the Blackwater
Project; changes in project parameters as plans continue to be refined; accidents; labour disputes; defective title to mineral
claims or property or contests over claims to mineral properties; unexpected delays and costs inherent to consulting and accommodating
rights of First Nations and other indigenous groups; uncertainties and unanticipated delays associated with obtaining and maintaining
necessary licenses, permits and authorizations, including the Schedule 2 Amendment (defined below), complying with permitting requirements,
and receiving the environmental assessment approval for the Blackwater Project. In addition, there are risks and hazards associated
with the business of mineral exploration, development and mining, including environmental events and hazards, industrial accidents,
unusual or unexpected formations, pressures, cave-ins, flooding and gold bullion losses, and risks associated with the start of
production of a mine, such as Rainy River (and, in each case, the risk of inadequate insurance or inability to obtain insurance
to cover these risks) as well as “Risk Factors” included in this Annual Information Form and in New Gold’s disclosure
documents incorporated by reference herein. Forward-looking statements are not guarantees of future performance, and actual results
and future events could materially differ from those anticipated in such statements. All of the forward-looking statements contained
in this Annual Information Form or in documents incorporated by reference herein are qualified by these cautionary statements.
New Gold expressly disclaims any intention or obligation to update or revise any forward-looking statements whether as a result
of new information, events or otherwise, except in accordance with applicable securities laws.



A significant portion of the historical financial information in this Annual
Information Form is derived from New Gold’s audited consolidated financial statements for the year ended December 31, 2016
(a copy of which is available under the





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Company’s profile on SEDAR at www.sedar.com). Readers should refer to such financial
statements for additional information.



Cautionary Note to U.S. Readers
Concerning Estimates of Mineral Reserves and Mineral Resources



Information concerning the properties and operations of New Gold has been prepared
in accordance with Canadian standards under applicable Canadian securities laws, and may not be comparable to similar information
for United States companies. The terms “Mineral Reserve”, “proven Mineral Reserve” and “probable
Mineral Reserve” are Canadian mining terms defined in accordance with Canadian National Instrument 43-101 — Standards
of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum
(the “CIM”) — CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council,
as amended. These definitions differ from the definitions in Industry Guide 7 (“SEC Industry Guide 7”) under
the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”). Under SEC Industry Guide 7 standards,
mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization
could be economically and legally produced or extracted at the time the reserve determination is made. Also, under SEC Industry
Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves, the three-year
historical average price is used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis
or report must be filed with the appropriate governmental authority.



In addition, the terms “Mineral Resource”, “measured Mineral
Resource”, “indicated Mineral Resource” and “inferred Mineral Resource” are defined in and required
to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and are normally not permitted
to be used in reports and registration statements filed with the United States Securities and Exchange Commission (the “SEC”).
Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into
reserves. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence and as to their economic
and legal feasibility. It cannot be assumed that all or any part of an inferred Mineral Resource will ever be upgraded to a higher
category. Under Canadian rules, estimates of inferred Mineral Resources may not form the basis of feasibility or pre-feasibility
studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred Mineral Resource exists
or is economically or legally mineable. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC
normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in place
tonnage and grade without reference to unit measures.



Accordingly, information contained in this Annual Information Form describes
the Company’s mineral deposits may not be comparable to similar information made public by United States companies subject
to reporting and disclosure requirements under United States federal securities laws and the rules and regulations thereunder.



Non-GAAP Measures



Total Cash Costs per Gold Ounce



“Total cash costs per gold ounce” is a non-GAAP measure that is
a common financial performance measure in the gold mining industry but with no standard meaning under International Financial Reporting
Standards (“IFRS”). New Gold reports total cash costs on a sales basis. The Company believes that, in addition
to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company’s
performance and ability to generate liquidity through operating cash flow to fund future capital expenditures and working capital
needs. New Gold believes that this measure, along with sales, is a key indicator of a company’s ability to generate operating
earnings and cash flow from its mining operations.





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Total cash cost figures are calculated in accordance with a standard developed
by The Gold Institute, a worldwide association of suppliers of gold and gold products that ceased operations in 2002. Adoption
of the standard is voluntary and the cost measures presented may not be comparable to other similarly titled measures of other
companies. Total cash costs include mine site operating costs such as mining, processing and administration costs, royalties, production
taxes and realized gains and losses on fuel contracts, but are exclusive of amortization, reclamation, capital and exploration
costs and net of by-product sales. Total cash costs are then divided by gold ounces sold to arrive at the total cash costs per
ounce sold.



The Company produces copper and silver as by-products of its gold production.
The calculation of total cash costs per gold ounce for Cerro San Pedro is net of by-product silver sales revenue, and the calculation
of total cash costs per gold ounce sold for Peak Mines and New Afton is net of by-product silver and copper sales revenue. New
Gold notes that in connection with New Afton, the copper by-product revenue is sufficiently large to result in a negative total
cash cost on a single mine basis. Notwithstanding this by-product contribution, as a company focused on gold production, New Gold
aims to assess the economic results of its operations in relation to gold, which is the primary driver of New Gold’s business.
New Gold believes this metric is of interest to its investors, who invest in the Company primarily as a gold mining company. To
determine the relevant costs associated with gold only, New Gold believes it is appropriate to reflect all operating costs, as
well as any revenue related to metals other than gold that are extracted in its operations.



To provide additional information to investors, New Gold has also calculated
total cash costs on a co-product basis, which removes the impact of other metal sales that are produced as a by-product of our
gold production and apportions the cash costs to each metal produced on a percentage of revenue basis, and subsequently divides
the amount by the total gold ounces, silver ounces or pounds of copper sold, as the case may be, to arrive at per ounce or per
pound figures. Unless indicated otherwise, all information about total cash costs in this Annual Information Form is net of by-product
sales.



Total cash costs are intended to provide additional information only and do
not have any standardized meaning under IFRS and may not be comparable to similar measures presented by other mining companies.
They should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The
measure is not necessarily indicative of cash flow from operations under IFRS or operating costs presented under IFRS. Further
details regarding historical total cash costs and a reconciliation to the nearest IFRS measures are provided in the MD&A accompanying
New Gold’s financial statements and filed at www.sedar.com.



All-in Sustaining Costs per Gold Ounce



“All-in sustaining costs per gold ounce” is a non-GAAP measure
based on guidance announced by the World Gold Council (“WGC”) in June 2013. The WGC is a non-profit association
of the world’s leading gold mining companies established in 1987 to promote the use of gold to industry, consumers and investors.
The WGC is not a regulatory body and does not have the authority to develop accounting standards or disclosure requirements. The
WGC has worked with its member companies, including New Gold, to develop a measure that expands on IFRS measures such as operating
expenses and non-GAAP measures to provide visibility into the economics of a gold mining company. Current IFRS measures used in
the gold industry, such as operating expenses, do not capture all of the expenditures incurred to discover, develop and sustain
gold production. New Gold believes the all-in sustaining costs measure provides further transparency into costs associated with
producing gold and will assist analysts, investors and other stakeholders of the Company in assessing its operating performance,
its ability to generate free cash flow from current operations and its overall value.





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All-in sustaining costs per gold ounce is intended to provide additional information
only and does not have any standardized meaning under IFRS and may not be comparable to similar measures presented by other mining
companies. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with
IFRS. The measure is not necessarily indicative of cash flow from operations under IFRS or operating costs presented under IFRS.
Further details regarding historical all-in sustaining costs and a reconciliation to the nearest IFRS measures are provided in
the MD&A accompanying New Gold’s financial statements and filed at www.sedar.com.



New Gold defines all-in sustaining costs per ounce as the sum of total cash
costs, net capital expenditures that are sustaining in nature, corporate general and administrative costs, capitalized and expensed
exploration that is sustaining in nature, and environmental reclamation costs, all divided by the total gold ounces sold to arrive
at a per ounce figure. To determine sustaining capital expenditures, New Gold uses cash flow related to mining interests from its
statement of cash flows and deducts any expenditures that are non-sustaining. Capital expenditures to develop new operations or
capital expenditures related to major projects at existing operations where these projects will materially increase production
are classified as non-sustaining and are excluded. The table “Sustaining Capital Expenditure Reconciliation” (in New
Gold’s MD&A available under the Company’s profile on SEDAR at www.sedar.com) reconciles New Gold’s sustaining
capital to its cash flow statement. The definition of sustaining versus non-sustaining is similarly applied to capitalized and
expensed exploration costs. Exploration costs to develop new operations or that relate to major projects at existing operations
where these projects are expected to materially increase production are classified as non-sustaining and are excluded.



Costs excluded from all-in sustaining costs are non-sustaining capital expenditures
and exploration costs, financing costs, tax expense, transaction costs associated with mergers and acquisitions, and any items
that are deducted for the purposes of adjusted earnings.



By including total cash costs as a component of all-in sustaining costs, the
measure deducts by-product revenue from gross cash costs. Refer to the discussion above regarding total cash costs per gold ounce
for the discussion of deduction of by-product revenue.



Currency Presentation and Exchange
Rate Information



All dollar amounts referenced in this Annual Information Form are in United
States dollars unless otherwise indicated. Canadian dollars are referred to as “Canadian dollars” or “C$”
and Australian dollars are referred to as “Australian dollars” or “A$”. See Schedule D of this Annual Information
Form for applicable exchange rate information.



Technical Information



Other than as otherwise specified below, the scientific and technical information
in this Annual Information Form has been reviewed and approved by Mark A. Petersen, Vice President, Exploration of the Company.
Arshya Qureshi, Co-Founder and Project Manager at LQ Consulting and Management Inc., reviewed and approved the scientific and technical
information regarding capital costs at the Rainy River Project set out under the headings “General Development of the Business
– Developments – Mines and Projects – Rainy River Project” and “Mineral Properties –Rainy River
Project, Canada – Mining Operations – Capital and Operating Costs”. Edward Kenny, Senior Metallurgist of the
Company at the Rainy River Project, reviewed and approved the scientific and technical information regarding the water and tailings
management facilities at the Rainy River Project set out under the heading “Mineral Properties – Rainy River Project,
Canada – Exploration and Development – Water and Tailings Management Facilities”. Binsar Sirait, Director, Mine
Engineering of the Company, reviewed and approved the scientific and technical information regarding operations at the Rainy River
Project set out under the headings “Mineral Properties – Rainy River Project, Canada – Mining Operations”.





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Mr. Petersen is a SME Registered Member and an AIPG Certified Professional
Geologist. Mr. Qureshi is a Professional Engineer registered with the Professional Engineers of Ontario. Mr. Kenny is a Professional
Engineer registered with the Professional Engineers of Ontario. Mr. Sirait is an engineer and a SME Registered Member. Messrs.
Petersen, Qureshi, Sirait and Kenny are each "Qualified Persons" for the purposes of NI 43-101.



To the Company’s knowledge, each of the aforementioned persons holds
less than 1% of the outstanding securities of the Company. None of the aforementioned persons is currently expected to be elected,
appointed or employed as a director, officer or employee of the Company or of any associate or affiliate of the Corporation except
for Messrs. Petersen, Kenny and Sirait who are currently employees of the Corporation.



The estimates of Mineral Reserves and Mineral Resources discussed in this Annual
Information Form may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical, marketing and
other risks and relevant issues. New Gold’s current NI 43-101 Technical Reports, which are available at www.sedar.com, contain
further details regarding Mineral Reserve and Mineral Resource estimates, classification, reporting parameters, key assumptions
and risks for each of New Gold's material mineral properties.



Additional Information



Additional information about the Company, including, without limitation, directors’
and officers’ remuneration and indebtedness, principal holders of the Company’s securities and securities authorized
for issuance under equity compensation plans, may be found in the Management Information Circular of the Company for its most recent
annual meeting of shareholders and other continuous disclosure documents of the Company filed on SEDAR at www.sedar.com. Additional
financial information is provided in the Company’s audited consolidated financial statements and MD&A for the three months
and year ended December 31, 2016. These documents and other information about the Company are available under the Company’s
profile on SEDAR at www.sedar.com.



8







CORPORATE STRUCTURE



The Company was incorporated on January 31, 1980 as DRC Resources Corporation
under the Company Act (British Columbia) and was transitioned on May 10, 2005 under the Business Corporations Act (British Columbia).
On May 4, 2005, the shareholders of the Company passed a special resolution to remove the pre-existing company provisions and adopt
new articles. On June 1, 2005 the Company changed its name to New Gold Inc. Effective January 1, 2012, New Gold amalgamated with
its wholly owned subsidiaries Silver Quest Resources Ltd. (“Silver Quest”), Geo Minerals Ltd. (“Geo”)
and Richfield Ventures Corp. (“Richfield”). The amalgamated company continued as New Gold Inc. Effective October
1, 2014, New Gold amalgamated with its wholly owned subsidiaries Rainy River Resources Ltd. and 0608457 B.C. Ltd, with the amalgamated
company continuing as New Gold Inc. On January 1, 2016, New Gold amalgamated with its wholly owned subsidiaries Peak Gold Ltd.
and New Gold Bayfield Corp. The amalgamated company continued as New Gold Inc.



The registered office of the Company is Suite 1800, Two Bentall Centre, 555
Burrard Street, Vancouver, British Columbia V7X 1M9, Canada and its head office is at Suite 3510, 181 Bay Street, Toronto, Ontario,
M5J 2T3, Canada.



The following chart illustrates the Company’s principal subsidiaries
together with the jurisdiction of incorporation or organization of each subsidiary and the percentage of voting securities beneficially
owned or over which control or direction is exercised by the Company, as well as the Company’s mines and development projects.



In this Annual Information Form, except as otherwise required by the context,
reference to “New Gold” or the “Company” means, collectively, New Gold Inc. and its subsidiaries.





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GENERAL DEVELOPMENT OF THE BUSINESS



New Gold is an intermediate gold mining company engaged in the acquisition,
exploration, development and operation of mineral properties. New Gold currently has the following mines and development projects
which are described in greater detail in the “Mineral Properties” section of this Annual Information Form:



| | · | 100% interest in the New Afton gold-copper mine British Columbia, Canada (“New Afton Mine”)
| | - | -------------------------------------------------------------------------------------------



| | · | 100% interest in the Mesquite gold mine in California, United States (“Mesquite Mine”)
| | - | --------------------------------------------------------------------------------------



| | · | 100% interest in the Peak gold-copper mines in New South Wales, Australia (“Peak Mines”)
| | - | ----------------------------------------------------------------------------------------



| | · | 100% interest in the Cerro San Pedro gold-silver mine in San Luis Potosí, Mexico (“Cerro San Pedro Mine”)
| | - | ---------------------------------------------------------------------------------------------------------



| | · | 100% interest in the Rainy River gold project in Ontario, Canada (“Rainy River Project”)
| | - | ----------------------------------------------------------------------------------------



| | · | 100% interest in the Blackwater gold-silver project in British Columbia, Canada (“Blackwater Project”)
| | - | ------------------------------------------------------------------------------------------------------



New Gold has been engaged in the acquisition, exploration and development of
natural resource properties since 1980. The Company’s current structure arose through two accretive business combinations
in mid-2008 and mid-2009. To achieve its growth strategy, New Gold focuses on:



| | · | Delivering on operational targets (safety, cost, production, environment and social responsibility);
| | - | ----------------------------------------------------------------------------------------------------



| | · | Maintaining a strong financial position;
| | - | ----------------------------------------



| | · | Internal growth through project development and continuous improvement of existing operations; and
| | - | --------------------------------------------------------------------------------------------------



| | · | External growth through value enhancing merger and acquisition opportunities.
| | - | -----------------------------------------------------------------------------



Developments – Mines
and Projects



New Afton Mine



In February 2014, New Gold announced its intention to expand the existing mill
facility at the New Afton Mine following an evaluation of the economic benefits of increasing mill throughput levels. The mill
expansion project was successfully completed in the second quarter of 2015, which has resulted in increased mill throughput.



In February 2015, New Gold announced the results of a scoping study to evaluate
the potential for the New Afton C-zone to extend the mine’s life. The C-zone is the down plunge extension of the B-zone block
cave that is currently being mined at New Afton. In January 2016, the Company completed a Feasibility Study, which indicated positive
economics for mining the C-zone (the “C-zone Feasibility Study”).



Peak Mines



In November 2015, New Gold provided an update on exploration activities at
the Peak Mines, which included the discovery of two new zones of polymetallic mineralization, Chronos and Anjea, located immediately
adjacent to current and past-producing ore deposits within Peak Mines’ nine-kilometre mine corridor. Exploration work to
further delineate the new zones, as well as other targets in the Peak Mines corridor, and to evaluate mining and processing options
continued in 2016 and is ongoing.





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Cerro San Pedro Mine



The Cerro San Pedro Mine completed active mining in June 2016 and has now transitioned
to residual leaching. It is expected that residual leaching will continue for two to three years, subject to future recovery performance
and gold and silver prices.



Rainy River Project



On January 16, 2014, New Gold announced the results of a Feasibility Study
for the Rainy River Project, which outlined a 21,000 tonne per day processing rate from a combination of open pit, underground
and stockpiled ore. The study outlined that the Project has the potential to produce over 325,000 ounces of gold annually for the
first nine years at low cash costs over the anticipated initial mine life of 14 years. Effective January 1, 2015, New Gold completed
the acquisition of Bayfield Ventures Corp. (“Bayfield”), further consolidating the Company’s mineral holdings
in the Rainy River district.



On January 30, 2015, New Gold announced receipt of Environmental Assessment
(“EA”) approvals at both the Federal and Provincial levels for the Rainy River Project. Receipt of the EA approvals
enabled the Company to apply for other permits and to commence preliminary development work at the Project.



On July 20, 2015, New Gold announced it had entered into a $175 million streaming
agreement with RGLD Gold AG, a wholly owned subsidiary of Royal Gold Inc. (“Royal Gold”), pursuant to which
Royal Gold agreed to provide New Gold with a deposit of $175 million, to be used for the ongoing development of the Rainy River
Project, in return for a percentage of the future annual gold and silver production from the Rainy River Project. Royal Gold paid
$100 million of the deposit on signing of the agreement, with the remaining $75 million paid in November 2016 after 60% of the
Project development capital had been spent.



As of December 31, 2016, the total development capital cost
spent at Rainy River was $777 million. In January 2017, the Company announced that the estimated 2017 capital cost through commercial
production, including contingency, is $195 million higher than the Company’s previous estimate and that start up is now scheduled
for September 2017 with commercial production expected to commence November 2017. As of year end, steelwork erection and cladding
were complete, installation of mechanical piping, electrical and instrumentation in the processing facility was over 60% complete.
Commissioning of the crusher commenced in March 2017. Commissioning of the ball and SAG mills is expected to commence during the
second quarter. Finally, the refining portion of the circuit is expected to be completed and ready to begin commissioning early
in the third quarter of 2017. Dry and wet commissioning of the full process circuit is scheduled to take place in August, which
should leave approximately one month before targeted first production for any remaining adjustments to the circuit. With respect
to earthworks, at year end 2016 approximately 24 million tonnes of overburden and waste stripping had been completed.



Blackwater Project



The December 2013 Feasibility Study for the Blackwater Project confirmed the
parameters of a conventional truck and shovel open pit mine with a 60,000 tonne per day processing plant and average annual gold
production of 485,000 ounces during the first nine years of the mine’s anticipated 17-year life. However, due to lower commodity
prices and the need for New Gold to ensure that it has maximum flexibility with respect to its future development decisions, the
Company announced that it would sequence the development of its projects, with New Gold’s near-term focus being on the advancement
of the Rainy River Project. The Company will continue to move the Blackwater Project through its permitting phase during 2017.





11







Sale of El Morro Project and El Morro Stream



In November 2015, New Gold sold its 30% interest in the El Morro Project to
an affiliate of Goldcorp Inc. (“Goldcorp”). In exchange for the Company’s 30% interest, New Gold received
$62.4 million in net cash ($90 million net of applicable withholding taxes and transaction costs) and the Company’s $94.5
million carried funding loan payable was cancelled. In addition, New Gold entered into an agreement to receive a 4% stream on gold
production from the El Morro property, under which New Gold would pay $400 per ounce for the first 217,000 ounces of gold delivered
as part of the stream, and would pay $400 per ounce plus a 1% annual inflation adjustment for subsequent ounces of gold delivered
as part of the stream (the “El Morro Gold Stream”). In February 2017, New Gold sold the El Morro Gold Stream
to Goldcorp for $65 million.



Earn-in Agreement with Rimfire Pacific Mining NL



On October 27, 2016, New Gold announced that it had entered into an earn-in
agreement with Rimfire Pacific Mining NL ("Rimfire") relating to Rimfire's Fifield Project, located in central
New South Wales, Australia, approximately 300 kilometres southeast of New Gold's Peak Mines. Pursuant to the earn-in
agreement, New Gold has the option to earn up to a 70% interest in the Fifield Project by incurring a total of A$12 million of
exploration and development expenditures over a five-year period, of which New Gold has committed to spend A$2 million during the
first year of the earn-in agreement.



Developments – Financial



In August 2014, New Gold entered into a $300 million revolving secured credit
facility with a syndicate of banks led by The Bank of Nova Scotia and RBC Capital Markets (the “Credit Facility”).
In November 2015, the term of the Credit Facility was extended to August 2019. In October 2016, the size of the Credit Facility
was increased to $400 million.



As at December 31, 2016, the Company has drawn $100 million under the Credit
Facility, and the Credit Facility has been used to issue letters of credit in the aggregate amount of $122 million.



On February 17, 2016, New Gold amended the Credit Facility to increase the
maximum ratio of net debt to earnings before interest, taxes, depreciation, amortization, exploration, impairment and other non-cash
adjustments (“Adjusted EBITDA”) covenant (“Leverage Ratio”) from 3.5 to 1.0 (as initially
provided in the Credit Facility) to 4.0 to 1.0 at the September 30, 2016 measurement date and to 4.5 to 1.0 for the three subsequent
quarter-end measurement periods. On October 4, 2016, New Gold again amended the Credit Facility to increase the maximum Leverage
Ratio to 4.0 to 1.0 for the period from July 1, 2017 to December 31, 2017. Thereafter, the maximum Leverage Ratio will return to
3.5 to 1.0. The Leverage Ratio contained in the Company's agreement with Royal Gold has also been adjusted to match the revised
Leverage Ratio noted above.



On March 8, 2016, New Gold purchased put options with a strike price of $1,200
per ounce covering 270,000 ounces of gold and simultaneously sold call options with a strike price of $1,400 per ounce covering
270,000 ounces of gold. The contracts covered 30,000 ounces of gold per month for nine months beginning in April 2016. On October
4, 2016, New Gold purchased put options with a strike price of $1,300 per ounce covering 120,000 ounces of gold and simultaneously
sold call options with a strike price of $1,400 per ounce covering 120,000 ounces of gold. These contracts cover 20,000 ounces
of gold per month for the first six months of 2017. In aggregate, the option contracts provided the Company a guaranteed floor
price of $1,200 per ounce on 270,000 ounces of gold in the last nine months of 2016 and provided a guaranteed floor price of $1,300
per ounce on 120,000 ounces of gold for the first six months of 2017 while also providing exposure to increases in the gold price
up to $1,400 per ounce.





12







On November 14, 2016, New Gold fixed the price for 31.7 million pounds of the
Company's copper production in the first six months of 2017 at $2.52 per pound using swap contracts that will settle against the
monthly average London Metals Exchange price. The swap contracts cover 5.3 million pounds of copper per month from January through
June 2017. On February 16, 2017, New Gold fixed the price for 43.7 million pounds of the Company’s copper production in the
second half of 2017 at $2.73 per pound using swap contracts that will settle against the monthly average London Metals Exchange
price. The swap contracts cover 7.3 million pounds of copper per month from July through December 2017.



On February 22, 2017, New Gold announced that it had entered into an agreement
with a syndicate of underwriters (the “Underwriters”) pursuant to which they agreed to purchase, on a bought
deal basis, 54,600,000 of the Company’s common shares (“Common Shares”) at a price of $2.80 per share
(the “Offering”), for aggregate gross proceeds to the Company of approximately $150 million. In addition, the
Company agreed to grant to the Underwriters an option to purchase up to an additional 8,040,000 Common Shares at a price of $2.80
per share, on the same terms and conditions as the Offering, which was exercised in full by the Underwriters. The Offering closed
on March 10, 2017. The aggregate gross proceeds of the Offering to the Company were approximately $173 million and proceeds net
of underwriting fees and expenses were approximately $164.5 million.



DESCRIPTION OF THE BUSINESS



The Company’s principal operating assets consist of the New Afton Mine
in Canada, the Mesquite Mine in the United States, and the Peak Mines  in Australia. New Gold also owns the Cerro San
Pedro Mine in Mexico, which transitioned in 2016 from active mining to residual leaching. Significant development projects include
the Rainy River Project and the Blackwater Project located in Ontario, Canada and British Columbia, Canada, respectively. For purposes
of NI 43-101, the Company considers the New Afton Mine, the Mesquite Mine and the Rainy River Project to be its material properties.



New Gold is continually working to maximize shareholder value through diversified
production, maintaining an attractive risk profile and enhancing growth potential in a safe and an environmentally and socially
responsible manner.



Refer to the Company’s MD&A for the year ended December 31, 2016,
available under the Company’s profile on SEDAR at www.sedar.com, for a detailed description of the Company’s business,
including each of its operating segments.



Specialized Skills and Knowledge



All aspects of New Gold’s business require specialized skills and knowledge.
Such required areas of specialized skills and knowledge include geology, drilling, mine planning, metallurgy, engineering, construction,
technology, community and public relations, regulatory compliance, legal and accounting. New Gold has found that it can locate
and retain employees and contractors with such skills and knowledge.



Principal Products



The Company’s principal products are gold, copper and silver, which generally
require refining or smelting to become marketable metal. As described in more detail with respect to each operation, the Company
uses the services of refiners to refine gold doré. The refined gold is sold to bullion banks or gold trading counterparties
at market prices, though in some cases the Company sells doré to such banks and counterparties with delivery to the refinery.
Copper concentrate produced by the New Afton Mine and Peak Mines is sold to various smelters or concentrate marketing firms. The
Company has also entered into financial instruments, such as option or swap contracts, for the purpose of hedging gold and copper
prices – see “Developments – Financial” on page 12. There are worldwide gold, copper and silver markets





13







into which the Company can sell and, as a result, the Company is not dependent on a particular purchaser with regard to the sale
of the gold, copper and silver which it produces. Further, due to the availability of alternative refineries and smelters, the
Company is not dependent on the services on any one refiner or smelter.



Competitive Conditions

The precious and base mineral exploration and mining business is competitive.
The Company competes with numerous other companies and individuals in the search for and the acquisition of attractive mineral
properties. The ability of the Company to acquire mineral properties in the future will depend on its ability to develop its present
properties, and on its ability to select and acquire suitable producing properties or prospects for development or mineral exploration.



Operations



Mineral Reserves and Mineral Resources



The Company has the following Mineral Reserves and Mineral Resources: gold,
copper and silver at the New Afton Mine; gold at the Mesquite Mine; gold, copper and silver at the Peak Mines; gold and silver
at the Cerro San Pedro Mine; gold and silver at the Rainy River Project; and gold and silver at the Blackwater Project. See “Summary
of Mineral Reserve and Mineral Resource Estimates” on page 16.



Foreign Operations



The Company currently owns 100% of the Mesquite Mine in the United States,
100% of the Peak Mines in Australia, and 100% of the Cerro San Pedro Mine in Mexico as its foreign operations. Any changes in regulations
(or the application of regulations) or shifts in political attitudes in these foreign jurisdictions are beyond the control of the
Company and may adversely affect its business. Future development and operations may be affected in varying degrees by factors
such as government regulations (or changes to such regulations or the application of regulations) with respect to the restrictions
on production, export controls, income taxes, expropriation of property, repatriation of profits, environmental legislation, land
use, water use, operating activities, land claims of local people and mine safety. The impact of these factors cannot be accurately
predicted. See “Risk Factors – Foreign Operations” on page 64.



Employees



As at December 31, 2016, the Company had the following employees and contractors:



|Location                | Employees | Contractors
|----------------------- | --------- | -----------
|Corporate Office        | 67        | 0          
|New Afton Mine          | 446       | 31         
|Mesquite Mine           | 308       | 2          
|Peak Mines              | 325       | 0          
|Cerro San Pedro Mine(1) | 147       | 1          
|Rainy River Project     | 358       | 61         
|Blackwater Project      | 16        | 0          
|Total                   | 1,667     | 95         

(1) 	As at December 31, 2016,
61 employees at the Cerro San Pedro Mine belonged to a union.



Environmental Protection and Social and Environmental
Practices



New Gold is committed to excellence in corporate social responsibility. The
Company considers its ability to make a lasting and positive contribution toward sustainable development a key driver to achieving
a productive and profitable





14







business.  New Gold aims to achieve these objectives through the protection of the health and
well-being of its people and host communities as well as maintaining industry leading practices in the areas of environmental stewardship
and community engagement and development.  As a partner of the United Nations Global Compact, New Gold’s policies and
practices are guided by its principles with reference to human rights, labour, environmental stewardship and anti-corruption. As
a member of the Mining Association of Canada (“MAC”), New Gold’s operations adopt the MAC’s Towards
Sustainable Mining protocols which form part of the New Gold Environmental Management Standards and Community Engagement and Development
Management Standards.



New Gold’s corporate social responsibility objectives include promoting
and protecting the welfare of its employees through safety-first work practices, upholding fair employment practices and encouraging
a diverse workforce, where people are treated with respect and are supported to realize their full potential. New Gold believes
that people are its most valuable assets and strives to create a culture of inclusiveness that begins at the top and is reflected
in its hiring, promotion and overall human resources practices. New Gold encourages tolerance and respect in worker-to-worker relationships.
In each of its host communities, the Company strives to be an employer of choice through the provision of competitive wages and
benefits, through the implementation of policies that recognize and reward employee performance, and by promoting from within wherever
possible.



The Company is committed to preserving the long-term health and viability of
the natural environments that host its operations. Wherever New Gold operates – in all stages of mining activity, from early
exploration and planning, to commercial mining operations through to eventual closure – the Company is committed to excellence
in environmental management. Prior to commencing significant construction activities, New Gold carries out comprehensive environmental
studies to establish baseline measurements for flora, fauna, earth, air and water. During operations it promotes the efficient
use of raw materials and resources, works to minimize environmental impacts and maintains robust monitoring programs. After mining
activities are complete, New Gold’s objective is to restore the land to a level of productivity equivalent to its pre-mining
capacity or to an alternative land-use determined through consultation with regulatory authorities and the communities of interest.



New Gold is committed to establishing relationships with host communities based
on mutual benefit and active engagement with these communities to contribute to their sustainability. Wherever the Company’s
operations interact with Indigenous peoples, New Gold promotes understanding of, and respect for, traditional values, customs and
culture and takes meaningful action to consider the interests of Indigenous peoples. New Gold aims to foster open communication
with local residents and community leaders so that issues can be resolved collaboratively. The Company believes that by thoroughly
understanding the people, their histories, and their needs and aspirations, it can engage in a meaningful and sustainable development
process.



The Company’s mining, exploration and development activities are subject
to various federal, provincial, state, county and municipal laws and regulations relating to the protection of the environment,
including requirements for closure and reclamation of mining properties.  In all jurisdictions where New Gold operates, specific
statutory and regulatory requirements and standards must be met throughout the exploration, development and operations stages of
a mining property with regard to air quality, water quality, fisheries and wildlife protection, solid and hazardous waste management
and disposal, noise, land use and reclamation.  Details and quantification of New Gold’s reclamation and closure costs
obligations are set out in Note 16 of the Company’s audited consolidated financial statements for the year ended December
31, 2016.



Management does not believe that the financial and operational effects of environmental
protection requirements on the capital expenditures and earnings of each mineral property are significant, and estimates the undiscounted
closure





15







cost for all of its properties is $105.9 million as at December 31, 2016. As at December 31, 2016, the Company had posted
letters of credit or other financial assurance in an aggregate amount of $127 million to address these liabilities (of which $107
million represents letters of credit under the Credit Facility).



Technical Information



CIM Standards Definitions



New Gold’s estimated Mineral Reserves and Mineral Resources have been
calculated in accordance with the CIM Definitions Standards for Mineral Reserves and Mineral Resources adopted by the CIM Council
on May 10, 2014 (the “CIM Standards”).



Technical Terms and Abbreviations



Unless otherwise defined, technical terms used in this Annual Information Form
are set out in Schedule B and abbreviations terms used are defined in Schedule C.



Summary of Mineral Reserve
and Mineral Resource Estimates



On February 15, 2017, the Company reported consolidated Mineral Reserve and
Mineral Resource estimates for its mines and development projects as at December 31, 2016. A consolidated summary of total gold,
copper and silver contained within New Gold’s global Mineral Reserves and Mineral Resources is set out in the table below.
Measured and Indicated Mineral Resources are reported exclusive of Mineral Reserves.



MINERAL
RESERVES AND MINERAL RESOURCES SUMMARY TABLE

|                                                         | GoldKoz | SilverMoz | CopperMlbs
|-------------------------------------------------------- | ------- | --------- | ----------
|PROVEN AND PROBABLE RESERVES                             | 14,704  | 76        | 1,113     
|New Afton                                                | 1,161   | 4         | 1,033     
|Mesquite                                                 | 1,179   | -         | -         
|Peak Mines                                               | 251     | 1         | 80        
|Cerro San Pedro                                          | -       | -         | -         
|Rainy River                                              | 3,943   | 10        | -         
|Blackwater                                               | 8,170   | 61        | -         
|MEASURED AND INDICATED RESOURCES (EXCLUSIVE OF RESERVES) | 6,222   | 22        | 1,121     
|INFERRED RESOURCES                                       | 1,644   | 4         | 291       



Notes to the Mineral Reserve and Mineral Resource estimates
are provided on pages 20 and 21 of this Annual Information Form.

16







Mineral Reserves



Mineral Reserve estimates as at December 31, 2016 are presented in the following
table.



MINERAL RESERVE ESTIMATES

|                                    |            | Metal grade | Contained metal
|----------------------------------- | ---------- | ----------- | ---------------
|                                    | Tonnes000s | Goldg/t     | Silverg/t      
|NEW AFTON                           |            |             |                
|A&B zones                           |            |             |                
|Proven                              | -          | -           | -              
|Probable                            | 34,649     | 0.51        | 2.1            
|C-zone                              |            |             |                
|Proven                              | -          | -           | -              
|Probable                            | 25,687     | 0.72        | 1.8            
|Total New Afton P&P                 | 60,336     | 0.60        | 2.0            
|MESQUITE                            |            |             |                
|Proven                              | 7,882      | 0.49        | -              
|Probable                            | 63,479     | 0.52        | -              
|Total Mesquite P&P                  | 71,361     | 0.51        | -              
|PEAK MINES                          |            |             |                
|Southern Mine Corridor              |            |             |                
|Proven                              | 514        | 6.78        | 15.7           
|Probable                            | 492        | 5.45        | 13.6           
|Southern Mine Corridor P&P          | 1,006      | 6.13        | 14.7           
|Northern Mine Corridor              |            |             |                
|Proven                              | 787        | 0.94        | 7.0            
|Probable                            | 902        | 0.85        | 6.4            
|Northern Mine Corridor P&P          | 1,689      | 0.89        | 6.6            
|Stockpile                           |            |             |                
|Proven                              | 66         | 1.92        | 8.5            
|                                    |            |             |                
|Combined P&P                        |            |             |                
|Proven                              | 1,370      | 3.18        | 10.3           
|Probable                            | 1,390      | 2.48        | 9.0            
|Total Peak Mines P&P                | 2,760      | 2.83        | 9.6            
|RAINY RIVER                         |            |             |                
|Direct processing material          |            |             |                
|Open Pit                            |            |             |                
|Proven                              | 16,944     | 1.41        | 2.5            
|Probable                            | 45,001     | 1.19        | 3.2            
|Open Pit P&P (direct processing)    | 61,946     | 1.25        | 3.0            
|Underground                         |            |             |                
|Proven                              | -          | -           | -              
|Probable                            | 5,411      | 5.34        | 11.2           
|Underground P&P (direct processing) | 5,411      | 5.34        | 11.2           
|Stockpile material                  |            |             |                
|Open Pit                            |            |             |                
|Proven                              | 9,322      | 0.45        | 1.5            
|Probable                            | 27,081     | 0.44        | 1.8            
|Open Pit P&P (stockpile)            | 36,403     | 0.44        | 1.7            
|                                    |            |             |                
|Combined P&P                        |            |             |                
|Proven                              | 26,266     | 1.07        | 2.1            
|Probable                            | 77,493     | 1.22        | 3.3            
|Total Rainy River P&P               | 103,760    | 1.18        | 3.0            





17







MINERAL
RESERVE ESTIMATES

|                           |            | Metal grade | Contained metal
|-------------------------- | ---------- | ----------- | ---------------
|                           | Tonnes000s | Goldg/t     | Silverg/t      
|BLACKWATER                 |            |             |                
|Direct processing material |            |             |                
|Proven                     | 124,500    | 0.95        | 5.5            
|Probable                   | 169,700    | 0.68        | 4.1            
|P&P (direct processing)    | 294,200    | 0.79        | 4.7            
|Stockpile material         |            |             |                
|Proven                     | 20,100     | 0.50        | 3.6            
|Probable                   | 30,100     | 0.34        | 14.6           
|P&P (stockpile)            | 50,200     | 0.40        | 10.2           
|Total Blackwater P&P       | 344,400    | 0.74        | 5.5            
|Total P&P                  |            |             |                



Notes to the Mineral Reserve and Mineral Resource estimates
are provided on pages 20 and 21 of this Annual Information Form.



Mineral Resources



Mineral Resource estimates as at December 31, 2016, exclusive
of Mineral Reserves, are presented in the following tables:



MEASURED & INDICATED MINERAL RESOURCE
ESTIMATES (EXCLUSIVE OF MINERAL RESERVES)



|                           |            | Metal grade | Contained metal
|-------------------------- | ---------- | ----------- | ---------------
|                           | Tonnes000s | Goldg/t     | Silverg/t      
|NEW AFTON                  |            |             |                
|A&B zones                  |            |             |                
|Measured                   | 16,081     | 0.66        | 2.1            
|Indicated                  | 10,904     | 0.46        | 2.2            
|A&B zone M&I               | 26,985     | 0.58        | 2.1            
|C-zone                     |            |             |                
|Measured                   | 2,071      | 1.09        | 2.4            
|Indicated                  | 16,744     | 0.76        | 2.2            
|C-zone M&I                 | 18,815     | 0.80        | 2.2            
|HW Lens                    |            |             |                
|Measured                   | -          | -           | -              
|Indicated                  | 10,764     | 0.51        | 2.1            
|HW Lens M&I                | 10,764     | 0.51        | 2.1            
|Total New Afton M&I        | 56,592     | 0.64        | 2.1            
|MESQUITE                   |            |             |                
|Measured                   | 5,479      | 0.37        | -              
|Indicated                  | 65,002     | 0.47        | -              
|Total Mesquite M&I         | 70,481     | 0.46        | -              
|PEAK MINES                 |            |             |                
|Southern Mine Corridor     |            |             |                
|Measured                   | 666        | 5.53        | 8.2            
|Indicated                  | 770        | 4.14        | 10.4           
|Southern Mine Corridor M&I | 1,436      | 4.79        | 9.4            
|Northern Mine Corridor     |            |             |                
|Measured                   | 804        | 2.32        | 5.0            
|Indicated                  | 3,030      | 0.99        | 5.1            
|Northern Mine Corridor M&I | 3,840      | 1.28        | 5.1            
|                           |            |             |                
|Combined M&I               |            |             |                
|Measured                   | 1,470      | 3.78        | 6.4            
|Indicated                  | 3,800      | 1.63        | 6.2            





18







|                                    |            | Metal grade | Contained metal
|----------------------------------- | ---------- | ----------- | ---------------
|                                    | Tonnes000s | Goldg/t     | Silverg/t      
|Total Peak Mines M&I                | 5,270      | 2.23        | 6.2            
|RAINY RIVER                         |            |             |                
|Direct processing material          |            |             |                
|Open Pit                            |            |             |                
|Measured                            | 3,638      | 1.11        | 2.8            
|Indicated                           | 28,976     | 1.16        | 3.7            
|Open Pit M&I (direct processing)    | 32,614     | 1.15        | 3.6            
|Underground                         |            |             |                
|Measured                            | -          | -           | -              
|Indicated                           | 5,035      | 3.71        | 10.4           
|Underground M&I (direct processing) | 5,035      | 3.71        | 10.4           
|Stockpile material                  |            |             |                
|Open Pit                            |            |             |                
|Measured                            | 2,490      | 0.36        | 2.8            
|Indicated                           | 34,984     | 0.43        | 2.4            
|Open Pit M&I (stockpile)            | 37,474     | 0.42        | 2.4            
|                                    |            |             |                
|Combined M&I                        |            |             |                
|Measured                            | 6,128      | 0.81        | 2.8            
|Indicated                           | 68,995     | 0.97        | 3.5            
|Total Rainy River M&I               | 75,123     | 0.96        | 3.5            
|BLACKWATER                          |            |             |                
|Direct processing material          |            |             |                
|Measured                            | 289        | 1.39        | 6.6            
|Indicated                           | 42,444     | 0.85        | 4.6            
|M&I (direct processing)             | 42,733     | 0.85        | 4.6            
|Stockpile material                  |            |             |                
|Measured                            | -          | -           | -              
|Indicated                           | 14,602     | 0.32        | 3.9            
|M&I (stockpile)                     | 14,602     | 0.32        | 3.9            
|Total Blackwater M&I                | 57,335     | 0.72        | 4.4            
|Total M&I Exclusive of Reserves     |            |             |                



Notes to the Mineral Reserve and Mineral Resource estimates
are provided on pages 20 and 21 of this Annual Information Form.



Inferred Mineral Resources



INFERRED MINERAL RESOURCE ESTIMATES



|                        |            | Metal grade | Contained metal
|----------------------- | ---------- | ----------- | ---------------
|                        | Tonnes000s | Goldg/t     | Silverg/t      
|NEW AFTON               |            |             |                
|A&B zones               | 7,344      | 0.35        | 1.3            
|C-zone                  | 6,900      | 0.43        | 1.3            
|HW Lens                 | 978        | 0.69        | 1.4            
|New Afton Inferred      | 15,219     | 0.41        | 1.3            
|MESQUITE                | 7,118      | 0.32        | -              
|PEAK MINES              |            |             |                
|Southern Mine Corridor  | 440        | 3.66        | 9.6            
|Northern Mine Corridor  | 3,540      | 1.11        | 6.0            
|Peak Inferred           | 3,980      | 1.39        | 6.4            
|RAINY RIVER             |            |             |                
|Direct processing       |            |             |                
|Open Pit                | 5,808      | 1.01        | 2.8            
|Underground             | 5,130      | 3.53        | 2.8            
|Total Direct Processing | 10,938     | 2.19        | 2.8            





19







| |            | Metal grade | Contained metal
| | ---------- | ----------- | ---------------
| | Tonnes000s | Goldg/t     | Silverg/t      

|Stockpile            |        |      |     |   |       |       |    
|-------------------- | ------ | ---- | --- | - | ----- | ----- | ---
|Open Pit             | 8,916  | 0.40 | 1.5 | - | 114   | 435   | -  
|Rainy River Inferred | 19,854 | 1.39 | 2.2 | - | 885   | 1,430 | -  
|BLACKWATER           |        |      |     |   |       |       |    
|Direct processing    | 10,908 | 0.80 | 3.8 | - | 279   | 1,333 | -  
|Stockpile            | 2,660  | 0.33 | 3.2 | - | 28    | 274   | -  
|Blackwater Inferred  | 13,568 | 0.70 | 3.7 | - | 307   | 1,606 | -  
|Total Inferred       |        |      |     |   | 1,644 | 4,492 | 291



INFERRED MINERAL RESOURCE ESTIMATES

|                           |            | Metal grade | Contained metal
|-------------------------- | ---------- | ----------- | ---------------
|                           | Tonnes000s | Goldg/t     | Silverg/t      
|PEAK MINES                 |            |             |                
|Southern Mine Corridor     | 1,410      | 0.73        | 35.3           
|Northern Mine Corridor     | 100        | 0.19        | 24.7           
|Peak Pb-Zn Lenses Inferred | 1,510      | 0.69        | 34.6           



Notes to the Mineral Reserve and Mineral Resource estimates
are provided on pages 20 and 21 of this Annual Information Form.



Notes to Mineral Reserve and Resource Estimates



| | 1. | New Gold’s Mineral Reserves and Resources have been estimated in accordance with the CIM Standards, which are incorporated
by reference in NI 43-101.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | All Mineral Resource and Mineral Reserve estimates for New Gold’s properties and projects are effective December 31,
2016.
| | -- | --------------------------------------------------------------------------------------------------------------------------



| | 3. | New Gold’s year-end 2016 Mineral Reserves and Mineral Resources have been estimated based on the following metal prices
and foreign exchange rates:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------



|                  | Gold
        $/ounce | Silver
        $/ounce | Copper
        $/pound | Lead
        $/pound | Zinc
        $/pound | CAD  | AUD  | MXN  
|----------------- | -------------------- | ---------------------- | ---------------------- | -------------------- | -------------------- | ---- | ---- | -----
|Mineral Reserves  | $1,250               | $15.00                 | $2.75                  | N/A                  | N/A                  | 1.25 | 1.30 | 17.00
|Mineral Resources | $1,350               | $17.00                 | $3.00                  | $0.85                | $1.00                | 1.25 | 1.30 | 17.00



| | 4. | Lower cut-offs for the Company’s Mineral Reserves and Mineral Resources are outlined in the following table:
| | -- | ------------------------------------------------------------------------------------------------------------



|Mineral Property | Mineral Reserves
        LOWER cut-off | Mineral Resources
        LOWER Cut-off
|---------------- | -------------------------------------- | ---------------------------------------
|New Afton        | Main Zone – B1 & B2 Blocks:            | C$ 17.00/t                             
|                 | B3 Block & C-zone:                     | C$ 24.00/t                             
|Mesquite         | Oxide & Transitional:                  | 0.16 g/t Au (0.005 oz/t Au)            
|                 | Sulphide:                              | 0.41 g/t Au (0.012 oz/t Au)            
|Peak Mines       | All ore types:                         | A$ 80/t to A$146/t                     
|Cerro San Pedro  | All ore types:                         | US$ 6.00/t                             
|Rainy River      | O/P direct processing:                 | 0.30 – 0.60 g/t AuEq                   
|                 | O/P stockpile:                         | 0.30 g/t AuEq                          
|                 | U/G direct processing:                 | 3.50 g/t AuEq                          
|Blackwater       | O/P direct processing:                 | 0.26 – 0.38 g/t AuEq                   
|                 | O/P stockpile:                         | 0.32 g/t AuEq                          





20









| | 5. | New Gold reports its Measured and Indicated Mineral Resources exclusive of Mineral Reserves. Measured and Indicated Mineral
Resources that are not Mineral Reserves do not have demonstrated economic viability. Inferred Mineral Resources have a greater
amount of uncertainty as to their existence, economic and legal feasibility, do not have demonstrated economic viability, and are
likewise exclusive of Mineral Reserves. Numbers may not add due to rounding.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. | Mineral Resources are classified as Measured, Indicated and Inferred
based on relative levels of confidence in their estimation and on technical and economic parameters consistent with the methods
most suitable to their potential commercial exploitation. Where different mining and/or processing methods might be applied to
different portions of a Mineral Resource, the designators ‘open pit’ and ‘underground’ are used to indicate
the envisioned mining method. The designators ‘oxide’, ‘non-oxide’ and ‘sulphide’ have likewise
been applied to indicate the type of mineralization as it relates to the appropriate mineral processing method and expected payable
metal recoveries, and the designators ‘direct processing’ and ‘stockpile’ have been applied to differentiate
material envisioned to be mined and processed directly from material to be mined and stored in a stockpile for future processing.
Mineral Reserves and Mineral Resources may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical,
marketing and other risks and relevant issues. Other than the updated parameters described above, additional details regarding
Mineral Reserve and Mineral Resource estimation, classification, reporting parameters, key assumptions and associated risks for
each of New Gold’s material properties are provided in the respective NI 43-101 Technical Reports, which are available at
www.sedar.com.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 7. | Rainy River Project: In addition to the criteria described above,
Mineral Reserves and Mineral Resources for the Rainy River Project are reported according to the following additional criteria:
Underground Mineral Reserves are reported peripheral to and/or below the open pit Mineral Reserve pit shell, which has been designed
and optimized based on an $800/oz gold price. Underground Mineral Resources are reported below a larger Mineral Resource pit shell,
which has been defined based on a $1,350/oz.gold price.  Approximately
forty percent (40%) of the gold metal content defined as underground Mineral Reserves is derived from material located between
the Mineral Reserve pit shell and the Mineral Resource pit shell; the remaining sixty percent (60%) of the metal content defined
as underground Mineral Reserves is derived from material located below the Mineral Resource pit shell.  Open pit Mineral Resources
exclude material reported as underground Mineral Reserves.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 8. | Qualified Person: The preparation of New Gold's Mineral Reserve and
Mineral Resource estimates has been done under the supervision, oversight and review of Mr. Mark A. Petersen, a Qualified Person
under NI 43-101 – see “Technical Information” on page 7.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



21







MINERAL
PROPERTIES



New
Afton Mine, Canada



Project Description, Location, Access and
Other Information



The New Afton Mine is located approximately 350 kilometres
northeast of Vancouver in the south-central interior of British Columbia. The property is 10 kilometres from the regional hub of
Kamloops and is easily accessible by paved road. The Mine has a continental, semi-arid climate, with light winter snow and infrequent
rain during the spring, summer and fall. Summer temperatures can reach 38 degrees Celsius and winter temperatures are generally
at, or near, freezing.



The New Afton Mine occupies the site of the historic Afton mine
and includes an open pit (currently inactive), underground workings and support facilities. The New Afton deposit extends to the
southwest from immediately beneath the Afton open pit. As it is currently defined, the deposit hosts a mineral resource comprised
of the A&B-zones, the C-zone and the Hanging Wall Lens. The A&B-zones host the portion of the Mineral Reserve which is
currently being mined. The C-zone contains additional Mineral Reserves and was the subject of the C-zone Feasibility Study completed
in January 2016. The Hanging Wall Lens is a satellite mineral resource located adjacent to the historic Afton open pit.



The
Company’s holdings in the area comprise the Afton group of claims and the Ajax group of claims. The New Afton Mine lies within
the Afton group. The Afton group consists of a 902-hectare mining
lease issued by the Ministry of Energy, Mines and Petroleum Resources on November 29, 2006 (“Afton Mining Lease”)
and 72 mineral claims totalling 8,410 hectares. All mineral claims and other property interests are reviewed on a quarterly basis
to identify any payments or commitments required to maintain such interests. The Company also holds surface rights on approximately
1,550 hectares surrounding the New Afton Mine. Sufficient surface rights have been obtained for current operations at the property.



New Gold holds: (a) an option to acquire seven fee simple properties
located to the southwest of the New Afton Mine site (the “Historic TSF Option Lands”); and (b) an option to
acquire three fee simple properties located to the south of the New Afton mine site (the “Ranch Option Lands”)
and mineral claim no. 1023220 which is also located to the south of the New Afton mine site. A tailings storage facility from the
historic Afton mine is situated on the Historic TSF Option Lands. The Ranch Option Lands and the lands on which mineral claim no.
1023220 are located are currently used for ranching purposes. New Gold has provided notice of exercise of its option to acquire
the Historic TSF Option Lands, which remains subject to various conditions including the issuance of replacement permits in favour
of New Gold. The option to acquire the Ranch Option Lands expires on December 11, 2019.



History



The first significant mining-related activity in the Afton
area commenced in 1970, when drilling by Afton Mines Ltd. intercepted 52 metres of 0.4% copper in what ultimately became the Afton
deposit. During the subsequent three years, over 45,700 metres of drilling was carried out by a number of operators.



Teck Corporation and Iso Mines Ltd. acquired the Afton property
in 1973 and initiated engineering and metallurgical studies. Commercial production commenced at the Afton open pit mine in late
1977. Mining took place at the Afton, Crescent, Pothook and Ajax pits. The mine closed in 1997.



22







In 1999, the Company acquired an option on the property, staked
additional claims and in 2000 began a concerted exploration program to test the potential for additional mineralization extending
beyond the Afton open pit. This work resulted in the successful delineation of the New Afton underground mineral resource.



Geological Setting and Mineralization



The New Afton deposit is a copper-gold, alkalic porphyry system
situated within the Iron Mask batholith complex. The Iron Mask complex is part of the Paleozoic island-arc assemblage known as
the Quesnel Terrane. Regional-scale fault zones are believed to be the principal control to intrusion of the batholithic rocks
and related copper and gold mineralization in the New Afton area.



Mineralization is characterized by discontinuous copper sulphide
veinlets and disseminations (principally chalcopyrite and minor bornite) at brecciated margins between altered porphyry intrusives
and volcanic rocks of the Triassic Nicola Formation. The copper sulphides are replaced by tennantite-tetrahedrite locally and along
faults that transect the mineralized body. Native copper with accessory chalcocite occurs in minor amounts within highly oxidized
near-surface portions of the deposit. Gold and silver generally occur as electrum grains within the chalcopyrite and bornite.



The bulk of the New Afton deposit forms a tabular, nearly vertical,
southwest-plunging zone of continuous mineralization measuring 1.4 kilometres long by approximately 100 metres wide, with a down-plunge
extent of over 1.5 kilometres. The deposit plunges toward the southwest where it remains open at depth.



Exploration and Drilling



The Company initiated surface drilling at New Afton in 2000,
and in 2001 completed an initial scoping study which was followed by further definition drilling. A subsequent more advanced scoping
study was completed in 2004.



In November 2004, an underground access portal was excavated
in the former Afton open pit and a ramp driven 2,200 metres to provide access for underground sampling, infill drilling and further
exploration drilling.



In late 2005, New Gold contracted 1,323 line-kilometres of
airborne geophysical surveying of the Afton and Ajax claims and commissioned a Feasibility Study which laid the foundation for
the current operations. Ground-based geophysical surveys totalling 34.5 line-kilometres were completed in 2008.



In addition to the work at Afton, New Gold has carried out
reconnaissance level exploration programs around the Ajax group of claims, located approximately seven kilometres to the southeast
of the Afton pit. During the period 2004 to 2008, New Gold drilled 26 holes totalling 11,455 metres in the Ajax area, completed
45 line-kilometres of geophysical surveys and collected 2,040 geochemical soil samples.



A series of core drilling programs was conducted at New Afton
during the period 2000 to 2008 testing the C-zone, the hanging wall zone adjacent to the historical Afton open pit and the Pothook
pit area a half kilometre east of the Afton pit. Over the eight-year period, 276 exploration diamond drill holes were completed
in the project area for an approximate aggregate length of 130,440 metres. Results were incorporated into the 2009 Mineral Resource
estimate based on 140,490 metres of diamond drilling from 366 core holes.



In 2011, the Company completed a second airborne geophysical
survey to extend its coverage over its mineral claim holdings northwest from the New Afton Mine. The results of this work are being
used to support ongoing exploration of the New Afton district.



23







Since 2012, the Company has focused on exploring the potential
for additional Mineral Resources lateral to and below the current block cave Mineral Reserve. During 2012 and 2013, exploration
drilling comprised 20,946 metres in 66 holes resulting in the addition of the hanging wall lens resource proximal to the B-zone
reserve block to the southeast.



Exploration below the B-zone reserve has focused on the C-zone
resource. From July 2012 to November 2014, a total of 84,239 metres in 138 holes was drilled to delineate the C-zone resource.
In 2016 New Gold completed a total of 13,059 meters in 18 core holes to further delineate the C-zone resource, and 2,303 metres
in 8 holes to explore the potential deeper extension of the hanging wall lens resource. Additionally, in 2016 the Company finalized
a reconnaissance diamond drilling campaign totalling 5,126 metres in 10 holes within the New Afton Mine lease area.



Sampling and Analysis



Sampling protocols have remained generally consistent among
the different drill campaigns with a few incremental improvements over time. Sampling intervals have averaged two metres in all
campaigns since 2003. Routine insertion of blanks and standards into the sample stream has been conducted since 2005. Drilling
protocols in place at New Afton meet or exceed common industry standards.



Sample preparation, which involves drying, crushing and pulverizing
rock to produce a pulp sample sufficient for analysis, has been conducted according to accepted industry practice. Analytical work
prior to July 2012 was conducted by ALS Global of Kamloops, British Columbia (formerly EcoTech Laboratories Ltd.). Since July 2012,
sample preparation and analyses have been performed by Activation Labs of Kamloops, British Columbia. Analytical procedures for
samples collected during the 2000-2003 drilling programs included conventional fire assay with an AA or ICP finish for gold and
palladium, and AA for copper and silver. During 2005 and all subsequent drilling programs, copper and silver assays were determined
using standard acid digestion followed by an AA finish. Gold and palladium were determined using fire assay followed by an AA finish.



Sampling and analytical protocols are considered to have been
appropriate and consistent with common industry practice, data quality is adequate for resource estimation, and protocols for data
acquisition and management are reasonable.



Mineral Processing and Metallurgical Testing



Metallurgical testing was performed to evaluate the mineralogy
of the deposit and contribute to the design of the New Afton Mine’s processing plant and tailings facility. A number of studies
and tests were performed as part of the testing program, including mineralogical studies, modal analysis, grinding tests, flotation
tests, gravity tests, variability tests and dewatering tests. It was determined that conventional crushing, grinding and concentration
processes were appropriate given the mineralogy of the deposit.



The deposit consists primarily of primary hypogene sulphide
mineralization, but some secondary supergene sulphide and native copper mineralization is also present. Localized elevated arsenic
concentrations in the deposit which may pose an economic concern for the concentrate produced are mitigated through ore blending.
Supergene ore is expected to impact the New Afton mill feed around 2019 and will require an additional step in the processing circuit
to recover native copper and free gold. Current metallurgical studies are investigating gravity separation, jigging, dense media
separation and coarse particle flotation methods to address the requirements of the supergene ore.



24









Infrastructure,Permitting and Environmental Conditions



Power is supplied to the New Afton Mine via its connection
to the BC Hydro grid through a substation located approximately one kilometre away. Water is supplied from Kamloops Lake through
an approximately four-kilometre pipeline.



Two First Nations, the Tk’emlúps te Secwépemc
and the Skeetchestn Indian Band (collectively, the “SSN”) have asserted Aboriginal rights and interests in the
Mine area. A formal agreement between the SSN and New Gold dated March 20, 2008, and amended and restated November 14, 2011 (“Participation
Agreement”) provides the SSN’s consent to the New Afton Mine and agreement not to challenge any New Gold interests
or permits related to the mine before a court of law. New Gold has undertaken to provide the SSN with certain economic and social
benefits, including education, training, employment and business opportunities. In accordance with the Participation Agreement,
New Gold must make annual payments into a trust created for the benefit of SSN members. Furthermore, New Gold must pay the trust,
in each year in which commercial production occurs at the mine, a percentage of net smelter returns ranging from 0.5% to 2%, depending
on the price of copper and whether New Gold has recovered its development and construction costs, subject to an annual minimum
amount.



On October 31, 2007, the Ministry of Energy, Mines and Petroleum
Resources issued Mine Permit M-229 approving the work system and reclamation program for the New Afton Mine. The Mine Permit will
need to be amended in the future to allow mining of the B3-block and C-zone. The Mine Permit obligates New Gold to post reclamation
security of C$9.5 million. As at December 31, 2016, the Company has posted this security in the form of an irrevocable standby
letter of credit. The undiscounted closure cost liability for the New Afton Mine as at December 31, 2016 is estimated to be C$11.4
million based on a third party cost estimate. New Gold expects to incur this obligation between 2017 and 2028. The site is considered
a zero discharge facility with regard to liquid effluents. All waste waters are either deposited in the tailings area and recycled
to the processing plant or treated offsite.



Mineral Reserve and Mineral Resource Estimates



The
New Afton Mineral Reserves, effective December 31, 2016, are summarized in the “Mineral Reserve Estimates” table. The
New Afton Mineral Resources, effective December 31, 2016, are summarized in the “Measured and Indicated Mineral Resource
Estimates (Exclusive of Mineral Reserves)” and “Inferred Mineral Resource Estimates” tables. See “Description
of Business – Summary of Mineral Reserve and Mineral Resource Estimates” on page 16.



The parameters, assumptions and methodologies applied in generating
the Mineral Reserve and Mineral Resource estimates are considered reasonable and appropriate. Furthermore, the mining, metallurgical,
infrastructure, permitting and other relevant factors relating to the New Afton Mineral Reserves and Mineral Resources fully support
these estimates. It has been noted, however, that the subsidence that has occurred to date is slightly offset from the original
model, an offset which is thought to be driven largely by a weaker rockmass located south of the cave footprint. A large expansion
of the existing subsidence monitoring network was implemented in 2016 which has further improved the Company’s ability to
accurately track and monitor changes in the surface subsidence profile and to implement appropriate measures to mitigate any potential
impact of such subsidence, including any impact to the Mineral Reserves, as appropriate.



Mining Operations



The New Afton Mine began commercial production on July 31,
2012 and has a current projected life extending through 2022 based on Mineral Reserves contained within the A&B-zones.





25







Mining Methods



The New Afton Mine is a block cave mining operation. Other
mining methods, including open pit mining and sublevel caving, were considered but block caving was chosen for the New Afton deposit
because this method starts from the bottom and is conducive to large-scale low-cost mining. The operation is designed to produce
close to 5 Mtpa of copper-gold ore for processing in a flotation plant. Each block in the block cave has an undercut and extraction
level. Ore is hauled to ore passes and dropped to a tramming level, where it is hauled by trucks to the crusher level. From the
crusher, the ore is conveyed from underground to the mill via a 4.5-kilometre long conveyor system.



Waste mined as part of development activities is transported
to surface by conveyor and deposited in an area apart from the ore via a belt plow. The waste is then trucked to an area on the
edge of the historic Afton mine pit. Less than 5% of the mined rock is treated in this manner.



Recovery Methods



The New Afton mill was originally designed to process 11,000
tpd (4 Mtpa) of ore, recovering copper, gold and silver in a concentrate. During 2014, and through the first half of 2015, average
daily throughput levels were increased to over 13,000 tpd (4.7 Mtpa). A mill expansion was completed in 2015 to increase processing
capacity. The expansion involved the installation of tertiary grinding and additional pre-cleaner flotation capacity. During 2016,
average daily throughput levels were over 15,000 tpd.



The mill processes a blend of primary hypogene and secondary
supergene ore types using conventional crushing, grinding and concentration processes. Mineral separation is by gravity concentration
and differential flotation of the copper bearing minerals to recover copper, gold and silver in a sulphide concentrate. Life-of-mine
recoveries are expected to total 85% for copper, 81% for gold and 73% for silver.



Capital and Operating Costs



The
projected life of the New Afton Mine extends through 2022 based on current Mineral Reserves and throughput levels. In addition,
the C-zone area could provide over five additional years of mine life based on current Mineral Reserves and Mineral Resources.
During 2016, the New Afton Mine produced 98,098 ounces of gold at an operating expense per ounce of gold sold of $415 and all-in
sustaining costs of negative $218 per ounce ($686 per ounce on a co-product basis). The New Afton Mine produced 87.3 million pounds of copper in 2016 at an operating expense per pound of copper sold of $0.74. In
2017, the New Afton Mine is expected to produce between 70,000 and 80,000 ounces of gold with an expected operating expense per
gold ounce sold of between $405 and $445 per ounce and all-in sustaining cost of between negative $280 and negative $240per ounce.  2017 guidance assumes a $2.50 per pound copper price, $16 per ounce silver price and a foreign exchange rate of
C$1.30 to one United States dollar.  All-in sustaining costs per ounce is a non-GAAP measure. See “Non-GAAP Measures” on page 5. Sustaining capital expenditures at the New Afton Mine are expected to be approximately
$55 million in 2017. Below is a breakdown of expected capital expenditures and expected all-in sustaining costs at the New Afton
Mine for 2017.



|2017 Expected Capital Expenditures(1) |     | 2017 Expected All-in Sustaining Costs/ gold oz sold
|------------------------------------- | --- | ---------------------------------------------------
|Sustaining Capital(2)                 | $55 |                                                    
|Growth Capital(2)                     | $5  |                                                    
|Total                                 | $60 |                                                    
|                                      |     |                                                    
|                                      |     |                                                    

| | (1) | In millions.
| | --- | ------------

| | (2) | Based
on the Company’s 2017 estimated capital expenditures. Sustaining capital excludes expenditures related to
| | --- | ---------------------------------------------------------------------------------------------------------------





26









| |  | growth-related
                                         initiatives. Growth capital excludes sustaining capital.
| |  | ----------------------------------------------------------------------------------------------------------------



| | (3) | Includes treatment and refining charges on concentrate sales and
adjustments for non-cash expenses, including inventory write-downs, that are included in operating expenses as well as revenue
from the sale of copper and silver by-products. See “Non-GAAP Financial Performance Measures” in New Gold’s MD&A.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Includes sustaining capital expenditures, capitalized and expensed
exploration that is sustaining in nature, and environmental reclamation costs. See “Non-GAAP Financial Performance Measures”
in New Gold’s MD&A.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Other Relevant Data and Information



New Afton C-zone



The C-zone is the down plunge extension of the B-zone block
cave that is currently being mined at New Afton. The C-zone extraction level would be approximately 550 metres below the current
B-zone extraction level. The mineralogy in the C-zone is expected to be consistent with the mineralogy in the west cave of New
Afton’s B-zone and C-zone would use the same development, production and materials handling strategies that are currently
being used to mine the B-zone.



New Gold completed the C-zone Feasibility Study in January 2016,
which confirmed the viability and positive economics for the C-zone deposit (separate from the current mining of the B-zone). The
C-zone is expected to have a mine life of over five years, with average annual production of 108,000 ounces of gold and 81 million
pounds of copper. The C-zone Feasibility Study estimates development capital costs will be $402 million, including $47 million
of contingency and a $41 million provision for capital escalation, providing for an estimated after tax 5% NPV of $84 million,
an IRR of 10.3% and payback period of 3.4 years for the project, assuming $1,200 per ounce gold, $2.75 per pound copper and a C$1.25/US$
exchange rate. Once development starts, construction would take approximately six years from the start of development to first
production. Total sustaining capital costs are expected to be $107 million, or approximately $20 million per year. Total operating
costs, including mining, processing and general and administrative, are expected to be $19.35 per tonne.



Work completed in 2016 includes additional exploration drilling,
mine optimizations and planning reviews. In 2017 New Gold plans to spend approximately $3.4 million to upgrade part of the C-zone
block cave resource to Measured confidence level and drill test newly identified targets within the New Afton Mine lease area.



Mesquite
Mine, United States



Project Description, Location, Access and
Other Information



The Mesquite Mine is located in Imperial County in southern
California, United States, 39 kilometres (24 miles) north of the border with Mexico and 26 kilometres (16 miles) west of the border
with Arizona. Access to the property is via good quality paved roads. Local resources are available in the towns of Brawley, California
and Yuma, Arizona, at distances from the mine of 56 kilometres (35 miles) and 84 kilometres (52 miles), respectively. Mesquite’s
climate is arid, with high temperatures in the summer and an average annual temperature of 22.7 degrees Celsius (73 degrees Fahrenheit).



The Company became the owner of the Mesquite Mine in 2009 following
New Gold’s 2009 business combination with Western Goldfields Inc. (“WGI”). The mine is operated by the
Company’s wholly owned subsidiary, Western Mesquite Mines, Inc. (“WMMI”).



The mineral rights at the Mesquite Mine cover a total area
of approximately 2,104 hectares (5,200 acres) controlled by WMMI. They include 212 unpatented and 53 patented mining lode claims,
127 patented and 97 unpatented mill site claims, 266 hectares (658 acres) of California state leased land and 128 hectares (315
acres) of fee lands. Patented claims on federal land represent a secure title to the land. Some of the unpatented and patented
mining and mill site claims are leased by WMMI from the Los Angeles County Sanitation District (“LACSD”). Unpatented
claims are valid as





27







long as annual claim maintenance fees are paid (in lieu of assessment work) and the land is held for mining
purposes. All mineral rights and other property interests are reviewed at least annually to identify any payments or commitments
required to maintain such interests. Sufficient surface rights have been obtained for current operations at the property.



In 1993, Hospah Coal Company (“Hospah”),
a subsidiary of Newmont and former owner of the Mesquite Mine, entered into a Mineral Lease and Landfill Agreement (the “Landfill
Agreement”) with Hanson Resource Company (now the LACSD). LACSD has constructed a landfill facility adjacent to and overlying
portions of the existing Mesquite Mine property. Under the Landfill Agreement, WMMI retains the right to conduct mining and processing
activities anywhere within the Mesquite property for an initial period expiring in 2024, with automatic extensions until 2078.
LACSD has the right to utilize portions of the overburden stockpiles and spent ore from the leach pads for landfill cover and other
general purposes.



In November 2003, WGI acquired the Mesquite Mine from Newmont
Mining Corporation (“Newmont”). Under the terms of the agreement, WGI assumed the environmental reclamation
and closure liability at the Mesquite Mine along with liability for production royalties. Newmont’s NSR royalty on newly
mined ore from the mine was transferred to Franco-Nevada Corporation (“Franco-Nevada”) in 2007. The majority
of Mineral Reserves planned for future mining at Mesquite will be subject to a 0.5% to 2% production royalty, depending on the
claim group.



History



Gold was discovered at Mesquite around 1876. International
Goldfields Limited (“Goldfields”) began a commercial heap leach gold operation at Mesquite in March 1986. Santa
Fe Pacific Gold Corporation (“Santa Fe”) acquired the mine from Goldfields in 1993. Newmont acquired the Mesquite
Mine in 1997 through its acquisition of Santa Fe, and mined the deposit to May 2001 when a slope failure in the Big Chief pit and
the low price of gold caused the then existing Mineral Reserves to be uneconomic.



Under the ownership of WGI, the Mesquite Mine received regulatory
approval to resume mining operations on July 2, 2007. Commercial production recommenced in January 2008. In June 2009, New Gold
became the operator following the business combination with WGI.



Geological Setting and Mineralization



The Mesquite district lies on the southwest flank of the Chocolate
Mountains in metamorphic rocks of the upper plate of the Vincent-Chocolate Mountain Thrust. These upper plate rocks represent a
fragment of Precambrian and Mesozoic continental crust of extremely complex history.



Mesquite Mine comprises two sub-parallel, Oligocene-age (23
million to 34 million years ago) mineral deposits: Big Chief-Vista and Rainbow. Gold mineralization is hosted by Mesozoic gneisses
that are intruded by biotite/muscovite rich granites. Gold mineralization is controlled by post-mineral faulting related to the
Neogene San Andreas fault system. The district is covered by a thin veneer (0-90 metres, or 0-295 feet) of Tertiary and Quaternary
sediments.



Gold mineralization at Mesquite was deposited in an epithermal
setting, within 150 to 300 metres (500 feet to 1,000 feet) of the surface and subsequent to regional scale metamorphism. The bulk
of the mineralization occurs as disseminations and veins in the gneisses, within the majority of veining is controlled by moderate
to steeply dipping faults. Two types of gold mineralization are dominant: pods of mineralization of limited extent at fault intersections
and mineralized trends along faults. Gold occurs at Mesquite as native gold ranging in size from very coarse to submicron disseminations.
Silver-free native gold is the most common type of gold in the oxidized zone. A second type of gold is silver-bearing coarse gold
typically found in the unoxidized zone.



28







Exploration and Drilling



Most of the exploration work conducted at Mesquite predates
New Gold’s ownership.  The Mesquite Mine historical database represents approximately 864,300 metres, or 2.8 million
feet, of drilling in 6,392 drill holes, most of which are RC holes.  Goldfields conducted the majority of the historical drilling
on the property with Santa Fe and Newmont accounting for much smaller portions. A total of 103 holes in the database are diamond
drill holes. Most of the historic diamond drill holes are vertical and have not been subjected to down hole surveys.  In general,
the disseminated mineralization appears to be flat-lying or slightly dipping.



The potential for lateral extensions of mineralization is largely
limited by mining permit boundaries.  The potential for extensions of mineralization at depth was investigated in 2010 and
2011 by New Gold.  The program consisted of 86 holes totalling 15,522 metres (50,925 feet) of combined diamond drilling and
RC drilling.   A significant mineral resource was not delineated and additional exploration was not recommended.



From 2013 to 2016, New Gold has undertaken infill RC drilling
programs to better delineate mineralization and improve the classification status of Mineral Resources scheduled for mining in
subsequent years.  The programs comprised 344 holes and 27,222 metres (89,310 feet) in 2013, 223 holes and 23,703 metres (77,765
feet) in 2014, 30 holes and 3,988 metres (13,085 feet) in 2015 and 104 holes and 12,387 metres (40,640 feet) in 2016.  Of
the 2016 drill program results, 73 holes totalling 8,944 metres (29,345 feet) were drilled in the fourth quarter of 2016 and, due
to timing, were not incorporated into the Mineral Reserve and Mineral Resource estimates for Mesquite as of December 31, 2016.



Sampling and Analysis



The majority of drilling conducted at Mesquite was conducted
before New Gold assumed ownership and, in the case of the Santa Fe and Newmont programs, sampling methods were not documented.
However, New Gold believes that there are no indications of deficiencies in sampling method or sample recovery that would impact
the reliability of results. Mineral Resource estimates reconcile reasonably well with actual production, supporting the assertion
of no sampling method deficiencies.



RC sampling conducted during New Gold’s drilling programs
was completed using water injection methods as required by California environmental regulations. Sampling of both RC cuttings and
core was carried out at nominal 1.5 metre (five foot) intervals. This interval is considered to be representative of the width
and style of mineralization for the deposit. Each sample was split to create a duplicate sample. Sample preparation which involves
drying, crushing and pulverizing to produce a pulp sample sufficient for analysis. One set of samples was shipped off-site to an
independent laboratory for sample preparation and gold analysis and the duplicate was stored for future reference and analyses.



Samples collected during New Gold’s drilling programs
were analyzed for gold via two methods: fire assay with an AA finish and cyanide-soluble gold. Pulps from selected samples are
stored at the off-site independent laboratory used to generate the original assays.



The Company’s QA/QC program at the Mesquite Mine employed
industry best practices consistent with the QA/QC protocols at all of its exploration and development projects. Key elements of
the Company’s QA/QC program include chain of custody of samples, regular insertion of certified reference standards and blanks,
and duplicate check assays. Data quality is considered adequate for resource estimation and the present protocols for data acquisition
and management are considered reasonable.



29







Mineral Processing and Metallurgical Testing



Significant metallurgical testwork was conducted on Mesquite
ores by its previous owners prior to New Gold’s ownership. Testwork included laboratory column tests, large diameter column
tests, bulk sample test heaps, and cyanidation leach testing by bottle rolling. The results of this testwork suggest that ore crushing
does not significantly affect leaching rate and that the oxide and non-oxide ores have significantly different average recovery
and variability of recovering. Metallurgical tests are continuously conducted on-site to confirm that the ore placed on the leach
pad performs as expected. Testwork on unoxidized ore indicates that 65% to 78% of the gold is liberated free-milling gold, 13%
is associated with refractory sulphide minerals, and the remainder is associated with iron oxides and carbonates.



Infrastructure, Permitting and Environmental
Conditions



Power is supplied through a powerline directly to the Mesquite
Mine by the Imperial Irrigation District Power Company. Water is pumped from the Vista well field located approximately three kilometres
(two miles) to the south.



There are no notable environmental conditions affecting mining
operations, and WMMI is in material compliance with all permits. WMMI is required to post security for reclamation and for closure
with Imperial County, California as lead agency under the California Surface Mining and Reclamation Act, and for pit backfill with
the California State Lands Commission under a public/private land lease agreement. As at December 31, 2016, the Company has met
its security requirements in the form of bonds posted through a surety underwriter. The undiscounted closure cost liability for
the Mesquite Mine as of December 31, 2016 is $16.1 million. New Gold expects to incur this obligation between 2017 and 2032.



Mineral Reserve and Mineral Resource Estimates



The
Mesquite Mineral Reserves, effective December 31, 2016, are summarized in the “Mineral Reserve Estimates” table. The
Mesquite Mineral Resources, effective December 31, 2016, are summarized in the “Measured and Indicated Mineral Resource Estimates
(Exclusive of Mineral Reserves)” and “Inferred Mineral Resource Estimates” tables. See “Description of
Business – Summary of Mineral Reserve and Mineral Resource Estimates” on page 16.



Mining Operations



Mining Methods



The Mesquite Mine is an operating open pit mine. Mining is
performed using a conventional truck/shovel open-pit mining method. Due to the nature of the ore bodies, ore is mined from multiple
open pits. Run-of-mine ore is hauled directly to the leach pad for processing. Rock not containing economically recoverable metal
is deposited in areas as close as possible to the mining area and may be placed in mined-out pits. Pit designs are optimized using
geological information, metallurgical results, pit stability analyses and operating and processing cost estimates.



Recovery Methods



Mineral processing is by heap leach using a sodium cyanide
solution and in a carbon-in-column circuit. Product is added to the ore to ensure a basic pH which ensures that the gold remains
soluble and does not precipitate. The leach solution is distributed over the leach pads using the drip method, which saves water.
Gold is precipitated from the leach solution and sent to a furnace where impurities are removed and doré bars are produced.
Process recoveries on the heap are determined by the level of oxidation in the ore. The mine’s Mineral Reserves and life-of-mine
production plan are currently based on 75% average recovery of the oxide ores and 35% average recovery of the non-oxide ores. There
is a transition zone located between the oxide and non-oxide zones, which is treated as non-oxide ore in the production plan.



30







A leach pad expansion project, adding approximately nine million
square feet (approximately 840,000 square metres) of liner, was completed in the second quarter of 2016. Following the expansion,
leach pad capacity is sufficient to hold current life-of-mine reserves.



Capital and Operating Costs



The Mesquite Mine is projected to operate through 2021 based
on current Mineral Reserves, followed by several years of residual leaching. During 2016, Mesquite produced 111,123 ounces of gold
at an operating expense per ounce of gold sold of $628 and all-in sustaining costs of $979 per ounce.  In 2017, the Mesquite
Mine is expected to produce between 140,000 and 150,000 ounces of gold at an expected operating expense per gold ounce sold of
between $675 and $715 per ounce and an expected all-in sustaining costs of between $805 and $845 per ounce.  All-in sustaining
costs per ounce is a non-GAAP measure.  See “Non-GAAP Measures” on page 5. Sustaining capital expenditures at
the Mesquite Mine are expected to be $20 million in 2017. Below is a breakdown of expected production and expected all-in sustaining
costs at the Mesquite Mine for 2017.



|2017 Expected Capital Expenditures(1) |     | 2017 Expected All-in Sustaining Costs/ gold oz
|------------------------------------- | --- | ----------------------------------------------
|Sustaining Capital(2)                 | $20 |                                               
|Growth Capital(2)                     | $0  |                                               
|Total                                 | $20 |                                               
|                                      |     |                                               



| | (1) | In millions.
| | --- | ------------

| | (2) | Based on the Company’s 2017 estimated capital expenditures. Sustaining capital excludes expenditures related to growth-related
initiatives. Growth capital excludes sustaining capital.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Includes adjustments for non-cash expenses that are included in operating expenses. See “Non-GAAP Financial Performance
Measures” in New Gold’s MD&A.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Includes sustaining capital expenditures, capitalized and expensed exploration that is sustaining in nature, and environmental
reclamation costs. See “Non-GAAP Financial Performance Measures” in New Gold’s MD&A.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Exploration and Development



New Gold is proceeding with permitting the expansion of the
Brownie pit with approval expected during the first half of 2017. Additionally, subject to future mine planning requirements, the
Company may complete additional delineation and infill drilling to convert Indicated Mineral Resources to Measured classification
status.



Peak
Mines, Australia



Project Description, Location, Access and
Other Information



Peak Mines is operated by New Gold’s subsidiary Peak
Gold Mines Pty Ltd. (“PGM”) and is located within the Cobar mining district approximately eight kilometres south
of the town of Cobar in New South Wales (“NSW”), Australia. There has been sporadic gold and copper mining in
the Cobar mining district since the 1870s. Regional road access to Cobar is provided by an all-weather highway (Mitchell Highway
No. 32) connecting Sydney and Adelaide. Cobar has a population of approximately 3,800 people, with an additional 900 people in
the surrounding local area, and is well serviced by local shopping, banking, accommodation and supplies. Cobar’s climate
is semi-arid, with an average maximum high temperature of 39 degrees Celsius during the summer and an average minimum low of 2
degrees Celsius during the winter.



The Peak Mines currently comprise four commercially active mines and a gold-copper processing plant. The
deposits, all currently mined from underground, extend along a nine-kilometre trend informally referred to as the Peak Mine Corridor.
The four operating mines, from south to north are Perseverance, Peak, Chesney and New Cobar.





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THe Peak and Perseverance mines are accessed via a shaft
and surface decline located at the Peak site. The New Cobar and Chesney mines are accessed via a decline near the base of the
historic New Cobar open pit. The Peak site hosts the processing facility and administration buildings.



PGM’s mineral rights consist of approximately 77,320
hectares of mining leases and exploration licenses, including 33,832 hectares subject to option agreements. The exclusively owned
rights include: four consolidated mining leases covering the Tharsis to the Peak Mines area, the Coronation-Beechworth area and
the Queen Bee area; a mining lease; a mining purposes lease; and seven exploration licenses. Two of the exploration licenses are
held under option agreements with Zintoba Pty Ltd. (on exploration lease EL 5982), in which PGM maintains a 75% interest, and with
Lydail Pty Ltd. (on exploration lease EL 6127), in which PGM maintains an 88% interest. All mineral rights and related property
interests are reviewed regularly to identify any payments or commitments required to maintain such interests. Sufficient surface
rights have been obtained for current operations at the property. PGM is required to pay a production royalty to the NSW Government
Office of State Revenue of approximately 3% of gross revenue, before treatment charges and all other costs.



Geological Setting and Mineralization



The Cobar mining district, referred to locally as the Cobar
Gold Field (“CGF”), comprises a north-trending belt of historical gold and base metal mines located east of
Cobar, extending from the Peak and Perseverance mines, south-southeast of Cobar, to the Tharsis workings, north of Cobar. The CGF
is located on the eastern margin of the Early Devonian age (419 million to 393 million years ago) Cobar Basin, which lies within
the northern part of the Central Belt of the Lachlan Orogen, and is marked by increased folding and faulting along a zone referred
to as the Rookery Fault system.



The Peak Mines occupy a nine-kilometre section of the regional
Rookery Fault shear zone along the eastern margin of the Cobar sedimentary basin, referred to informally as the “Peak Mine
Corridor”. The mineral deposits occur within high strain zones of structural deformation characterized by intensely cleaved
zones, shears and faults. Individual deposits have characteristically steep-dipping pipe-like geometries with uniformly short strike
lengths (less than 300 metres), narrow widths (10 to 30 metres), and extensive vertical dimensions. For example, the Peak and Perseverance
deposits have vertical extents of 500 to 700 metres. The Chesney and New Cobar deposits are currently defined over a shorter vertical
range, however, all of the deposits remain open at depth. Mineralization is typically polymetallic, ranging from gold-copper-lead-zinc
at Peak and Perseverance, to gold-copper at New Cobar and Chesney. The gold mineralization occurs as discrete lenses within the
broader envelopes of base metal mineralization. Copper typically occurs as chalcopyrite. Lead and zinc are present as galena and
sphalerite.



Infrastructure, Permitting and Environmental
Conditions



Power is supplied to the Peak Mines through its connection
to the NSW state grid through a substation located adjacent to the mine site. Water is supplied via a pipeline from Cobar, which
is initially sourced via a pipeline from Nyngan that connects to the Macquarie River.



PGM is a party to a Native Title determination application
filed in the Federal Court in Sydney, Australia by the Ngemba, Ngiyampaa, Wangaaypuwan and Wayliwan Peoples. The claim is made
over an area that includes PGM’s tenements and PGM is a party in the proceedings to participate in negotiations with respect
to any final determination. The NSW Aboriginal Land Council has also claimed Native Title over a large area that includes Peak’s
mining license and exploration license under a separate process governed by NSW. This claim is currently under review by the NSW
Land Claim Investigation Unit. Native title claims in Australia may impact applications for changes to existing authorizations
or new authorizations. Typically, such native title claims are determined without a trial; they are either dismissed, or a consent
determination is negotiated by the parties to the claim.



32







PGM has a responsibility under state law to rehabilitate areas
of historic and current mining activities on its leases to an agreed end land use. A closure plan is updated yearly. As at December
31, 2016, PGM was required to post reclamation security of A$21.1 million with the NSW Department of Trade and Investment and had
lodged this security in the form of an irrevocable standby letter of credit and cash deposits of A$57,000. The undiscounted closure
cost liability for the Peak Mines as at December 31, 2016 is estimated to be A$21.0 million. The Company expects to incur this
obligation between 2018 and 2030.



Mineral Reserve and Mineral Resource Estimates



The Peak Mines Mineral Reserves, effective of December 31,
2016, are summarized in the “Mineral Reserve Estimates” tables. The Peak Mines Mineral Resources, effective of December
31, 2016, are summarized in the “Measured and Indicated Mineral Resource Estimates (Exclusive of Mineral Reserves)”,
and “Inferred Mineral Resource Estimates,” tables. See “Description of the Business – Summary of Mineral
Reserve and Mineral Resource” on page 16.



Mining Operations



Mining operations at the Peak Mines currently comprise four
distinct underground zones. Current mining is from zones contiguous with, or near, mined out areas. Production operations have
been underway at Peak since 1992, at Perseverance since 2003, at New Cobar underground since 2005, and at Chesney since 2009.



Mining Methods



At Peak Mines, mining is done by bench stoping. At Perseverance,
New Cobar and Chesney, a combination of bench stoping and open stoping is utilized. The deposits are considered amenable to this
mining method due to their depth and geology. Underground development is carried out using standard electric-hydraulic twin-boom
jumbo drills with emulsion for blasting. Drifts are driven along strike in the ore on each level, a slot is developed and ore is
blasted into the void. Ore is extracted and waste rock is used to backfill the void.



Footwall or hanging wall drives are developed in ore bodies
of long strike lengths and widths greater than eight metres. Waste rock is introduced to the mined out section for stability and
to reduce the need for pillars. Cemented rock fill has been incorporated at the Peak Mines specifically for use at Perseverance
to increase stope stability and maximize ore recovery.



Recovery Methods



Ore from the New Cobar and Chesney deposits is hauled by highway
trailer to a run-of-mine stockpile. Ore from the Perseverance and Peak deposits is crushed underground and hoisted to a surface
stockpile at the Peak mine shaft. It is discharged onto a surface stockpile and fed to the SAG mill feed conveyor. Stockpiled ore
from New Cobar and Chesney is reclaimed by front end loader and blended via a hopper onto the SAG mill feed conveyor.



Gold and silver are recovered as a concentrate in a gravity
circuit by batch centrifugal concentrators, leached in an intensive leach reactor by cyanidation, then electrowon. Copper and gold
are recovered as a copper concentrate by a conventional flotation circuit. The concentrate is thickened, filtered, and stockpiled
before transporting to a third-party smelter for further processing. Localized elevated lead, zinc, bismuth and antimony concentrations
in the ore may pose an economic concern for the copper concentrate produced. The concentrate is evaluated for levels of each of
these elements and mineral processing techniques are used to minimize the overall content of lead and zinc in the final concentrate.
A third method of gold and silver recovery is by cyanidation leaching of the flotation tailings followed by carbon stripping, electrowinning
and smelting to produce gold doré bars. Overall, metal recoveries are approximately 92% and 90% for gold and copper, respectively.







33







In 2016, some limited amounts of a lead-rich concentrate were
produced in a batch process from the mining of the Chronos portion of the Perseverance mine. This will continue in future when
it is economically advantageous.



Capital and Operating Costs



The
projected life of the Peak Mines extends to 2021 based on Mineral Reserves.  During 2016, the Peak Mines produced 107,449
ounces of gold at $695 operating expense per gold ounce sold and all-in sustaining costs of $635 per ounce.  In 2017, the
Peak Mines are expected to produce between 85,000 and 95,000 ounces of gold at an expected operating expense per gold ounce sold
of between $780 and $820 and all-in sustaining costs of between $1,060 and $1,100per ounce.  2017 guidance assumes a $2.50 per pound copper price, $16 per ounce silver price and a foreign exchange rate of
A$1.35 to one United States dollar.  All-in sustaining costs per ounce are non-GAAP measures.  See “Non-GAAP Measures”
on page 5. Sustaining capital expenditures at the Peak Mines are expected to be $30million in 2017.



Exploration and Development



Key highlights stemming from 2016’s exploration and resource
delineation drilling work include the conversion of the high grade gold resources in the Chronos ore body to Mineral Reserve status
and the additional of new copper-gold resources at the Great Cobar-Anjea zone to Peak’s Inferred Mineral Resource inventory.
Current and future exploration at the Peak Mines comprises a combination of near mine exploration and resource development around
the known ore bodies along the Peak Mine Corridor and earlier stage exploration toward new discoveries on PGM’s mineral tenure
along the regional scale Rookery Fault trend. The main focus of exploration drilling in 2017 will be the addition of Mineral Resources
at Chronos and Anjea. The regional exploration program will comprise of geologic mapping, geochemical and geophysical surveys,
and surface aircore and diamond drilling.



Exploration
and resource delineation drilling conducted at Peak Mines during 2016 totalled 46,080
metres in 135 holes. Exploration infill drilling in 2016 at the north end of the Peak Mine Corridor at Great Cobar confirms
continuity of mineralization in the Anjea copper-gold and lead-zinc-silver lenses discovered in 2013, over dimensions
measuring approximately 1,000 metres vertically, 150 to 200 metres along strike and 30 to 80 metres in width. Underground
drilling at the southern end of the Peak Mine Corridor at Perseverance delineated the Chronos gold-lead-zinc-copper zone,
discovered in late 2014, over a vertical height of 280 metres, a strike length of 40 to 50 metres and an average true width
that ranges from 10 to 25 metres. Chronos intersects the top of the Perseverance deposit at a vertical depth of approximately
850 metres from surface.





Cerro San Pedro
Mine, Mexico





The Cerro San Pedro Mine is an open-pit gold and silver heap
leach operation located in central Mexico in the state of San Luis Potosí, approximately 400 kilometres north of Mexico
City and 14 kilometres east of the city of San Luis Potosí. The mine is operated by the Company’s wholly owned subsidiary,
MSX. The Cerro San Pedro Mine concluded active mining operations in June 2016. It is expected that the processing of residual ore
by heap leach will continue for two to three years, subject to recovery performance and future gold and silver prices.



The mineral rights at the Cerro San Pedro Mine consist of 16
mineral concessions covering an area of 7,871 hectares. The mineral concessions begin to expire in December 2036 through March
2062. The surface rights to the Cerro San Pedro Mine are controlled by private parties and ejidos (communal agrarian entities).
MSX holds a Temporary Occupancy and Right of Way Authorization for land belonging to certain local ejidos, providing surface rights
access over the life of the mine. Franco-Nevada holds a 1.95% gross value royalty relating to the Cerro San Pedro Mine.



34







The Cerro San Pedro Mine has had a history of ongoing legal
challenges related to the environmental authorization (“EIS”) for the mine. On August 5, 2011 a new EIS was
granted based on a new municipal land use plan by the municipality of Cerro de San Pedro, which clearly designates the area of
the Cerro San Pedro Mine for mining. The new EIS is subject to a number of ongoing conditions that will need to be fulfilled through
the continued operation and eventual closure of the mine. In addition, some authorizations necessary for the operation of the Cerro
San Pedro Mine, such as the municipal functioning license, have durations of one year or other periods that are shorter than the
remaining mine and leach pad life.



Recovery Methods



Ore
is processed by heap leaching with a Merrill-Crowe processing circuit that recovers both gold and silver. At the leach pad, a weak
cyanide solution is applied to dissolve the gold and silver. Lime is added to the ore to ensure a basic leach solution so that
the precious metals remain soluble. The leach solution is distributed over the leach pads using the drip method,which saves water. The pregnant solution is collected in the Merrill-Crowe plant where zinc is added to precipitate gold and silver.
The precipitate is collected and sent to a furnace where impurities are removed and doré bars poured. Current recovery is
estimated to be 55% gold and 20% silver.



Capital and Operating Costs



During
2016, the Cerro San Pedro Mine produced 64,993 ounces of gold at operating expense per gold ounce sold of $1,311 and an all-in
sustaining costs of $959 per ounce. The Cerro San Pedro Mine produced 0.9 million ounces of silver in 2016 at an operating expense
per silver ounce sold of $17.68.The Cerro San Pedro Mine is expected
to produce between 35,000 and 45,000 of gold in 2017 at an expected operating expense per gold ounce sold between $1,080 and $1,120
and all-in sustaining cost between $1,090 and $1,130 per ounce.  2017 guidance assumes a $16.00 per ounce silver price and
a foreign exchange rate of 20.00 Mexican pesos to one United States dollar.  Total cash costs per ounce and all-in sustaining
costs per ounce are non-GAAP measures.  See “Non-GAAP Measures” on page 5.



Mine Closure



The schedule for completing the activities relating to the
closure of Cerro San Pedro is dictated by the EIS. The site reclamation must be completed within four years of final processing,
including residual leaching. MSX is required to post reclamation security of approximately $19.4 million with the Mexican environmental
regulatory agency, SEMARNAT, under the general law for ecological balance and environmental protection. As at December 31, 2016,
the Company has posted this security in the form of an irrevocable standby letter of credit. The undiscounted closure cost liability
for the Cerro San Pedro Mine as at December 31, 2016 is estimated to be $23.8 million. New Gold expects to incur this obligation
between 2017 and 2026.



Rainy
River Project, Canada



Project Description, Location, Access, Infrastructure
and Other Information



The Rainy River Project is an advanced-stage gold project located
in the southern half of Richardson Township, approximately 50 kilometres northwest of Fort Frances in northwestern Ontario, Canada.
Regional population centres Kenora and Thunder Bay lie 162 kilometres to the north and 418 kilometres to the east, respectively.
Access to the Project area is via secondary all-weather roads branching off Trans-Canada Highways 11 and 71. An east-west rail
line is located 21 kilometres to the south, populated by a number of small towns and villages. Temperature extremes range from
35 degrees Celsius to minus 40 degrees Celsius. Annual precipitation averages approximately 60 centimetres rainfall and 150 centimetres
snowfall. Mining activities will be conducted year-round.



35







Terrain in the vicinity of the Rainy River Project is dominated
by a distinct northwest to southeast divide known as the Rainy Lake – Lake of the Woods Moraine. Topography is relatively
gentle, with relief ranging from zero southwest of the divide to up to 90 metres northeast of the divide. In areas of low relief,
bedrock typically is overlain by glacial till, thick silts and clays and, in poorly drained areas, by thick peat that can impede
exploration.



The Rainy River Project occupies approximately 230 square kilometres,
comprising 257 patented mining rights and surface rights claims (including 28 leasehold interest mining rights and/or surface rights
claims pursuant to 18 Crown Leases) and 80 unpatented claims, which rights and claims are either owned by New Gold or which New
Gold has the right to acquire pursuant to option agreements. All unpatented claims are in good standing and assessment work credits
are sufficient to maintain that standing for several years.



All claims are held in the name of New Gold. The currently
defined Mineral Reserves and Mineral Resources lie largely within nine patented claims. Portions of the presently defined Mineral
Reserves and Mineral Resources are covered by either a 2% NSR royalty or a 10% net profits interest royalty. In addition, New Gold
has agreed to financial participation in the Project in the form of royalties in favour of certain First Nations.



In
July 2015, New Gold entered into a $175 million streaming agreement with Royal Gold in which Royal Gold agreed to provide New Gold
with a deposit of $175 million, to be used for the ongoing development of the Rainy River Project, in return for: (i) 6.5% of the
Project’s gold production up to a total of 230,000 ounces of gold, and 3.25% of the Project’s gold production thereafter;
and (ii) 60% of the Project’s silver production up to a total of 3.1 million ounces of silver, and 30% of the Project’s
silver production thereafter. In addition to the upfront deposit, Royal Gold will pay 25% of the average spot gold or silver price
at the time each ounce of gold or silver is delivered under the stream. Royal Gold paid $100 million of the deposit on signing
of the agreement, with the remaining $75 million paid in November 2016 after 60% of the Project development capital had been spent.



History



Exploration commenced in the Rainy River area during the period
1967 to 1989, during which time the Ontario Geological Survey conducted sporadic geologic mapping, and companies including Noranda,
International Nickel Corporation of Canada, Hudson’s Bay Exploration and Development and Mingold Resources were active in
the area.



Nuinsco Resources Limited (“Nuinsco”) initiated
exploration of the area in 1990. During the period 1993 through 2004, Nuinsco engaged in geologic mapping, soil and grid sampling,
magnetic and IP surveys and Landsat studies. Additionally, Nuinsco completed 597 reverse circulation holes and 217 diamond drill
holes (49,515 metres) during the period. The program resulted in the discovery of three significant zones of gold mineralization
(the 17, 34 and 433 Zones). Nuinsco drilled a final eight diamond drill holes (1,549 metres) in 2004 to test the depth continuity
of the 34 Zone.



RRRL acquired a 100% interest in the Rainy River Project from
Nuinsco in June 2005. RRRL re-logged portions of historical core, established a GIS database, conducted petrographical studies,
and carried out airborne and ground-based geophysical surveys. During the period 2005 through 2007, RRRL drilled more than 100
reverse circulation holes and 209 diamond drill holes (95,340 metres), sufficient to complete the first of a number of mineral
resource estimates. Additional diamond drilling by RRRL from 2008 through February 2011 totalled 449 diamond drill holes (239,329
metres).



A Preliminary Economic Assessment was published in December
2011 and updated in October 2012 based on an additional 375 diamond drill holes (181,682 metres) drilled from March to December
2011. RRRL published a Feasibility Study for the Project in May 2013 based on 1,435 diamond drill holes (662,849 metres) representing
drill results through June 10, 2012.



36







RRRL drilled an additional 225 diamond drill holes (77,969 metres)
between August 2012 and June 2013, focusing on the Intrepid Zone situated one kilometre east of the proposed open pit. By June
2013, a number of significant gold mineralized zones had been defined over a 3.5-kilometre strike length. New Gold acquired the
Rainy River Project through its purchase of RRRL in 2013. New Gold completed an updated Feasibility Study in January 2014 incorporating
the of previous exploration results.



In 2015, New Gold acquired Bayfield, including a 100% interest
in six patented mining rights claims and six unpatented claims totalling approximately 11 square kilometres adjacent to the Rainy
River Project.



Geological Setting and Mineralization



The Rainy River Project lies within the Rainy River Greenstone
Belt, part of the larger Late Archean Wabigoon Subprovince of komatiitic to calc-alkaline metavolcanics overlain by clastic and
chemical sediments and intruded by granitoid batholiths. The intrusions deformed their host rocks into synformal structures, often
producing shear zones along the axial planes. The Archean rocks are overlain by remnant Mesozoic sediments and Quaternary Labradorian
till of northeastern provenance containing anomalous gold grains, auriferous pyrite and copper-zinc sulphides. The till is overlain
by glacially-derived clays, silts and younger till of western provenance.



Rocks within the immediate project area comprise a series of
tholeiitic mafic rocks structurally overlain by calc-alkalic intermediate to felsic metavolcanic rocks. Intermediate dacitic rocks
host most of the gold mineralization.



Three main styles of gold and silver mineralization have been
identified within a large cluster of multiple deposits: gold-bearing sulphide ± quartz stringers and veins in felsic quartz-phyric
rocks (ODM/17, Beaver Pond, 433 and HS Zones); quartz-ankerite-pyrite shear veins in mafic volcanic rocks (CAP/South Zone); and
sulphide-bearing silver-enriched quartz veinlets in dacitic tuffs and breccias (Intrepid Zone). A fourth style of mineralization
characterized by copper-nickel-platinum minerals occurs within a small younger mafic-ultramafic intrusion (34 Zone) situated within
the main cluster of gold and silver deposits. All deposits show some degree of deformation, excepting the copper-nickel-platinum-bearing
type. Most of the gold mineralization identified to date occurs in the sulphide-bearing stringers and veins within the felsic quartz-phyric
rocks.



Mineralized zones hosted by the felsic rocks generally follow
the regional northwesterly strike and southerly dip of stratigraphy. The largest of these is the ODM/17 Zone extending 1600 metres
along strike, 975 metres down dip, with a true width of 200 metres.



The Rainy River mineralization is interpreted to be a hybrid
deposit consisting of early gold-rich volcanogenic sulphide mineralization overprinted by shear-hosted mesothermal gold mineralization
associated with regional deformation. A final stage of magmatically-driven hydrothermal mineralization in the main auriferous
zones crosscuts both types of earlier mineralization.





Exploration and Drilling



Exploration and drilling undertaken in the Project area prior
to New Gold’s acquisition of the property are summarized in the section entitled “History”.



Since New Gold’s acquisition of the Rainy River Project
in August 2013 the Company has focused its exploration efforts within a five kilometre radius of the central mine development area.
As a result of this work the Company has identified a number of new exploration targets, both in the immediate vicinity of the
deposit and within its broader property holdings. During 2014 and 2015 the Company drilled 245 core holes totalling 73,620 metres
to evaluate the potential to extend the known mineral resource and test new exploration targets in the general vicinity. 96 of
these (17,412 metres) were condemnation and geotechnical holes, while 149 (56,208 metres) were exploration holes.







37







In 2016 the Company drilled 38 core holes (5,944 metres) within
the ODM open pit area to further confirm and upgrade the resource classification for the first twelve months of planned production
to Measured / Proven status. In 2017 the Company plans to spend approximately $3 million to execute additional exploration drilling
program to test the potential to further expand and increase confidence within and around the current underground mineral resource.



Drilling procedures conducted by Nuinsco from 1994 to 1998
are not well documented. Drilling carried out from 2005 through 2015 by RRRL, Bayfield and New Gold have utilized predominantly
NQ diameter core tools. Some deeper holes have been collared in HQ diameter and later reduced to NQ diameter to attain target depths.
PQ diameter was utilized for certain metallurgical samples. Both RRRL and New Gold have realized excellent core recovery and have
surveyed all drill holes and collars according to accepted industry standards. The drilling procedures utilized by RRRL and New
Gold are considered consistent with industry best practices and the quantity and quality of the lithological, geotechnical, collar
and down-hole survey data collected in the exploration and infill drill programs completed by RRRL and New Gold are considered
sufficient to support mineral resource estimation.



Sampling and Analysis



There are no records describing the sampling and analytical
methods used by Nuinsco during its drilling programs. Mineralized sections of core were re-sampled and analyzed by RRRL to incorporate
into the drill database.



Sampling and analysis of core has been conducted via industry
best practices under New Gold, RRRL and Bayfield drilling programs. Sampling was typically conducted at nominal 1.5 metre intervals,
though Bayfield sampling intervals vary from 0.5 to 1.5 metres in length. Core was sawn and half placed in sample bags for laboratory
analysis. Certified reference standards, blanks and duplicates were systematically inserted into the sample batches to be shipped
to the lab. Samples were collected on site by a Fort Frances shipping company and delivered directly to the laboratory.



RRRL used two principal accredited laboratories for analyses:
ALS Vancouver, British Columbia from 2005 to 2006 and from early 2011 onward; and Accurassay Laboratories in Thunder Bay, Ontario
from 2006 to 2011. Bayfield’s drill core was analyzed by Activation Laboratories (“Actlabs”), an accredited
laboratory located in Thunder Bay, Ontario. New Gold uses ALS for its Rainy River Project analyses. These laboratories use standard
industry analytical procedures: fire assay procedures for precious metal analyses; aqua regia digestion and atomic absorption spectrometry
for metal analyses. Each laboratory employs an internal QA/QC program in accordance with its accreditation requirements.



Data verification includes site visits to inspect procedures,
QA/QC data validation and examination of database accuracy. An overall improvement in the performance of quality control samples
has been noted since ALS’s 2011 reinstatement as primary laboratory. The overall results of data verification to date indicate
the data collected from the Rainy River Project adequately reflect deposit dimensions, style, and true widths of mineralization;
adequately support the geological interpretations; and are of sufficient analytical and database quality for use in mineral resource
estimation.



Mineral Processing and Metallurgical Testing



Metallurgical testing was performed to evaluate the mineralogy
of the deposit and contribute to the design of the Rainy River Project’s processing plant and tailings facility. A number
of studies and tests were performed as part of the testing program, including mineralization, comminution, gravity separation,
flotation, flotation concentrate leaching, whole ore leaching, cyanide destruction testwork and environmental testwork. It was
determined that whole rock leaching with gravity separation was the most economical processing alternative for the ore mainly because,
among other reasons, it required less energy and cyanide inputs than other processing alternatives.



38







Infrastructure, Permitting and Environmental
Conditions



Infrastructure and local terrain are accessible, with numerous
gravel/paved roads, power and water resources and areas for tailings management facilities available within close proximity. Personnel
for the Project, including skilled trades and professions, have been and will continue to be sourced through a combination of local
hiring and recruitment.



Power is supplied to the Project through a connection to a
provincial transmission line approximately 17 kilometres to the east. There is a supply of water in the area from the Pinewood
River, and a pipeline has been constructed from the Pinewood River to the site. A site water management pond will contain water
for mineral processing. Other infrastructure planned for construction include open pit and underground mine infrastructure, the
processing plant, tailings facility and administrative offices.



In 2012, Rainy River Resources Ltd (“RRRL”),
a predecessor of the Company which was acquired by New Gold in 2013, and six Rainy River area First Nations entered into a Participation
Agreement with respect to the development and operation of the Rainy River Project.  The Participation Agreement identifies
key project milestones to be met through mutual cooperation and consultation with the First Nations as the Project progresses. 
In 2014, the Company concluded an Impacts and Benefits Agreement with Naicatchewenin First Nation and Rainy River First Nations
embracing commitments to environmental and sustainable development and ensuring that First Nation communities and members benefit
from opportunities resulting from the Project in their traditional territory. The Company also concluded Participation Agreements
with the Métis Nation of Ontario in 2014 and the Big Grassy River First Nation in 2015. The Participation Agreements provide
for how the local Métis community and the Big Grassy River First Nation community, respectively, will benefit from the development
of the Rainy River Project and throughout the life of the mine. New Gold has ongoing dialogue with local communities and various
First Nations in the area surrounding the Rainy River Project and anticipates completion of additional agreements with other Aboriginal
groups.



On January 30, 2015, New Gold announced receipt of both the
Federal EA and Provincial EA approvals for the Rainy River Project. Since then, several key federal construction-related permits
have been issued, while provincial construction and operations phase permits are progressing in line with the Project development
schedule.



In order to complete construction of the tailings management area (“TMA”) for the Rainy
River Project, New Gold requires an amendment to Schedule 2 of the Metal Mining Effluent Regulations under the Fisheries Act
(Canada) (the “Schedule 2 Amendment”) to close two small creeks and deposit tailings. New Gold is actively
engaging with Environment and Climate Change Canada in relation to its application for the Schedule 2 Amendment. The TMA
incorporates a starter tailings cell, which does not require a Schedule 2 Amendment, within the broader facility. Based on
its location and scale, the Company expects that the starter cell as currently designed would provide capacity for
approximately six months of tailings. In the event the Schedule 2 Amendment is not received on a sufficiently timely basis to
allow for the completion of the construction of the broader tailings facility before the starter cell is full, the Company
would have to consider other alternatives, which may include a slowdown or temporary suspension of operations.



The mine closure plan was accepted by the Ontario Ministry
of Northern Development and Mines on February 23, 2015. Concurrent with submission of the final version of the closure plan the
Company posted an initial reclamation bond of C$14.3 million for the Project. As of December 31, 2016, additional bonding of C$66.4
million has been posted pursuant to the closure plan. The undiscounted closure cost liability for Rainy River as at December 31,
2016 is estimated to be $21.4 million. The Project’s bonding requirement will increase through the initial years of the Project
according to the phasing plan, in line with expected development and operational activities at the site.





39







Mineral Reserve and Mineral Resource Estimates



The
Rainy River Project Mineral Reserves, effective December 31, 2016, are summarized in the “Mineral Reserve Estimates”
table. The Rainy River Project Mineral Resources, effective December 31, 2016, are summarized in the “Measured and Indicated
Mineral Resource Estimates (Exclusive of Mineral Reserves)” and “Inferred Mineral Resource Estimates” tables.
See “Description of Business – Summary of Mineral Reserve and Mineral Resource Estimates” on page 16.



Mining Operations



The
Rainy River Project is planned to be an open pit and underground mining operation with average annual production of 325,000 ounces
of gold and 480,000 ounces of silver annually for the first nine years of full production.  The open pit operation is expected
to produce approximately 80% of the gold and approximately 85% of the silver with the remainder of production from underground
operations. Expected mine life is 14 years. Low grade ore stockpiles will be processed in years nine to 14. Construction began
in the second quarter of 2015, and has continued to advance with first production targeted for September 2017 and commercial production
commencing in November 2017.



Mining Methods



Surface mining of the Project will use a conventional truck/shovel
open-pit mining method, with 10 metre benches. The pit was designed considering the geology of the bedrock, which is considered
to have a good rock mass rating and geological strength index for an open pit design.



Underground reserves will be mined by longhole open stope backfilled
with cemented aggregate fill. Rock mass conditions are generally good and little water ingress is anticipated. A portion of underground
waste rock to be extracted will be used for rock fill.



Consistent with the Company’s continued focus on optimizing
the Rainy River mine plan and project economics, New Gold has decided to defer the start of development of the Rainy River underground
mine by approximately one year to the second half of 2018. As the initial underground development is estimated to cost approximately
US$100 million over a two-year development period, the deferral will better position Rainy River to generate free cash flow once
the mine begins production in the third quarter of 2017. Through the optimization of Rainy River’s open pit and underground
mine plans, the deferral of the underground development is expected to have limited impact on the average annual gold production
in years three through eight of the mine plan, when the underground mine is scheduled to reach its targeted 1,500 tonne per day
capacity.



Recovery Methods



Run-of-mine material will be delivered to a common gyratory crusher for size
reduction, stockpiling and delivery to the processing plant. The processing plant will be a SAG/ball mill/crusher circuit feeding
a whole-ore-leach gold-silver recovery plant at a milling rate of 21,000 tpd, or 7.7 mtpa. A portion of the coarser material will
be subjected to a gravity circuit. The gravity concentrate will be sent to a cyanidation reactor and electrowinning cell for gold
and silver extraction. Ground mineralized material will be thickened, passed through a leaching and carbon-in-pulp extraction circuit,
and subjected to carbon stripping and electrowinning prior to being smelted into a gold-silver doré. Life-of-mine recoveries
are expected to be approximately 90% for gold and approximately 55% for silver.





40









Based on the mine plan, the Company will begin to stockpile a small amount
of low grade ore in the first half of 2017, which will be used during the commissioning of the mill. At the time of the targeted
September 2017 mill start-up, New Gold expects to have approximately 0.5 million tonnes of ore stockpiled, which is equivalent
to approximately 20 days of mill feed at the design capacity of 21,000 tonnes per day.



Capital and Operating Costs



Total development capital costs up to December 31, 2016 for the Rainy River
Project were $777 million. In 2017, the Company plans to spend approximately $515 million on the development of Rainy River up
to the start of commercial production. Below is a breakdown of project development capital costs at the Rainy River Project.



|Rainy
        River Project Estimated Development Capital Cost(1)                                                                       
|----------------------------------------------------------------------------------------------------------------------------------------
|Development Capital Cost Expenditures Incurred as of December 31, 2016                                                                  
|Estimated Remaining Development Capital Costs as of December 31, 2016                                                                   
|Direct Capital Costs                                                                                                                    
|Earthworks, including the water management pond, tailings starter cell and continuing construction of broader tailings management area  
|Process plant, including mechanical, piping, electrical and instrumentation and related procurement and construction management services
|Pre-commercial
production mining activities                                                                                             
|Total Owners’ and Indirect Capital Costs                                                                                                
|Contingency                                                                                                                             
|Total Estimated Remaining Project Development Capital Costs                                                                             
|                                                                                                                                        
|Total Estimated Project Development Capital Cost                                                                                        
|(1)In millions.                                                                                                                         



The Company is targeting an average operating cost per gold ounce sold of $575
per ounce, average total cash costs of $550 and average all-in sustaining costs of $710 over the first nine years of mine life.
These targets assume a $20 per ounce silver price, an exchange rate of C$1.30 to one United States dollar, a $0.75 per litre diesel
price and a C$0.045/KwH power rate. Total cash costs and all-in sustaining costs per ounce are non-GAAP measures. See “Non-GAAP
Measures” on page 5.



The Rainy River Project is expected to produce between 50,000 and 60,000 ounces
of gold in 2017, including 15,000 ounces expected to be produced between start-up and the targeted November 2017 commercial production.
During the commercial production period of 2017, Rainy River is targeting an operating expense per gold ounce sold of between $905
and $945 and an all-in sustaining cost of between $1,200 and $1,240 per ounce. The 2017 costs are negatively impacted by lower
gold sales resulting from the combination of throughput being lower than design during commissioning and ramp-up and the planned
processing of lower grade ore during the commissioning phase. In addition, the Company has budgeted approximately US$12 million,
or US$305 per ounce, of sustaining costs during the commercial production period in 2017. All-in sustaining costs per ounce is
a non-GAAP measure. See “Non-GAAP Measures” on page 5.



In January 2017, the Company announced that the capital cost to construct Rainy
River had increased to $1,292 million. In addition, as discussed above, development of the underground portion of the mine has
been deferred a year and the operating cost estimates have been updated. Set out below is an updated calculation of the Rainy River
Project’s after-tax net present value (“NPV”), internal rate of return (“IRR”) and
payback period of capital calculated as of January 1, 2015, before the beginning of construction, but based on updated capital
cost and operating cost estimates. Also below is a calculation of the Rainy River Project’s after-tax NPV, IRR and payback
period of capital calculated as of December 31, 2016. These calculations assume a gold price of US$1,300 per ounce, a silver price
of US$20 per ounce and an exchange rate of C$1.30 to one United States dollar and they exclude the impact of the streaming agreement
with Royal Gold.





41







|                                 | January 1, 2015 | December 31, 2016
|-------------------------------- | --------------- | -----------------
|After-tax NPV (5% discount rate) | $145 million    | $970 million     
|IRR                              | 7%              | 34%              
|Payback period of capital        | 7.4 yrs         | 2.7 yrs          



As shown in the sensitivity chart below, changes in the gold price and the
prevailing exchange rate between the Canadian dollar and United States dollar can significantly affect the calculated NPV, IRR
and payback period of capital.



|                                            | January 1, 2015 | December 31, 2016
|------------------------------------------- | --------------- | -----------------
|Change in NPV caused by gold price +/- $100 | $195 million    | $215 million     
|Change in NPV caused by C$/US$ +/- $0.05    | $55 million     | $61 million      



|                                            | January 1, 2015 | December 31, 2016
|------------------------------------------- | --------------- | -----------------
|Change in IRR caused by gold price +/- $100 | 2.4%            | 7.0%             
|Change in IRR caused by C$/US$ +/- $0.05    | 0.7%            | 3.3%             



|                                                       | January 1, 2015 | December 31, 2016
|------------------------------------------------------ | --------------- | -----------------
|Change in payback period caused by gold price +/- $100 | 0.7 yrs         | 0.4 yrs          
|Change in payback period caused by C$/US$ +/- $0.05    | 0.2 yrs         | 0.2 yrs          



Exploration and Development



Construction Update



In January 2017, the Company announced that the estimated 2017 capital
cost through commercial production, including contingency, is $195 million higher than the Company’s previous estimate
and that the Company expects to have all construction activities required for start-up of the Rainy River Project completed
in September with commercial production beginning in November 2017. In 2016, the focus of development activities was on the
construction of the processing facilities and supporting infrastructure as well as the initial stripping of the open pit.
Below are key project updates as of the end of 2016:





| | · | plant site concrete placement complete;
| | - | ---------------------------------------



| | · | steelwork erection and cladding complete;
| | - | -----------------------------------------



| | · | power to the main substation energized December 2016;
| | - | -----------------------------------------------------



| | · | installation of mechanical, piping, electrical and instrumentation in processing facilities over 60% complete;
| | - | --------------------------------------------------------------------------------------------------------------



| | · | ball and SAG mill shells in place;
| | - | ----------------------------------



| | · | construction of water management facility reinitiated in late August 2016 with two of five dams complete at year end;
| | - | ---------------------------------------------------------------------------------------------------------------------



| | · | regulatory approval for revised tailings dam design received from Ontario Ministry of Natural Resources and Forestry ("MNRF")
in November 2016; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| | · | approximately 24 million tonnes of overburden and waste stripping completed.
| | - | ----------------------------------------------------------------------------





42









As of year-end 2016, all of the key structural components of
the process facilities had been completed and the setting of mechanical equipment and installation of piping, electrical and instrumentation
services was well advanced. New Gold plans to complete the testing of the various components of the process facility using a staged
approach, after which the Company will complete dry and wet commissioning of the full process circuit. Commissioning of the crusher
commenced in March 2017. Commissioning of the ball and SAG mills is expected to commence during the second quarter. Finally, the
refining portion of the circuit should be completed and ready to begin commissioning early in the third quarter of 2017. Dry and
wet commissioning of the full process circuit is scheduled to take place in August, which should leave approximately one month
before targeted first production for any required adjustments to the circuit.



Water and Tailings Management Facilities Update



During the course of construction of the water and tailings management facilities
at the Rainy River Project, deformations were identified at one of the dams associated with such facilities. As a result, work
on those facilities was paused in February 2016. In August 2016, New Gold recommenced work on the water management facility. In
July 2016, New Gold received approval to begin pumping water from the Pinewood river to the storage facility. The Company anticipates
that as it progresses its construction of the water management facility, it should be able to obtain the permits necessary to steadily
increase the amount of water stored in the facility. New Gold plans to have approximately 2.50 to 2.75 million cubic metres of
process water stored in the facility at the time of mill start-up.



In line with best practices in Canada, the Company has established an Independent
Tailings Review Board (“ITRB”), which is comprised of four independent experts, to provide input with respect
to tailings management at New Gold’s operations and projects. After receiving feedback from the ITRB and MNRF and completion
of additional geotechnical drilling to further investigate the ground conditions, New Gold redesigned Rainy River’s tailings
management facility. The final redesign included the use of flatter slopes, rock toe buttresses and wick drains, and New Gold also
implemented enhanced construction management procedures. The Company has decided to extend aspects of the redesign across all of
the tailings facility. The Company received approval to recommence construction of the tailings management facility from MNRF in
mid-November 2016, and construction has resumed. As discussed above, New Gold is working with Environment and Climate Change Canada
towards obtaining the Schedule 2 Amendment, which is targeted to be received in the third quarter of 2017 – see “Rainy
River Project, Canada – Infrastructure, Permitting and Environmental Conditions” on page 39.



Blackwater Project,
Canada



The following disclosure does not contain detailed information pertaining to
the Capoose, Auro and Key claim blocks, which are peripheral to the Blackwater deposit.



Project Description, Location, Access and Other Information



The Blackwater Project is a gold-silver project located in central British
Columbia, approximately 110 kilometres southwest of Vanderhoof and 450 kilometres northeast of Vancouver. The Project site is readily
accessible by forest service and mine road. A new 16-kilometre road is planned to connect the Project site with the Kluskus Forest
Service Road. Helicopter access is available from bases in Vanderhoof, Quesnel or Prince George. The climate in the Project area
is sub-continental, characterized by brief warm summers and long cold winters. It is expected that mining activities will be conducted
year-round.



As at December 31, 2016, New Gold holds a 100% interest in 232 mineral claims
covering an area of 1,058 square kilometres distributed among the Blackwater, Capoose, Auro and Key claim blocks. To keep claims
in good standing, a minimum value of work or cash-in-lieu is required annually. The required cash-in-lieu to maintain a mineral
claim for an anniversary year is double the value of exploration and development that would be required to maintain the claim.
Six claims are due for renewal in 2017, with the remainder in good standing until 2022.





43







The Blackwater deposit spans one Davidson claim (Tenure No. 509273), the Dave
claim (Tenure No. 515809) and the Jarrit claim (Tenure No. 515810) within the greater Blackwater claim block (75 mineral claims
covering 30,578 hectares). The majority of the Blackwater claims are located on Crown lands and none are known to overlap any legacy,
Crown-granted mineral claims or no-staking reserves. A variety of surface use permits, licenses and authorizations have been granted
across the Project area, but none are expected to significantly impact mine design and estimated costs.



New Gold’s 100% interest in the Blackwater claim block is subject to
four NSR royalties ranging from 1% to 3%, two of which cover the Blackwater deposit.



Geological Setting and Mineralization



The Blackwater Project is located on the Nechako Plateau, within the Stikine
terrane of the Intermontane Belt. The Stikine terrane comprises Jurassic to early Tertiary magmatic arc and related sedimentary
rocks.



The Blackwater deposit is hosted by a sequence of andesite, felsic volcaniclastic
rock, breccias, and tuff interpreted to belong to the late Cretaceous Kasalka Group. These rocks are overlain by a post-mineral
sequence of felsic and mafic volcanics of the Eocene Ootsa Lake Group and underlain by basinal clastic rocks of the late Jurassic
Bowser Lake Group. A well-developed system of north-easterly, north-westerly and northerly-striking faults cuts the entire package.
Quaternary glacial, colluvial and fluvial deposits obscure most of the bedrock within the immediate project area.



The Blackwater deposit is considered to be an example of a volcanic-hosted,
intermediate sulphidation, epithermal-style gold-silver deposit. Host rocks within the deposit are pervasively hydrofractured,
pyritized, and altered to a mixture of silica and sericite. Mineralization is typified by gold-bearing polymetallic sulphides (pyrite,
sphalerite, marcasite, pyrrhotite) as disseminations and porosity infillings within the fragmental unit of the deposit. Mineralization
is strongly controlled by northwest-southeast-trending zones of tectonic brecciation and chloritic gouge and by northeast-trending
structural discontinuities. The mineralization is bounded by graben-forming faults to the north and south. A major north-south-trending
fault transects the ore body, subdividing it into two distinct geological domains integral to the mineral resource block model.



Drilling has defined the Blackwater deposit as a zone of continuous disseminated
gold-silver mineralization extending at least 1,300 metres east-west and at least 950 metres north-south. The vertical thickness
of the zone averages 350 metres but ranges up to 600 metres, remaining open at depth to the southwest, north and northwest.



Infrastructure, Permitting and Environmental Conditions



The deposit is located on the north slope of Mt. Davidson, and the proposed
Project infrastructure will be sited predominantly in the Davidson Creek watershed. There is sufficient suitable land for future
mine infrastructure within the mineral claims. Personnel to support development and operation of the mine can be drawn from British
Columbia’s well-developed mining industry. Water for the camp is currently obtained from groundwater wells.



The closest connection to the provincial power grid is 140 kilometres from
the Blackwater Project. An overland transmission line is planned to connect to the provincial grid. Freshwater requirements will
be met by pumping water from Tatelkuz Lake via a 20-kilometre long pipeline and groundwater wells. On-site infrastructure planned
to be constructed include a 60,000 tpd process plant facility, open pit mine infrastructure, tailings facility and administrative
offices.





44







The Blackwater Project is subject to review under the British Columbia Environmental
Assessment Act and the Canadian Environmental Assessment Act, 2012. The EA process was initiated in October 2012. The final EA
report was submitted for public review by the end of 2015 and public review started in January 2016. New Gold anticipates receiving
EA approval late in 2017.



Mine construction and operation will require a large number of federal and
provincial permits, many pertaining to potential impacts on surface water and fisheries. A number of key engineering studies in
support of the broader permitting effort were completed in 2015. Various engineering studies required to support permit application
preparation are planned to continue in 2017.



The federal and provincial permitting requirements include public and First
Nations consultations. New Gold consults with provincial and federal ministries and agencies about research, design, permits, and
environmental assessment questions and issues as they arise. The Company continues to engage a number of First Nations groups who
have interests in the Project area, including discussions regarding Participation Agreements for construction and operation of
the mine with key local First Nations.



There is no evidence of historic mining activities in the Project area. Existing
environmental liabilities are related to the exploration activities of New Gold and its predecessor companies. The post-mining
reclamation objective is wildlife habitat and return of the land for traditional use by indigenous groups.



New Gold has conducted extensive environmental baseline studies and is preparing
comprehensive environmental management plans for the Blackwater Project. Mitigation plans are in place for potential effects on
fish due to flow reductions in Davidson Creek and for potential effects on the whitebark pine species. A fish habitat compensation
plan will be implemented to ensure no net loss of fish habitat will result from the operations.



New Gold has posted an irrevocable standby letter of credit
totalling approximately C$1.9 million in respect of reclamation security deposits for the Blackwater Project’s Mines Act
permit, gravel pit project and adjacent properties. The undiscounted reclamation liability for the Blackwater Project as at December
31, 2016 is estimated to be $14.1 million.



Mineral Reserve and Mineral Resource Estimates



The Blackwater Project Mineral Reserves estimate is summarized in the “Mineral
Reserve Estimates” table. The Blackwater Project Mineral Resource estimate is summarized in the “Measured and Indicated
Mineral Resource Estimates (Exclusive of Mineral Reserves)” and “Inferred Mineral Resource Estimates” tables.
See “Description of Business – Summary of Mineral Reserve and Mineral Resource Estimates” on page 16.



Mining Operations



Mining Methods



The Blackwater deposit has been designed as a conventional open pit mining
operation. The estimated operating mine life of 17 years will comprise open pit mining for the first 14 years with stockpiles providing
feed thereafter. A truck and shovel operation will operate year-round in a pit with 12 metre bench heights. The average life-of-mine
operational stripping ratio is 1.88:1 excluding pre-stripping. The pit was designed considering the geology, technical, economic
and related environmental characteristics of mineral resource to be mined, and location of the deposit.





45







Recovery Methods



It is anticipated that run-of-mine ore will be delivered to a primary crusher
that feeds a whole ore leach gold-silver recovery plant, with a milling rate of 60,000 tonnes per day, or 21.9 million tonnes per
year. Ground mineralized material from a conventional milling circuit will be thickened, passed through a leaching and carbon-in-pulp
extraction circuit, and subjected to carbon stripping and electrowinning prior to being smelted into a gold-silver doré.
Life-of-mine recoveries are expected to be 87% for gold and 49% for silver.



Capital and Operating Costs



The Blackwater Project has Proven and Probable Mineral Reserves of over 8.2
million ounces of gold and 60.8 million ounces of silver and is expected to have a 17-year mine life. It is expected to produce
approximately 485,000 ounces of gold and 1,800,000 ounces of silver annually for the first nine years of full production. 
The December 2013 Feasibility Study on the Blackwater Project estimated the life-of-mine total cash costs and all-in sustaining
costs per ounce of gold to be C$609 and C$706 per ounce respectively, assuming a $1,300 per ounce gold price, $22.00 per ounce
silver price and an exchange rate of C$0.95 to one United States dollar.  Total cash costs per ounce and all-in sustaining
costs are non-GAAP measures.  See “Non-GAAP Measures” on page 5.



RISK FACTORS



New Gold’s business activities are subject to significant risks, including,
but not limited to, those described below. Every investor or potential investor in New Gold securities should carefully consider
these risks. Any of the following risks could have a material adverse effect on the Company, its business and prospects, and could
cause actual events to differ materially from those described in forward-looking statements relating to the Company. Additional
risks related to our material properties are discussed in the technical reports and other documents filed by the Company from time
to time on SEDAR. In addition, other risks and uncertainties not presently known by management of the Company or that management
currently believes are immaterial could affect the Company, its business and prospects.



Changes in Metal
Prices



The Company’s earnings, cash flows and financial condition are subject
to risk due to fluctuations in the market price of gold, copper and silver. World gold prices have historically fluctuated widely.
World gold prices are affected by numerous factors beyond the Company’s control, including:



| | · | the strength of the United States economy and the economies of other industrialized and developing nations;
| | - | -----------------------------------------------------------------------------------------------------------



| | · | global or regional political or economic conditions;
| | - | ----------------------------------------------------



| | · | the relative strength of the United States dollar and other currencies;
| | - | -----------------------------------------------------------------------



| | · | expectations with respect to the rate of inflation;
| | - | ---------------------------------------------------



| | · | interest rates;
| | - | ---------------



| | · | purchases and sales of gold by central banks and other large holders, including speculators;
| | - | --------------------------------------------------------------------------------------------



| | · | demand for jewellery containing gold;
| | - | -------------------------------------



| | · | investment activity, including speculation, in gold as a commodity; and
| | - | -----------------------------------------------------------------------



| | · | worldwide production.
| | - | ---------------------







46









The price of gold was US$1,159.10 per ounce as at December 31, 2016, compared
to US$1,060 as at December 30, 2015. Future metal price declines could cause continued development of, and commercial production
from, the Company’s properties to be uneconomic. In addition, there is a time lag between the shipment of gold and copper
and final pricing, and changes in pricing can significantly impact the Company’s revenue and working capital position. Depending
on the price of gold, copper and silver, the Company’s cash flow from mining operations may be insufficient to meet its operating
needs and capital expenditures, and as a result the Company could experience losses and/or may curtail or suspend some or all of
its exploration, development, construction and mining activities (including residual leaching) or otherwise revise its mine plans,
and exploration, development and construction plans, and could lose its interest in, or be forced to sell, some or all of its properties.



Reserve calculations and mine plans that are revised using significantly lower
gold, silver, copper and other metal prices could result in significant reductions in Mineral Reserve and Mineral Resource estimates
and revisions in the Company’s life-of-mine plans, which in turn could result in material write-downs of the Company’s
investments in mining properties and increased depletion, reclamation and closure charges. Depending on the price of gold or other
metals, the Company may determine that it is impractical to commence or, if commenced, to continue commercial production at a particular
site. Metal price fluctuations also create adjustments to the provisional prices of sales made in previous periods that have not
yet been subject to final pricing, and these adjustments could have an adverse impact on the Company’s financial results
and financial condition. In addition, cash costs and all-in sustaining costs of gold production are calculated net of by-product
credits, and therefore may also be impacted by downward fluctuations in the price of by-product metals. Any of these factors could
result in a material adverse effect on the Company’s results of operations and financial condition.



In addition to adversely affecting the Company’s Mineral Reserve and
Mineral Resource estimates and its financial condition, declining metal prices can impact operations by requiring a reassessment
of the feasibility of a particular project. Such a reassessment may be the result of a management decision or may be required under
financing arrangements related to a particular project. Even if a project is ultimately determined to be economically viable, the
need to conduct such a reassessment may cause substantial delays and/or may interrupt operations until the reassessment can be
completed, which may have a material adverse effect on the Company’s results of operations and financial condition.



From time to time the Company engages in commodity hedging transactions intended
to reduce the risk associated with fluctuations in commodity prices, but there is no assurance that any such commodity hedging
transactions designed to reduce the risk associated with fluctuations in commodity prices will be successful. Hedging may not
protect adequately  against declines in the price of the hedged commodity. Furthermore, although hedging may protect the
Company from a decline in the price of the commodity being hedged, it may also prevent the Company from benefiting from price
increases.



Production Estimates



Forecasts of future production are estimates based on interpretation and assumptions,
and actual production may be less than estimated. Unless otherwise noted, the Company’s production forecasts are based on
full production being achieved at all of its mines. The Company’s ability to achieve and maintain full production rates at
these mines is subject to a number of risks and uncertainties. The Company’s production estimates are dependent on, among
other things, the accuracy of Mineral Reserve and Mineral Resource estimates, the accuracy of assumptions regarding ore grades
and recovery rates, ground conditions, physical characteristics of ores, such as hardness and the presence or absence of particular
metallurgical characteristics, the accuracy of estimated rates and costs of mining and processing, and the receipt and maintenance
of permits. The Company’s actual production may vary from its estimates for a variety of reasons, including, those identified
under the heading “Operating Risks” below. The failure of the Company to achieve its production estimates could have
a material adverse effect on the Company’s prospects, results of operations and financial condition.







47







Cost Estimates



The Company prepares estimates of operating costs and/or capital costs for
each operation and project. The Company’s actual costs are dependent on a number of factors, including the exchange rate
between the United States dollar and the Canadian dollar, Australian dollar and Mexican peso, smelting and refining charges, penalty
elements in concentrates, royalties, the price of gold and by-product metals, the cost of inputs used in mining operations and
events that impact production levels.



New Gold’s actual costs may vary from estimates for a variety of reasons,
including changing waste-to-ore ratios, ore grade metallurgy, labour and other input costs, commodity prices, general inflationary
pressures and currency exchange rates, as well as those risks identified under the heading “Operating Risks” below.
Failure to achieve cost estimates or material increases in costs could have an adverse impact on New Gold’s future cash flows,
profitability, results of operations and financial condition.



Volatility in the
Market Price of the Company’s Securities



The Common Shares are listed on the TSX and NYSE MKT and the Company also has
warrants listed on the TSX. The per share price of the Common Shares on the TSX fluctuated from a high of C$7.87 to a low of C$3.11
and on the NYSE MKT from a high of US$6.04 to a low of US$2.34 during the twelve-month period ending December 31, 2016. There can
be no assurance that continual fluctuation in price will not occur.



Securities of mining companies have experienced substantial volatility in
the past, often based on factors unrelated to the financial performance or prospects of the companies involved. These factors
include macroeconomic developments in North America and globally, currency fluctuations and market perceptions of the attractiveness
of particular industries. Other factors unrelated to the Company’s performance that may have an effect on the price of the
Common Shares and warrants include the following: the extent of analytical coverage available to investors concerning the Company’s
business may be limited if investment banks with research capabilities do not continue to follow the Company’s securities;
the lessening in trading volume and general market interest in the Company’s securities may affect an investor’s ability
to trade significant numbers of Common Shares; and the size of the Company’s public float may limit the ability of some
institutions to invest in the Company’s securities. The price of the Common Shares and warrants are also likely to be significantly
affected by short-term changes in gold, and, to a lesser extent, copper and silver, prices, by the Company’s financial condition
or results of operations as reflected in its quarterly financial statements and by other operational and regulatory matters.



As a result of any of these factors, the market price of the Common Shares
at any given point in time may not accurately reflect New Gold’s long-term value. Securities class action litigation often
has been brought against companies following periods of volatility in the market price of their securities. New Gold may in the
future be the target of similar litigation. Securities litigation could result in substantial costs and damages and divert management’s
attention and resources.







48







Government Regulation



The mining, processing, development and exploration activities of the Company
are subject to various laws governing prospecting, development, production, exports, imports, taxes, labour standards and occupational
health and safety, mine safety, toxic substances, waste disposal, environmental protection and remediation, protection of endangered
and protected species, land use, water use, land claims of local people and other matters. No assurance can be given that new rules
and regulations will not be enacted or that existing rules and regulations will not be applied in a manner which could have a material
adverse effect on the Company’s financial position and results of operations. Amendments to current laws, regulations and
permits governing operations or development activities and activities of mining and exploration companies, or the application of
existing laws, regulations and permits (including a more stringent or different application), could have a material adverse impact
on the Company’s results of operations or financial position, or could require abandonment or delays in the development of
new mining properties or the suspension or curtailment of operations at existing mines. Failure to comply with any applicable laws,
regulations or permitting requirements may result in enforcement actions against the Company, including orders issued by regulatory
or judicial authorities causing operations or development activities to cease or be curtailed or suspended, and may include corrective
measures requiring capital expenditures, installation of additional equipment or remedial actions (see also “Permitting”
below). Additionally, the Company could be forced to compensate those suffering loss or damage by reason of its mining operations
or exploration or development activities and could face civil or criminal fines or penalties imposed for violations of applicable
laws or regulations. Any such regulatory or judicial action could materially increase the Company’s operating costs and delay
or curtail or otherwise negatively impact the Company’s operations and other activities.



Permitting



The Company’s operations, development projects and exploration activities
are subject to receiving and maintaining licenses, permits and approvals, including regulatory relief or amendments, (collectively,
“permits”) from appropriate governmental authorities. Before any development on any of its properties the Company
must receive numerous permits, and continued operations at the Company’s mines is also dependent on maintaining, complying
with and renewing required permits or obtaining additional permits.



New Gold may be unable to obtain on a timely basis or maintain
in the future all necessary permits required to explore and develop its properties, commence construction or operation of mining
facilities and properties or maintain continued operations. Delays may occur in connection with obtaining necessary renewals of
permits for the Company’s existing operations and activities, additional permits for existing or future operations or activities,
or additional permits associated with new legislation. It is possible that previously issued permits may become suspended or revoked
for a variety of reasons, including through government or court action. In order to complete construction of the TMA for the Rainy
River Project, the Company requires the Schedule 2 Amendment to close two small creeks and deposit tailings. Available tailings
storage is required in order to conduct mining operations at the Rainy River Project. New Gold is constructing a starter cell which
would provide capacity for approximately six months of mine waste and does not require a Schedule 2 Amendment. In order to operate
the mine after the starter cell is full, construction of the TMA (or, if possible, an alternative storage area) must be complete,
which construction will require a Schedule 2 Amendment. If the Schedule 2 Amendment is not obtained in sufficient time to complete
such construction before the starter cell is full, New Gold may slow down or suspend operations at the Rainy River Project pending
completion of the construction and availability of the TMA (or, if possible, an alternative storage area). There can be no assurance
that the Schedule 2 Amendment will be obtained on such timeline or at all. A slow down or suspension of operations at the Rainy
River Project could have an adverse impact on the Company’s financial condition and results of operations.





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In October 2016, the federal and provincial governments entered into a memorandum
of understanding regarding the environmental assessment process of the Blackwater Project with the Ulkatcho First Nation and the
Lhoosk’uz Dené Nation to facilitate government-to-government collaboration in such process. In addition, in April
2015, the provincial government entered into an agreement with the Nadleh Whuten First Nation, Saik’uz First Nation, Stellat’en
First Nation and other First Nations included in the Carrier Sekani Tribal Council to facilitate a government-to-government relationship
based on collaboration in connection with natural resource development carried on in their traditional territories, including the
Blackwater Project. New Gold continues to engage indigenous groups who have interests in the Blackwater Project area. New Gold
anticipates receiving environmental assessment approval for the Blackwater Project late in 2017, however, there can be no assurance
that such approval will be obtained on such timeline or at all.



In the past there have been challenges to the Company’s permits that
were temporarily successful as well as delays in the renewal of certain permits or receiving additional required permits. There
can be no assurance that the Company will receive or continue to hold all permits necessary to develop or continue operating at
any particular property or to pursue the Company’s exploration activities. To the extent that required permits cannot be
obtained or maintained, the Company may be curtailed or prohibited from continuing its mining operations or from proceeding with
planned exploration or development of mineral properties. Even if permits or renewals are available, the terms of such permits
may be unattractive to the Company and result in the applicable operations or activities being financially unattractive or uneconomic.
An inability to obtain or maintain permits or to conduct mining operations pursuant to applicable permits would materially reduce
the Company’s production and cash flow and could undermine its profitability.



Dependence on New
Afton Mine



The Company’s operations at New Afton in British Columbia accounted for
approximately 26% of the Company’s gold production and 85% of its copper production in 2016 and are expected to account for
approximately 18% of the Company’s gold production and 86% of its copper production in 2017. Also, in 2016, New Afton accounted
for approximately 56% of the operating cash flow generated by the Company’s operating sites. Any adverse condition affecting
mining or milling conditions at New Afton could have a material adverse effect on the Company’s financial performance and
results of operations.



Unless the Company acquires or develops other significant gold-producing
assets, the Company will continue to be dependent on its operations at New Afton for a substantial portion of its cash flow
provided by operating activities.



Operating Risks



Mining operations generally involve a high degree of risk. The Company’s
operations are subject to all the hazards and risks normally encountered in the exploration, development and production of gold,
copper and silver including unusual and unexpected ground conditions or geologic formations, seismic activity, rock bursts, rock
slides, cave-ins, slope or pit wall failures, flooding, fire, metal losses, periodic interruption due to
inclement or hazardous weather conditions and other conditions that would impact the drilling and removal of material. Block caving
activities, including at the New Afton Mine, generally result in surface subsidence. The configuration of subsidence presently
occurring above the west cave at the New Afton Mine is slightly offset from the original model, which is thought to be driven
largely by the weaker rockmass located south of the cave footprint. The subsidence is being monitored and evaluated on an ongoing
basis. Surface subsidence or any of the above hazards and risks could result in reduced production, damage to, or destruction
of, mines and other producing facilities, damage to life or property, environmental damage and possible legal liability. In addition,
production may be adversely impacted by operational problems such as a failure of a production hoist, filter press, SAG mill or
other equipment, or industrial accidents, as well as other potential issues such as actual ore mined varying from estimates of
grade or tonnage, dilution, block cave performance and metallurgical or other characteristics,





50







interruptions in or shortages of
electrical power or water, shortages of required inputs, labour shortages or strikes, claims or disagreements with First Nations
and other indigenous groups, restrictions or regulations imposed by government agencies or changes in the regulatory environment.
The Company’s milling operations are subject to hazards such as equipment failure or failure of retaining dams around tailings
disposal areas, which may result in environmental pollution and consequent liability. In addition, short-term operating factors,
such as the need for orderly development of the ore bodies or the processing of new or different ore grades, may cause a mining
operation to be unprofitable in any particular accounting period.



The occurrence of one or more of these events may result in the death of, or
personal injury to, employees, other personnel or third parties, the loss of mining equipment, damage to or destruction of mineral
properties or production facilities, monetary losses, deferral or unanticipated fluctuations in production, suspension, curtailment
or termination of operations, environmental damage and potential legal liabilities, any of which may adversely affect the Company’s
business, reputation, prospects, results of operations and financial condition.



Exploration and
Development Risks



The exploration for and development of mineral deposits involves significant
risks, which even a combination of careful evaluation, experience and knowledge cannot eliminate. While the discovery of an ore
body may result in substantial rewards, few properties that are explored are ultimately developed into producing mines. Once a
site with mineralization is discovered, it may take several years from the initial phases of drilling until production is possible,
during which time the economic feasibility of production may change. Major expenses may be required to locate and establish Mineral
Reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site. It is impossible
to ensure that the exploration or development programs planned by the Company or any of its partners will result in a profitable
commercial mining operation.



Whether a mineral deposit will be commercially viable depends on a number of
factors, including but not limited to: the particular attributes of the deposit, such as accuracy of estimated size, continuity
of mineralization, average grade and metallurgical characteristics (see “Uncertainty in the Estimation of Mineral Reserves
and Mineral Resources” below); proximity to infrastructure; metal prices, which are highly cyclical; and government regulations,
including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental
protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in
the Company being unable to receive an adequate return on invested capital.



Development projects are uncertain and capital cost estimates, projected
operating costs, production rates, recovery rates, mine life and other operating parameters and economic returns may differ
significantly from those estimated for a project. Development projects rely on the accuracy of predicted factors including
capital and operating costs, metallurgical recoveries, reserve estimates and future metal prices. In addition, there can be
no assurance that gold, silver or copper recoveries in small scale laboratory tests will be duplicated in larger scale tests
under on-site conditions or during production.



The Company has two projects currently in the development phase: Rainy River,
which is in the construction stage, and Blackwater, which is in the permitting stage. In addition, the Company may engage in expansion
activities at its operating mines from time to time. Expansion projects, including expansions of facilities and extensions to new
ore bodies or new portions of existing ore bodies, can have risks and uncertainties similar to development projects.







51







A project is subject to numerous risks during development including, but not
limited to, the accuracy of feasibility studies, obtaining and complying with required permits, changes in environmental or other
government regulations, securing all necessary surface and land tenure rights, consulting and accommodating First Nations and other
indigenous groups and financing risks. In particular, the Company is actively engaged in consultation with various First Nations
and other indigenous groups in connection with Rainy River and Blackwater. Unforeseen circumstances, including those related to
the amount and nature of the mineralization at the development site, technological impediments to extraction and processing, legal
challenges or restrictions or governmental intervention, infrastructure limitations, environmental issues, unexpected ground conditions
or other unforeseen development challenges, commodity prices, disputes with local communities or other events, could result in
one or more of New Gold’s planned developments becoming impractical or uneconomic to complete. Any such occurrence could
have an adverse impact on New Gold’s growth, financial condition and results of operations. There can be no assurance that
the development of either of Rainy River or Blackwater will continue in accordance with current expectations or at all. See also
“Permitting” above.



Construction Risks



As a result of the substantial expenditures involved in development projects,
developments are prone to material cost overruns versus budget. The capital expenditures and time required to develop new mines
are considerable and changes in cost or construction schedules can significantly increase both the time and capital required to
build the project.



Construction costs and timelines can be impacted by a wide variety of factors,
many of which are beyond the control of the Company. These include, but are not limited to, weather conditions, ground conditions,
performance of the mining fleet and availability of appropriate rock and other material required for construction, availability
and performance of contractors and suppliers, delivery and installation of equipment, design changes, accuracy of estimates and
availability of accommodations for the workforce.



Project development schedules are also dependent on obtaining the governmental
approvals necessary for the operation of a project. The timeline to obtain these government approvals is often beyond the control
of the Company. A delay in start-up or commercial production would increase capital costs and delay receipt of revenues.



Rainy River is currently at an advanced construction stage of its development.
Given the inherent risks and uncertainties associated with the development of a new mine, there can be no assurance that the construction
will continue in accordance with current expectations or at all, or that construction costs will be consistent with the budget,
or that the mine will operate as planned.





Risks Related to
Start-Up RAINY RIVER



The start-up of the Company’s Rainy River Project is subject to a
number of inherent risks, including those described above under “Permitting”, “Exploration and Development
Risks” and “Construction Risks”. The permits, capital expenditures and time required to develop new mines
are considerable and changes in cost or construction schedules can significantly increase both the time and capital required
to build the project. Further, it is not unusual in the mining industry for new mining operations to experience unexpected
problems leading up to and during start-up, including failure of equipment, machinery, the processing circuit or other
processes to perform as designed or intended, inadequate water, insufficient ore stock pile or grade, and failure to deliver
adequate tonnes of ore to the mill, any of which could result in delays, slowdowns or suspensions and require more capital
than anticipated. In addition, Mineral Reserves and Mineral Resources projected by the applicable feasibility study, and
anticipated costs, including, without limitation, operating expenses, cash costs and all-in sustaining costs, anticipated
mine life, projected production, anticipated production rates and other projected economic and operating parameters may not
be realized, and the level of future metal prices needed to ensure commercial viability may deteriorate. Consequently, there
is a risk that the start-up of Rainy River may encounter problems, be subject to delays or have other material adverse
consequences for the Company.





52











Financing Risks



The Company’s mining, processing, development and exploration activities
may require additional external financing. There can be no assurance that additional capital or other types of financing will be
available when needed or that, if available, the terms of such financing will be acceptable to the Company. Furthermore, if the
Company raises additional capital by offering equity securities or securities convertible into equity securities, any additional
financing may involve substantial dilution to existing shareholders. Failure to obtain sufficient financing could result in the
delay or indefinite postponement of exploration, development, construction or production of any or all of the Company’s mineral
properties. The cost and terms of such financing may significantly reduce the expected benefits from new developments or render
such developments uneconomic.



Need for Additional
Mineral Reserves and Mineral Resources



Because mines have limited lives based on proven and probable Mineral Reserves,
the Company continually seeks to replace and expand its Mineral Reserves and Mineral Resources. The Company’s ability to
maintain or increase its annual production of gold, copper and silver depends in significant part on its ability to find or acquire
new Mineral Reserves and Mineral Resources and bring new mines into production, and to expand Mineral Reserves and Mineral Resources
at existing mines. Exploration is inherently speculative. New Gold’s exploration projects involve many risks and exploration
is frequently unsuccessful. See “Exploration and Development Risks” above. There is a risk that depletion of reserves
will not be offset by discoveries or acquisitions. The mineral base of New Gold may decline if reserves are mined without adequate
replacement.



Uncertainty in the
Estimation of Mineral Reserves and Mineral Resources



Mineral Reserves and Mineral Resources are estimates only and no assurance
can be given that the anticipated tonnages and grades will be achieved, that the indicated level of recovery will be realized or
that Mineral Reserves can be mined or processed profitably. Mineral Reserve and Mineral Resource estimates may be materially affected
by environmental, permitting, legal, title, taxation, socio-political, geotechnical factors (such as pit slope angles), marketing
and other risks and relevant issues. There are numerous uncertainties inherent in estimating Mineral Reserves and Mineral Resources,
including many factors beyond the Company’s control. Such estimation is a subjective process, and the accuracy of any Mineral
Reserve or Mineral Resource estimate is a function of the quantity and quality of available data, the nature of the ore body and
of the assumptions made and judgments used in engineering and geological interpretation. These estimates may require adjustments
or downward revisions based upon further exploration or development work, drilling or actual production experience.



Fluctuations in gold, copper and silver prices, results of drilling, metallurgical
testing and production, the evaluation of mine plans after the date of any estimate, permitting requirements or unforeseen technical
or operational difficulties may require revision of Mineral Reserve and Mineral Resource estimates. Prolonged declines in the market
price of gold (or applicable by-product metal prices) may render Mineral Reserves and Mineral Resources containing relatively lower
grades of mineralization uneconomical to recover and could materially reduce the Company’s Mineral Reserves and Mineral Resources.
Mineral resource estimates for properties that have not commenced production or at deposits that have not yet been exploited are
based, in most instances, on very limited and widely-spaced drill hole information, which is not necessarily indicative of conditions
between and around the drill holes. There may also be outliers in the representative samples that may disproportionally skew the
estimates. Accordingly, such Mineral Resource estimates may require revision as more geologic and drilling information becomes
available and as actual production experience is gained.





53







Should reductions in Mineral Resources or Mineral Reserves occur, the
Company may be required to take a material write-down of its investment in mining properties, reduce the carrying value of one
or more of its assets or delay or discontinue production or the development of new projects, resulting in reduced net income or
increased net losses and reduced cash flow. Mineral Resources and Mineral Reserves should not be interpreted as assurances of mine
life or of the profitability of current or future operations. In addition, the estimates of Mineral Resources, Mineral Reserves
and economic projections rely in part on third-party reports and investigations. There is a degree of uncertainty attributable
to the calculation and estimation of Mineral Resources and Mineral Reserves and corresponding grades being mined and, as a result,
the volume and grade of reserves mined and processed and recovery rates may not be the same as currently anticipated. Any material
reductions in estimates of Mineral Reserves and Mineral Resources, or of the Company’s ability to extract these Mineral Reserves
and Mineral Resources, could have a material adverse effect on the Company’s projects, results of operations and financial
condition.



Mineral resources are not Mineral Reserves and have a greater degree of uncertainty
as to their existence and feasibility. There is no assurance that Mineral Resources will be upgraded to proven or probable Mineral
Reserves.



Uncertainty Relating
to Inferred Mineral Resources



Inferred Mineral Resources are not Mineral Reserves and do not have demonstrated
economic viability. Due to the uncertainty which may attach to inferred Mineral Resources, there is no assurance that inferred
Mineral Resources will be upgraded through further exploration to the measured and indicated resource classification level of confidence
necessary for their potential conversion to proven or probable Mineral Reserves as a result of a pre-feasibility or feasibility
level technical study.



Impairment



On a quarterly basis, the Company reviews and evaluates its mining
interests for indicators of impairment. In the past, the Company has recognized material impairment losses (for example, a
US$182 million impairment was recorded in the third quarter of 2015 in relation to the El Morro Project). Impairment
assessments are conducted at the level of cash-generating units (“CGU”). A CGU is the smallest
identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets
or groups of assets. Each operating mine, development and exploration project represents a separate CGU. If an indication of
impairment exists, the recoverable amount of the CGU is estimated. An impairment loss is recognized when the carrying amount
of the CGU is in excess of its recoverable amount. The assessment for impairment is subjective and requires management to
make significant judgments and assumptions in respect of a number of factors, including estimates of production levels,
operating costs and capital expenditures reflected in New Gold’s life-of-mine plans, the value of in situ ounces,
exploration potential and land holdings, as well as economic factors beyond management’s control, such as gold, copper
and silver prices, discount rates, foreign exchange rates, and observable net asset value multiples. It is possible that the
actual fair value could be significantly different than those estimates. In addition, should management’s estimate of
the future not reflect actual events, further impairment charges may materialize, and the timing and amount of
such impairment charges is difficult to predict.



Title Claims and
Rights of Indigenous Peoples



Certain of New Gold’s properties may be subject to the rights or the
asserted rights of various community stakeholders, including First Nations and other indigenous peoples. The presence of community
stakeholders may impact the Company’s ability to develop or operate its mining properties and its projects or to conduct
exploration activities. Accordingly, the Company is subject to the risk that one or more groups may oppose the continued operation,
further development or new development or exploration of the Company’s current or future mining properties and projects.
Such opposition may be directed through legal or administrative proceedings, or through protests or other campaigns against the
Company’s activities.







54







Governments in many jurisdictions must consult with, or require the Company
to consult with, indigenous peoples with respect to grants of mineral rights and the issuance or amendment of project authorizations.
Consultation and other rights of indigenous peoples may require accommodation including undertakings regarding employment, royalty
payments and other matters. This may affect the Company’s ability to acquire within a reasonable time frame effective mineral
titles, permits or licenses in these jurisdictions, including in some parts of Canada, the United States, Australia, and Mexico
in which title or other rights are claimed by First Nations and other indigenous peoples, and may affect the timetable and costs
of development and operation of mineral properties in these jurisdictions. The risk of unforeseen title claims by indigenous peoples
also could affect existing operations as well as development projects. These legal requirements may also affect the Company’s
ability to expand or transfer existing operations or to develop new projects.



Acquisition and
Integration Risks



As part of its business strategy, New Gold has sought and will continue to
seek new operating, development and exploration opportunities in the mining industry. In pursuit of such opportunities, New Gold
may fail to select appropriate acquisition candidates or negotiate acceptable arrangements, including arrangements to finance acquisitions
or integrate the acquired businesses and their personnel into New Gold. The Company cannot assure that it can complete any acquisition
or business arrangement that it pursues, or is pursuing, on favourable terms, if at all, or that any acquisition or business arrangement
completed will ultimately benefit its business. Such acquisitions may be significant in size, may change the scale of the Company’s
business and may expose the Company to new geographic, political, operating, financial or geological risks. Further, any acquisition
the Company makes will require a significant amount of time and attention of New Gold management, as well as resources that otherwise
could be spent on the operation and development of the Company’s existing business.



Any future acquisitions would be accompanied by risks, such as a significant
decline in the relevant metal price after the Company commits to complete an acquisition on certain terms; the quality of the
mineral deposit acquired proving to be lower than expected; the difficulty of assimilating the operations and personnel of any
acquired companies; the potential disruption of the Company’s ongoing business; the inability of management to realize anticipated
synergies and maximize the Company’s financial and strategic position; the failure to maintain uniform standards, controls,
procedures and policies; the impairment of relationships with employees, customers and contractors as a result of any integration
of new management personnel; and the potential for unknown or unanticipated liabilities associated with acquired assets and businesses,
including tax, environmental or other liabilities. In addition, the Company may need additional capital to finance an acquisition.
Debt financing related to any acquisition may expose the Company to the risks related to increased leverage, while equity financing
may cause existing shareholders to suffer dilution. There can be no assurance that any business or assets acquired in the future
will prove to be profitable, that New Gold will be able to integrate the acquired businesses or assets successfully or that it
will identify all potential liabilities during the course of due diligence. Any of these factors could have a material adverse
effect on the Company’s business, prospects, results of operations and financial condition.



Environmental Risks



The Company is subject to environmental regulation in Canada, the United States,
Australia and Mexico where it operates or has exploration or development activities. In addition, the Company will be subject to
environmental regulation in any other jurisdictions in which it may operate or have exploration or development properties. These
regulations address, among other things, endangered and protected species, emissions, noise, air and water quality standards, land
use and reclamation. They also set out limitations on the generation, transportation, storage and disposal of solid, liquid and
hazardous waste.







55







Environmental legislation is evolving in a manner which will involve, in certain
jurisdictions, stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental
assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees.
No certainty exists that future changes in environmental regulation, or the application of such regulations, if any, will not adversely
affect the Company’s operations or development properties or exploration activities. The Company cannot give any assurance
that, notwithstanding its precautions, breaches of environmental laws (whether inadvertent or not) or environmental pollution will
not materially and adversely affect its financial condition and results of operations. Environmental hazards may exist on the Company’s
properties which are unknown to management at present and which have been caused by previous owners or operators of the properties.
In addition, measures taken to address and mitigate known environmental hazards or risks may not be fully successful, and such
hazards or risks may materialize.



New Gold may also acquire properties with known or undiscovered environmental
risks. Any indemnification from the entity from which the Company acquires such properties may not be adequate to pay all the fines,
penalties and costs (such as clean-up and restoration costs) incurred related to such properties. Some of New Gold’s properties
have also been used for mining and related operations for many years before the Company acquired them and were acquired as is or
with assumed environmental liabilities from previous owners or operators. The Company has been required to address contamination
at its properties in the past and may need to continue to do so in the future, either for existing environmental conditions or
for leaks, discharges or contamination that may arise from its ongoing operations or other contingencies. The cost of addressing
environmental conditions or risks, and liabilities associated with environmental damage, may be significant, and could have a material
adverse effect on the Company’s business, prospects, results of operations and financial condition. Production at New Gold’s
mines involves the use of various chemicals, including certain chemicals that are designated as hazardous substances. Contamination
from hazardous substances, either at the Company’s own properties or other locations for which it may be responsible, may
subject the Company to liability for the investigation or remediation of contamination, as well as for claims seeking to recover
for related property damage, personal injury or damage to natural resources. The occurrence of any of these adverse events could
have a material adverse effect on the Company’s prospects, results of operations and financial position.



Production at certain of the Company’s mines involves the use of sodium
cyanide which is a toxic material. Should sodium cyanide leak or otherwise be discharged from the containment system, the Company
may become subject to liability for cleanup work that may not be insured, in addition to liability for any damage caused. Such
liability could be material.



Insurance and Uninsured
Risks



New Gold’s business is subject to a number of risks and hazards generally
including adverse environmental conditions, industrial accidents, labour disputes, unusual or unexpected geological conditions,
ground or slope or wall failures, cave-ins, metallurgical or other processing problems, fires, operational problems, changes in
the regulatory environment and natural phenomena, such as inclement weather conditions, floods, hurricanes and earthquakes. Such
occurrences could result in damage to mineral properties or production facilities or other property, personal injury or death,
environmental damage to the Company’s properties or the properties of others, delays in mining, monetary losses and possible
legal liability.





56







Although the Company maintains insurance to protect against certain risks in
such amounts as it considers reasonable, such insurance will not cover all the potential risks associated with a mining company’s
operations. The Company may also be unable to maintain insurance to cover these risks at economically feasible premiums. Insurance
coverage may not continue to be available on acceptable terms or may not be adequate to cover any resulting liability. Moreover,
insurance against risks such as loss of title to mineral property, environmental pollution, or other hazards as a result of exploration,
development and production is not generally available to the Company or to other companies in the mining industry on acceptable
terms. New Gold may also become subject to liability for pollution or other hazards which may not be insured against or which the
Company may elect not to insure against because of premium costs or other reasons. Losses from these events may cause the Company
to incur significant costs that could have a material adverse effect on results of operations and financial condition.



Reclamation Costs



The Company’s operations are subject to reclamation plans that establish
its obligations to reclaim properties after minerals have been mined from a site. These obligations represent significant future
costs for the Company. As at December 31, 2016, the total estimated undiscounted reclamation liability for New Gold’s operations
was approximately $105.9 million. It may be necessary to revise reclamation concepts and plans, which could increase costs. 
At the Rainy River Project, the ratio of potentially acid generating rock to non-acid generating rock has increased, which may
increase closure costs.



Reclamation bonds or other forms of financial assurance are often required
to secure reclamation activities. Governing authorities require companies to periodically recalculate the amount of a reclamation
bond and may require bond amounts to be increased. It may be necessary to revise the planned reclamation expenditures and the operating
plan for a mine in order to fund an increase to a reclamation bond. In addition, reclamation bonds are generally issued under the
Company’s credit facilities; increases in the amount of reclamation bonds will decrease the amount of the Credit Facility
available for other purposes.



Reclamation bonds may represent only a portion of the total amount of money
that will be spent on reclamation over the life of a mine operation. The actual costs of reclamation set out in mine plans are
estimates only and may not represent the actual amounts that will be required to complete all reclamation activity. If actual costs
are significantly higher than the Company’s estimates, then its results of operations and financial position could be materially
adversely affected.



Foreign Currency
Exchange Rates



New Gold’s mineral properties are located in Canada, Australia, the United
States and Mexico. As a result, the Company has foreign currency exposure with respect to items not denominated in United States
dollars. The three main types of foreign exchange risk the Company faces are:





| | · | transaction exposure: New Gold’s operations sell commodities and incur costs in different currencies. Specifically, the Company’s revenues are denominated in United States dollars while most of the Company’s expenses are currently denominated in Canadian dollars, Australian dollars and Mexican pesos. This creates exposure at the operational level, which may affect its profitability as exchange rates fluctuate. The appreciation of non-United States dollar currencies against the United States dollar can increase the costs of production at New Gold’s mines, making those mines less profitable;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | exposure to currency risk: New Gold is exposed to currency risk through a portion of the following assets and liabilities denominated in currencies other than the United States dollar: cash and cash equivalents, investments, accounts receivable, reclamation deposits, accounts payable and accruals, reclamation and closure cost obligations and long-term debt; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







57









| | · | translation exposure: New Gold’s functional and reporting currency is United States dollars. Certain of the Company’s operations have assets and liabilities denominated in currencies other than the United States dollar, with translation foreign exchange gains and losses included in these balances in the determination of profit or loss. Therefore, exchange rate movements in the Canadian dollar, Mexican peso and Australian dollar can have a significant impact on the Company’s consolidated operating results.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As a result, fluctuations in currency exchange rates could significantly affect
the Company’s business, financial condition, results of operations and liquidity.



Global Financial
Conditions



Global financial conditions have been subject to continued volatility. Government
debt, the risk of sovereign defaults, political instability and wider economic concerns in many countries have been causing significant
uncertainties in the markets. Disruptions in the credit and capital markets can have a negative impact on the availability and
terms of credit and capital. Uncertainties in these markets could have a material adverse effect on the Company’s liquidity,
ability to raise capital and cost of capital. High levels of volatility and market turmoil could also adversely impact commodity
prices, exchange rates and interest rates and have a detrimental effect on the Company’s business.



Debt and Liquidity
Risk



As at December 31, 2016, the Company had long-term debt comprised of two series
of notes in an aggregate principal amount of US$800 million. In addition, the Company has a US$400 million Credit Facility. The
Company’s ability to make scheduled payments of principal and interest on or to refinance its indebtedness depends on the
Company’s future performance, which is subject to economic, financial, competitive and other factors many of which are not
under the control of New Gold. The Company is exposed to interest rate risk on variable rate debt, if any. Liquidity risk is the
risk that the Company will not be able to meet its financial obligations as they become due, including, among others, debt repayments,
interest payments and contractual commitments.



The Company may not continue to generate cash flow from operations in the
future sufficient to service its debt and make necessary or planned capital expenditures. If the Company is unable to generate
such cash flow, it may be required to adopt one or more alternatives, such as selling assets, borrowing additional funds, restructuring
debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. The Company’s ability to borrow
additional funds or refinance its indebtedness will depend on the capital markets and its financial condition at such time. The
Company may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result
in a default on its debt obligations. In addition, if New Gold is unable to maintain its indebtedness and financial ratios at
levels acceptable to its credit rating agencies, or should New Gold’s business prospects deteriorate, the ratings currently
assigned to New Gold by Moody’s Investor Services and Standard & Poor’s Ratings Services could be downgraded,
which could adversely affect the value of New Gold’s outstanding securities and existing debt and its ability to obtain
new financing on favourable terms, and increase New Gold’s borrowing costs.



If the Company’s cash flow and other sources of liquidity are not sufficient
to continue operations and make necessary and planned capital expenditures, the Company may cancel or defer capital expenditures
and/or suspend or curtail operations. Such an action may impact production at mining operations and/or the timelines and cost associated
with development projects, which could have a material adverse effect on the Company’s prospects, results of operations and
financial condition.







58







The terms of the Credit Facility and the Company’s stream agreement with
RGLD Gold AG, a wholly-owned subsidiary of Royal Gold require the Company to satisfy various affirmative and negative covenants
and to meet certain financial ratios and tests. On October 4, 2016, the Company announced that it increased the size of Credit
Facility by US$100 million to US$400 million and extended the increase in the Credit Facility’s associated Net Debt to EBITDA
covenant (“Leverage Ratio”). Following the amendment, the maximum Leverage Ratio under the Credit Facility is
as follows:



|Period(s)                                                          | Maximum
    Leverage Ratio
|------------------------------------------------------------------ | --------------------------
|Quarter ending September 30, 2016                                  | 4.0 : 1.0                 
|Quarters ended December 31, 2016, March 31, 2017 and June 30, 2017 | 4.5 : 1.0                 
|Quarters ending September 30, 2017 and December 31, 2017           | 4.0 : 1.0                 
|Subsequent quarters                                                | 3.5 : 1.0                 



The Leverage Ratio contained in the Company’s stream agreement with Royal
Gold, has also been adjusted to match the revised Leverage Ratios for the periods ending on or before December 31, 2017 noted above.



In addition, the terms of the Company’s 2020 Notes (as defined herein)
in the aggregate principal amount of US$300 million and 2022 Notes (as defined herein) in the aggregate principal amount of US$500
million require the Company to satisfy various affirmative and negative covenants. These covenants limit, among other things, the
Company’s ability to incur indebtedness, create certain liens on assets or engage in certain types of transactions. There
are no assurances that in the future, the Company will not, as a result of these covenants, be limited in its ability to respond
to changes in its business or competitive activities or be restricted in its ability to engage in mergers, acquisitions or dispositions
of assets. Furthermore, a failure to comply with these covenants, including, in the case of the Credit Facility and stream agreement
with Royal Gold, a failure to meet the financial tests or ratios, would likely result in an event of default under the Company’s
outstanding indebtedness and/or the stream agreement and would allow the lenders or noteholders or other contractual counterparty,
as the case may be, to accelerate the debt or other obligations, as the case may be.



Taxation



New Gold has operations and conducts business in a number of different jurisdictions
and is accordingly subject to the taxation laws of each such jurisdiction, as well as tax reviews and assessments in the ordinary
course. Taxation laws are complex, subject to interpretation and subject to change. Any such changes in taxation law or reviews
and assessments could result in higher taxes being payable by the Company, which could adversely affect its profitability. Taxes
may also adversely affect the Company’s ability to repatriate earnings and otherwise deploy its assets.



Risks Related to
Further Processing



The Company’s operations produce concentrate, doré or other products
that are not refined metals (“Unrefined Product”) and generally require further processing at a smelter and/or
a refinery to become marketable metal. Such Unrefined Product contains metals and other elements that require removal, some of
which may limit the smelters or brokers who can or will purchase or process the Unrefined Product and the refineries who will process
the Unrefined Product, or negatively impact the terms of such purchase or processing arrangements. In addition, treatment and refining
charges are subject to fluctuations, which could negatively impact the Company’s revenue or expenses. There can be no assurance
that the Company will be able to continue to sell and process its Unrefined Product on reasonable commercial terms or at all.





59







Availability and
Price OF Inputs



Disruptions in the supply of products or services required for the Company’s
activities could also adversely affect the Company’s operations, financial condition and results of operations. In particular,
due to the limited number of suppliers of sodium cyanide in each jurisdiction in which the Company operates, a delay in supply,
a force majeure event or a breach of contract by one of the Company’s sodium cyanide suppliers could result in delays in
processing times which may adversely affect results of operations.



Mining operations and facilities are intensive users of electricity and carbon-based
fuels. The Company is subject to price risk for fluctuations in the cost of energy, principally electricity and purchased petroleum
products. Energy prices can be affected by numerous factors beyond the Company’s control, including global and regional supply
and demand, political and economic conditions, and applicable regulatory regimes. The prices of various sources of energy may increase
significantly from current levels. An increase in energy prices for which the Company is not hedged could materially adversely
affect its results of operations and financial condition.



The Company’s costs are affected by the prices of commodities and other
inputs it consumes or uses in its operations, such as lime, sodium cyanide and explosives. The prices of such commodities and inputs
are influenced by supply and demand trends affecting the mining industry in general and other factors outside the Company’s
control. Increases in the price for materials consumed in the Company’s mining and production activities could materially
adversely affect the Company’s results of operations and financial condition.



Infrastructure



Mining, processing, development and exploration activities depend on adequate
infrastructure. Reliable roads, bridges, power sources and water supply are important determinants which affect capital and operating
costs. Unusual or infrequent weather phenomena, sabotage, or community, government or other interference in the maintenance or
provision of such infrastructure could adversely affect the Company’s operations, financial condition and results of operations.



Community Relations
and License to Operate



The Company’s relationship with the host communities where it operates
is critical to ensure the future success of its existing operations and the construction and development of its projects. There
is an increasing level of public concern relating to the perceived effect of mining activities on the environment and on communities
impacted by such activities. Certain non-governmental organizations (“NGOs”), some of which oppose globalization
and resource development, are often vocal critics of the mining industry and its practices, including the use of cyanide and other
hazardous substances in processing activities. Adverse publicity generated by such NGOs or others related to extractive industries
generally, or New Gold’s operations or development activities specifically, could have an adverse effect on the Company’s
reputation. Reputation loss may result in decreased investor confidence, increased challenges in developing and maintaining community
relations and an impediment to the Company’s overall ability to advance its projects, which could have a material adverse
impact on the Company’s results of operations, financial condition and prospects. While New Gold is committed to operating
in a socially responsible manner, there is no guarantee that the Company’s efforts in this respect will mitigate this potential
risk.



Climate Change
Risks



Many governments are moving to enact climate change legislation
and treaties at the international, national, state, provincial and local levels. Where legislation already exists, regulations
relating to emission levels and energy efficiency are becoming more stringent. Some of the costs associated with meeting more stringent
regulations can be offset by increased energy efficiency and technological innovation. However, if the current regulatory trend
continues, meeting more stringent regulations is anticipated to result in increased costs.







60









In addition, the physical risks of climate change may also
have an adverse effect on New Gold’s operations. These risks include:



| | · | Sea level rise: New Gold’s operations are not directly threatened by current predictions of sea level rise. All
of the Company’s operations are located inland at elevations from 100 metres to 4,000 metres above sea level. However, changes
in sea levels could affect ocean transportation and shipping facilities, which are used to transport supplies, equipment and personnel
to the Company’s operations and products from those operations to world markets.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Extreme weather events: Extreme weather events (such as increased frequency or intensity of hurricanes, increased snow
pack, prolonged drought) have the potential to disrupt operations at the Company’s mines. Where appropriate, the Company’s
facilities have developed emergency plans for managing extreme weather conditions; however, extended disruptions to supply lines
due to extreme weather could result in production interruptions.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Labour and
Employment Matters



Production at the Company’s mines and projects is dependent
on the efforts of the Company’s employees and contractors. The Company competes with mining and other companies on a global
basis to attract and retain employees at all levels with appropriate technical skills and operating experience necessary to operate
its mines. The conduct of the Company’s operations is dependent on access to skilled labour. Access to skilled labour may
prove particularly challenging where mining operations are conducted in remote locations. Shortages of suitably qualified personnel
could have a material adverse effect on the Company’s business and results of operations. Relations between the Company and
its employees may be impacted by changes in the scheme of labour relations, which may be introduced by the relevant governmental
authorities in the jurisdictions where the Company carries on business. New Gold has approximately 61 employees that belong to
a union at CSP, which ceased active mining operations in 2016. In addition, the Company engages contractors who may have unionized
employees. Adverse changes in the schemes of labour relations in different jurisdictions or in the relationship between the Company
and its employees, or between the Company’s contractors and their respective employees, may have a material adverse effect
on the Company’s business, results of operations and financial condition.



Litigation
and Dispute Resolution



From time to time New Gold is subject to legal claims, with
and without merit. These claims may commence informally and reach a commercial settlement or may progress to a more formal dispute
resolution process. The causes of potential future claims cannot be known and may arise from, among other things, business activities,
environmental laws, land use, contractor engagements, volatility in stock price or failure to comply with disclosure obligations.
In particular, the complex activities and significant expenditures associated with construction activities, such as the construction
of Rainy River, may lead to various claims, some of which may be material.
Defense and settlement costs may be substantial, even with respect to claims that have no merit. Due to the inherent uncertainty
of the litigation and dispute resolution process, there can be no assurance that the resolution of any particular legal proceeding
or dispute will not have a material adverse effect on the Company’s future cash flows, results of operations or financial
condition.



61







Title Risks



The acquisition of title to mineral properties is a very detailed
and time-consuming process. Title to mineral concessions may be disputed. Although the Company believes it has taken reasonable
measures to ensure proper title to its properties, there is no guarantee that title to any of such properties will not be challenged
or impaired. Third parties may have valid claims underlying portions of the Company’s interest, including prior unregistered
liens, agreements, transfers, royalties or claims, including land claims by First Nations or other indigenous groups, and title
may be affected by, among other things, undetected defects. In some cases, title to mineral rights and surface rights has been
divided, and the Company may hold only surface rights or only mineral rights over a particular property, which can lead to potential
conflict with the holder of the other rights. As a result of these issues, the Company may be constrained in its ability to operate
its properties or unable to enforce its rights with respect to its properties, or the economics of its mineral properties may be
impacted. An impairment to or defect in the Company’s title to its properties or a dispute regarding property or other related
rights could have a material adverse effect on the Company’s business, financial condition or results of operations.



Competition



New Gold faces strong competition from other mining companies
in connection with the identification and acquisition of properties producing, or capable of producing, precious and base metals.
Many of these companies have greater financial resources, operational experience and technical capabilities than New Gold. As a
result of this competition, the Company may be unable to identify, maintain or acquire attractive mining properties on acceptable
terms or at all. Consequently, the Company’s prospects, revenues, operations and financial condition could be materially
adversely affected.



Retention of
Key Personnel



The Company’s business is dependent on retaining the
services of a number of key personnel of the appropriate calibre as the business develops. New Gold’s success is, and will
continue to be to a significant extent, dependent on the expertise and experience of the directors and senior management, and the
loss of one or more of such persons could have a material adverse effect on the Company. The Company does not maintain any key
man insurance with respect to any of its officers or directors.



Hedging



From time to time the Company uses or may use certain derivative
products to hedge or manage the risks associated with changes in gold prices, silver prices, copper prices, interest rates, foreign
currency exchange rates and energy prices. The use of derivative instruments involves certain inherent risks including, among other
things: (i) credit risk – the risk of an unexpected loss arising if a counterparty with which the Company has entered into
transactions fails to meet its contractual obligations; (ii) market liquidity risk – the risk that the Company has entered
into a derivative position that cannot be closed out quickly, by either liquidating such derivative instrument or by establishing
an offsetting position; and (iii) unrealized mark-to-market risk – the risk that, in respect of certain derivative products,
an adverse change in market prices for commodities, currencies or interest rates will result in the Company incurring an unrealized
mark-to-market loss in respect of such derivative products.



There is no assurance that any hedging program or transactions
which may be adopted or utilized by New Gold designed to reduce the risk associated with changes in gold prices, silver prices,
copper prices, interest rates, foreign currency exchange rates or energy prices will be successful. Although hedging may protect
New Gold from an adverse price change, it may also prevent New Gold from benefiting fully from a positive price change.



62







Counterparty
Risk



Counterparty risk is the risk to the Company that a party to
a contract will default on its contractual obligations to the Company. The Company is exposed to various counterparty risks including,
but not limited to: (i) financial institutions that hold the Company’s cash and short term investments; (ii) companies that
have payables to the Company, including concentrate and bullion customers; (iii) providers of its risk management services, such
as hedging arrangements; (iv) shipping service providers that move the Company’s material; (iv) the Company’s insurance
providers; and (v) the Company’s lenders. Although the Company makes efforts to limit its counterparty risk, the Company
cannot effectively operate its business without relying, to a certain extent, on the performance of third party service providers.



Investment
Risk



Investment risk is the risk that a financial instrument’s
value will deviate from the expected returns as a result of changes in market conditions, whether those changes are caused by factors
specific to the individual investment or factors affecting all investments traded in the market. This includes interest rate risk,
which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. Other aspects of investment risk include credit risk (the risk of unexpected loss arising if a counterparty with
which the Company has entered into transactions fails to meet its contractual obligations) and liquidity risk (the risk that the
Company has entered into an investment that cannot be closed out quickly). Although the factors that affect investment risk are
outside the Company’s control, the Company limits investment risk by limiting its investment exposure in terms of total funds
to be invested and by being selective of high quality investments.



Disclosure
and Internal Controls



The Company may fail to maintain the adequacy of internal control
over financial reporting as per the requirements of the U.S. Sarbanes-Oxley Act of 2002 (“SOX”). The Company
documented and tested its internal control procedures in order to satisfy the requirements of Section 404 of SOX. Both SOX and
Canadian legislation require an annual assessment by management of the effectiveness of the Company’s internal control over
financial reporting.



The Company may fail to maintain the adequacy of its internal
control over financial reporting as such standards are modified, supplemented or amended from time to time, and the Company may
not be able to ensure that it can conclude on an ongoing basis that it has effective internal controls over financial reporting.
The Company’s failure to satisfy the requirements of Section 404 of SOX and equivalent Canadian legislation on an ongoing,
timely basis could result in the loss of investor confidence in the reliability of its financial statements, which in turn could
harm the Company’s business and negatively impact the trading price of the Common Shares or market value of its other securities.
In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could
harm the Company’s operating results or cause it to fail to meet its reporting obligations.



The Company may fail to maintain the adequacy of its
disclosure controls. Disclosure controls and procedures are designed to ensure that the information required to be disclosed
by the Company in reports filed with securities regulatory agencies is recorded, processed, summarized and reported on a
timely basis and is accumulated and communicated to the Company’s management, as appropriate, to allow timely decisions
regarding required disclosure. The Company has invested resources to document and analyze its system of disclosure controls
and its internal control over financial reporting.



No evaluation can provide complete assurance that the Company’s
financial and disclosure controls will detect or uncover all failures of persons within the Company to disclose material information
otherwise required to be reported. A control system, no matter how well designed and operated, can provide only reasonable, not
absolute, assurance with respect to the reliability of financial reporting and financial statement preparation. The effectiveness
of the Company’s controls and procedures could also be limited by simple errors or faulty judgments.



63







Conflicts of
Interest



Certain of New Gold’s directors and officers also serve
as directors and/or officers of other companies involved in natural resource exploration and development, and consequently there
exists the possibility for such directors and officers to have interests that conflict with the Company’s interests. Situations
may arise in connection with potential investments where the other interests of the Company’s directors conflict with its
interests. As such, conflicts of interest may arise that may influence these persons in evaluating possible acquisitions or in
generally acting on the Company’s behalf, as they may pursue opportunities that would then be unavailable to the Company.
In the event that the Company’s directors are subject to conflicts of interest, there may be a material adverse effect on
the Company’s business.



Corruption
and Bribery Laws



The Company’s operations are governed by, and involve
interactions with, many levels of government in numerous countries. The Company is required to comply with anti-corruption and
anti-bribery laws, including the Criminal Code, the Canadian Corruption of Foreign Public Officials Act and the U.S. Foreign Corrupt
Practices Act, as well as similar laws in the countries in which the Company conducts its business. In recent years, there has
been a general increase in both the frequency of enforcement and the severity of penalties under such laws, resulting in greater
scrutiny and punishment to companies convicted of violating anti-corruption and anti-bribery laws. Furthermore, a company may be
found liable for violations not only by its employees, but also by its contractors and third party agents. Although the Company
has adopted steps to mitigate such risks, such measures may not always be effective in ensuring that the Company, its employees,
contractors and third party agents will comply strictly with such laws. If the Company finds itself subject to an enforcement action
or is found to be in violation of such laws, this may result in significant penalties, fines and/or sanctions imposed on the Company
resulting in a material adverse effect on the Company’s reputation and results of its operations.



Foreign Operations



The Company’s mining operations are currently conducted
in Canada, the United States and Australia, and the Company owns a mine in Mexico, which transitioned from active mining to residual
leaching in 2016. The Company also has development projects in Canada. As a result of its activities in multiple jurisdictions,
the Company is exposed to various levels of political, economic and other risks and uncertainties. These risks and uncertainties
vary for each country and include, but are not limited to: fluctuations in currency exchange rates; high rates of inflation; labour
unrest; environmental controls and permitting; restrictions on the use of land and natural resources; renegotiation or nullification
of existing concessions, licenses, permits and contracts; delays in obtaining or the inability to obtain necessary governmental
licenses and permits; illegal mining; corruption; higher rate of criminality; unstable or unreliable legal systems; changes in
the taxation or royalty regimes; arbitrary changes in laws or policies; restrictions on foreign exchange and repatriation; limitations
on exports and imports; changing political conditions, social unrest, currency controls and governmental regulations that favour
or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies
from, a particular jurisdiction; and other risks arising out of foreign sovereignty issues.



Changes, if any, in mining or investment laws or policies or
shifts in political attitudes in these countries could adversely affect the Company’s operations or profitability. Operations
may be affected in varying degrees by:



| | · | government regulations including, but not limited to, restrictions on production, price controls, import or export controls,
currency remittance, income taxes and other taxes, royalties, expropriation of property, foreign investment, maintenance of claims,
environmental legislation, permit requirements, land use, land claims of local people, water use and mine safety; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



64









| | · | the lack of certainty with respect to foreign legal systems, which may not be immune from the influence of political pressure,
corruption or other factors that are inconsistent with the rule of law.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Failure to comply strictly with applicable laws, regulations
and local practices relating to mineral right applications and tenure could result in loss, reduction or expropriation of entitlements.
The occurrence of these various factors and uncertainties cannot be accurately predicted and could have an adverse effect on the
Company’s operations or profitability. Furthermore, in the event of a dispute arising from the Company’s activities,
it may be subject to the exclusive jurisdiction of courts outside of Canada and the United States or may not be successful in subjecting
persons to the jurisdiction of courts in Canada and the United States, either of which could unexpectedly and adversely affect
the outcome of a dispute.



The Company faces challenges inherent in efficiently managing
employees over large geographical distances, including the challenge of staffing and managing operations in several international
locations and implementing appropriate systems, policies and compliance programs. These challenges may divert management’s
attention, to the detriment of the Company’s operations in Canada. There can be no assurance that difficulties associated
with the Company’s foreign operations can be successfully managed.



Information
Systems Security Threats



New Gold has entered into agreements with third parties for
hardware, software, telecommunications and other information technology (“IT”) services in connection with its
operations. New Gold’s operations depend, in part, on how well the Company and its suppliers protect networks, equipment,
IT systems and software against damage from a number of threats, including, but not limited to, cable cuts, damage to physical
plants, natural disasters, terrorism, fire, power loss, hacking, computer viruses, vandalism and theft. The Company’s operations
also depend on the timely maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well as pre-emptive
expenses to mitigate the risks of failures. Any of these and other events could result in information systems failures, delays
and/or increases in capital expenses. The failure of information systems or a component of information systems could, depending
on the nature of any such failure, adversely impact the Company’s reputation and results of operations.



Although to date the Company has not experienced any material
losses relating to cyber attacks or other information security breaches, there can be no assurance that New Gold will not incur
such losses in the future. The Company’s risk and exposure to these matters cannot be fully mitigated because of, among
other things, the evolving nature of these threats. As a result, cyber security and the continued development and enhancement
of controls, processes and practices designed to protect systems, computers, software, data and networks from attack, damage or
unauthorized access remain a priority. As cyber threats continue to evolve, the Company may be required to expend additional resources
to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities.



NOTES



7.00% Senior
Notes due 2020



In April 2012, the Company issued an aggregate principal amount
of $300 million 7.00% senior notes maturing on April 15, 2020 (“2020 Notes”). The 2020 Notes were issued pursuant
to an indenture dated April 5, 2012, between the Company and Computershare Trust Company, N.A., as trustee (“2020 Note
Indenture”). The 2020 Notes are direct, senior obligations of the Company and are not secured by any mortgage, pledge
or charge.



65









Interest on the 2020 Notes is payable in arrears in equal semi-annual
instalments on April 15 and October 15 each year. On or after April 15, 2016, the Company has the option to redeem the 2020 Notes
at a price ranging from 103.5% to 100% of face value, with the rate decreasing based on the length of time the 2020 Notes are outstanding,
and before April 15, 2016, the Company may redeem the 2020 Notes at 100% of face value plus a “make whole” premium.



The 2020 Note Indenture provides that in the event of a change
of control of the Company, as defined therein, each holder of the 2020 Notes will have the right to cause the Company to repurchase
some or all of its 2020 Notes at 101% of their principal amount, plus accrued and unpaid interest to, but not including, the repurchase
date. In addition, the 2020 Note Indenture requires the Company to comply with certain reporting and other covenants.



6.25% Senior
Notes due 2022



In November 2012, the Company issued an aggregate principal
amount of $500 million 6.25% senior notes maturing on November 15, 2022 (“2022 Notes”). The 2022 Notes were
issued pursuant to an indenture dated November 14, 2012, between the Company and Computershare Trust Company, N.A., as trustee
(“2022 Note Indenture”). The 2022 Notes are direct, senior obligations of the Company and are not secured by
any mortgage, pledge or charge.



Interest on the 2022 Notes is payable in arrears in equal semi-annual
instalments on May 15 and November 15 each year. On or after November 15, 2017, the Company has the option to redeem the 2022 Notes
at a price ranging from 103.125% to 100% of face value, with the rate decreasing based on the length of time the 2022 Notes are
outstanding, and before November 15, 2017, the Company may redeem the 2022 Notes at 100% of face value plus a “make whole”
premium.



The 2022 Note Indenture provides that in the event of a change
of control of the Company, as defined therein, each holder of the 2022 Notes will have the right to cause the Company to repurchase
some or all of its 2022 Notes at 101% of their principal amount, plus accrued and unpaid interest to, but not including, the repurchase
date. In addition, the 2022 Note Indenture requires the Company to comply with certain reporting and other covenants.



DIVIDENDS



To date, New Gold has not paid dividends on its shares. The
Company currently intends to retain future earnings, if any, for use in its business and does not, at this time, anticipate paying
dividends on its shares. Any determination to pay any future dividends will remain at the discretion of the Company’s board
of directors and will be made taking into account its financial condition and other factors deemed relevant by the board. Further,
pursuant to debt instruments of the Company in place from time to time, the Company may, in certain circumstances, be required
to obtain consent from lenders prior to declaring dividends.



DESCRIPTION OF CAPITAL
STRUCTURE



Common Shares



The Company is authorized to issue an unlimited number of
common shares without par value, of which 575,487,465 common shares were issued and outstanding at the close of business March
28, 2017. Holders of common shares are entitled to receive notice of any meetings of shareholders of the Company, and to attend
and to cast one vote per common share at all such meetings. Holders of common shares do not have cumulative voting rights with
respect to the election of directors and, accordingly, holders of a majority of the common shares entitled to vote in any election
of directors may elect all directors standing for election.



66







Holders of common shares are entitled to receive on a pro-rata
basis such dividends, if any, as and when declared by the Company’s board of directors at its discretion from funds legally
available therefor and, on the liquidation, dissolution or winding up of the Company, are entitled to receive on a pro-rata basis
the net assets of the Company after payment of debts and other liabilities, in each case subject to the rights, privileges, restrictions
and conditions attaching to any other series or class of shares ranking senior in priority to or on a pro-rata basis with the holders
of common shares with respect to dividends or liquidation. The common shares do not carry any pre-emptive, subscription, redemption
or conversion rights.



The Company also has options, warrants and notes outstanding.
See the notes to the Company’s audited consolidated financial statements for the year ended December 31, 2016 for additional
information regarding the Company’s convertible securities.



New Gold has adopted a shareholder rights plan designed to
ensure that, in the context of a formal takeover bid, the Company’s board of directors has additional time to explore and
investigate alternatives to enhance shareholder value, including competing transactions that might emerge. An amended and restated
shareholder rights plan agreement was approved by the shareholders of the Company on April 29, 2015 and is effective for a three-year
period unless further extended.



Ratings



Below are the ratings for New Gold’s corporate debt as
at March 29, 2017:



| | · | Standard & Poor’s Ratings Services: B+ (Recovery Rating: 3)
| | - | -----------------------------------------------------------



| | · | Moody’s Investors Service: B3 (LGD4)
| | - | ------------------------------------



Credit ratings are intended to provide investors with an independent
measure of the credit quality of an issue of securities; an indication of the likelihood of repayment for an issue of securities;
and an indication of the capacity and willingness of the issuer to meet its financial obligations in accordance with the terms
of those securities. Credit ratings are not assurances of credit quality or exact measures of the likelihood of default.



The information concerning our credit ratings relates to New
Gold’s financing costs, liquidity and operations. The availability of funding options may be affected by certain factors,
including the global capital market environment and outlook as well as the Company’s financial performance. New Gold’s
ability to access capital markets at competitive rates is dependent on its credit rating and rating outlook, as determined by
credit rating agencies such as S&P and Moody’s (both as defined below), and if the Company’s ratings were downgraded,
financing costs and future debt issuances could be unfavourably impacted. A description of the rating agencies’ credit ratings
listed above is set out below.



Standard & Poor’s Ratings Services (“S&P”)
credit ratings are on a rating scale ranging from AAA to D, which represents the range from highest to lowest quality. The ratings
from AA to CCC may be modified by the addition of a plus (+) or minus (–) sign to show relative standing within the major
rating categories. S&P’s rating is a forward looking opinion about credit risk and assesses the credit quality of the
individual debt issue and the relative likelihood that the issuer may default. The B+ rating is ranked seventh out of S&P’s
twelve major rating categories. According to the S&P rating system, an obligor of debt securities rated B+ has the capacity
to meet its financial commitment on the debt security, however, adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on the obligation. In addition, S&P uses a scale
of 1+ to 6 for recovery ratings, which represent the range, from high to low, of the percentage of principal and unpaid accrued
interest that an investor may expect to receive in the case of default. A “3” recovery rating ranks fourth out of S&P’s
seven recovery rating categories, and indicates S&P’s expectation of meaningful (50% -70%) recovery in a default scenario.





67







Moody’s Investors Service (“Moody’s”)
credit ratings are on a rating scale that ranges from Aaa to C, which represents the range from highest to lowest quality, with
a rating of B being the sixth highest of nine major categories. The generic rating classifications from Aa through Caa may be modified
by the numerical modifiers 1, 2 and 3. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic
category. According to Moody’s, obligations rated B3 are considered speculative and subject to high credit risk. In addition,
Moody’s uses a loss given default (“LGD”) assessment scale of 1 to 6, which represents Moody’s opinion
about expected loss, given default on fixed income obligations, expressed as a percent of principal and accrued interest at the
resolution of the default. A LGD4 ranks fourth out of Moody’s six LGD assessment categories, and indicates a ≥50% to <70%
difference between value received at default resolution and principal outstanding and accrued interest due at resolution.



The credit ratings for New Gold’s corporate debt are
based on, among other things, information furnished to the above ratings agencies by the Company and information obtained by the
ratings agencies from publicly available sources. The credit ratings are not recommendations to buy, sell or hold securities since
such ratings do not comment as to market price or suitability for a particular investor. There is no assurance that any rating
will remain in effect for any given period of time or that any rating will not be revised or withdrawn entirely by a rating agency
in the future if, in its judgment, circumstances so warrant. Credit ratings given to New Gold’s corporate debt may not reflect
the potential impact of all risks on the value of debt instruments, including risks related to market or other factors discussed
in this Annual Information Form. See also “Risk Factors”.



MARKET FOR SECURITIES



Trading Price
and Volume



Common Shares



The common shares of the Company are listed and posted for
trading on the TSX and the NYSE MKT in each case under the symbol “NGD”. The following table contains information relating
to the trading of the common shares in Canadian dollars on the TSX for the months indicated.



68







|2016      | High (C$) | Low (C$) | Volume    
|--------- | --------- | -------- | ----------
|January   | 3.58      | 2.56     | 28,783,387
|February  | 4.79      | 3.30     | 40,804,135
|March     | 5.38      | 4.30     | 46,320,074
|April     | 5.98      | 4.73     | 33,646,575
|May       | 6.25      | 4.75     | 42,714,132
|June      | 5.86      | 4.82     | 39,454,350
|July      | 6.92      | 5.59     | 37,315,338
|August    | 7.87      | 6.23     | 42,486,771
|September | 7.32      | 5.66     | 53,131,311
|October   | 5.74      | 5.04     | 33,373,741
|November  | 6.09      | 4.74     | 44,333,815
|December  | 5.25      | 4.04     | 36,992,869



The price of the common shares as quoted by the TSX at the close
of business on December 30, 2016, the last trading day prior to year-end, was C$4.71 and on March 28, 2017 was C$3.97.



Series A Warrants



The Company’s Series A Warrants are listed and posted
for trading on the TSX under the symbol “NGD.WT.A”. Holders are entitled to purchase one common share for C$15.00 for
each warrant held. These warrants expire June 28, 2017. As at March 27, 2017, there were 27,849,865 Series A Warrants outstanding.
The following table contains information relating to the trading of the Company’s Series A Warrants in Canadian dollars on
the TSX for the months indicated.



|2016      | High (C$) | Low (C$) | Volume   
|--------- | --------- | -------- | ---------
|January   | 0.075     | 0.040    | 1,957,747
|February  | 0.125     | 0.060    | 4,665,719
|March     | 0.115     | 0.060    | 2,853,481
|April     | 0.085     | 0.065    | 1,544,547
|May       | 0.095     | 0.070    | 1,945,482
|June      | 0.110     | 0.080    | 1,270,874
|July      | 0.110     | 0.075    | 1,614,050
|August    | 0.220     | 0.100    | 2,252,770
|September | 0.175     | 0.120    | 629,109  
|October   | 0.140     | 0.075    | 544,636  
|November  | 0.095     | 0.050    | 406,797  
|December  | 0.060     | 0.035    | 692,830  



The price of the Series A Warrants as quoted by the TSX at
the close of business on December 30, 2016, the last trading day prior to year-end, was C$0.055 and on March 28, 2017 was C$0.01.



DIRECTORS AND OFFICERS



The names, positions or offices held with the Company, province/state
and country of residence, and principal occupation of the directors and executive officers of the Company as at March 28, 2017
are set out below. In addition, the principal occupations of each of the Company’s directors and executive officers within
the past five years are disclosed in their biographies.



69







As at March 28, 2017, directors and executive officers of
the Company, as a group, beneficially owned, directly or indirectly, or exercised control or direction over 9,234,123 common shares
of the Company, representing approximately 1.62% of its issued and outstanding shares.



The term of each director of the Company expires at the annual
general meeting of shareholders, where they can be nominated for re-election. The Company’s officers hold their respective
offices at the discretion of the board, but typically on an annual basis, after the annual general meeting, the directors pass
resolutions to appoint officers and committees.



|DAVID EMERSON
        British Columbia, Canada
        Director since:
        July 1, 2012
        Independent         | David Emerson P.C., O.B.C. has had a long and distinguished career in public service at both the federal and provincial levels, as well as numerous leadership positions in the private sector. He has held a number of senior positions with the Government of Canada, including: Minister of Foreign Affairs, Minister of Industry and Minister of International Trade. In British Columbia, Mr. Emerson was the Province’s Deputy Minister of Finance, Secretary to the Treasury Board, Deputy Minister to the Premier and Secretary to Cabinet. His roles in the private sector have included: President and CEO of Canfor Corporation; President and CEO of the Vancouver International Airport Authority; and Chairman and CEO of Canadian Western Bank. Mr. Emerson is currently Chair of the Board of Maple Leaf Foods Inc. In addition, he is Chairman of Global Container Terminals Inc., a private company providing container terminal services, and Chair of the Board of the Asia Pacific Foundation. In February 2017, he was named the Province of British Columbia’s Trade Envoy to the United States.  Mr. Emerson is a member of the Privy Council of Canada and a recipient of the Order of British Columbia. Mr. Emerson holds Bachelor and Masters Degrees in Economics from the University of Alberta and a Doctorate in Economics from Queens University.  Mr. Emerson’s principal occupation is as a Corporate Director and Public Policy Advisor.
|----------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|JAMES ESTEY
        Alberta, Canada
        Director since:
        July 8, 2008
        Independent                    | James Estey is the retired Chairman of UBS Securities Canada
        Inc. and has over 30 years of experience in the financial markets. He is Chair of the Board of Gibson Energy Inc. and of PrairieSky
        Royalty Ltd. Mr. Estey also serves on the Advisory Board of the Edwards School of Business. Mr. Estey’s principal occupation
        is as a Corporate Director.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|ROBERT GALLAGHER
        British Columbia, Canada
        Director since:
        June 30, 2008
        Non-Independent | Robert Gallagher has worked in the mining industry for over 40 years.  Mr. Gallagher was President and Chief Executive Officer of New Gold from the June 2008 business combination of Peak Gold Ltd., Metallica Resources Inc. and New Gold until his retirement in June 2016.  He previously spent 15 years with Placer Dome Inc. and seven years with Newmont Mining Corporation in various senior roles including Vice President, Operations, Asia Pacific.  Mr. Gallagher presently serves on the boards of Dynasty Gold Corp., Southern Arc Minerals and Capstone Mining Corp.  Mr. Gallagher holds a Bachelor of Applied Science, Mineral Engineering from the University of British Columbia.  Mr. Gallagher’s principal occupation is a Corporate Director.  In addition, he currently provides consulting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



70







|                                                                                                               | services to New Gold with respect to relations with First Nations and other indigenous communities in the area of the Company’s Canadian projects and mine sites.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|VAHAN KOLOLIAN
        Ontario, Canada
        Director since:
        June 1, 2009
        Independent        | Vahan Kololian is the founder and Managing Partner of TerraNova Partners LP, which invests in the industrial, services and resource sectors.  Mr. Kololian started his career in investment banking in 1980 with Burns Fry Limited (now BMO Nesbitt Burns).  From 1990 to 2000, he was co-founder and President of Polar Capital Corporation.  As part of his activities with TerraNova Partners, he serves as Chairman of one of TerraNova’s investees, Compact Power Equipment, Inc., a national U.S. company engaged in the rental of mobile equipment.  Mr. Kololian is co-founder and Chairman of the Mosaic Institute, whose purpose is to bring together and promote dialogue among Canadians of differing ethnicities whose homelands are in conflict with one another. Mr. Kololian holds a Bachelor of Arts from the University of Western Ontario and a Bachelor of Laws from the University of Ottawa. Mr. Kololian’s principal occupation is Managing Partner of TerraNova Partners LP.
|                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|MARTYN KONIG
        Jersey, United Kingdom
        Director since:
        June 1, 2009
        Independent   | Martyn Konig has over 35 years of experience in investment banking and the commodity markets as well as extensive experience in the natural resource sector. Mr. Konig’s principal occupation is Chief Investment Officer for T Wealth Management SA, a private multi-family office.  Mr. Konig is also the Chairman of Euromax Resources Ltd. and the Chairman of Nyrstar NV.  Previously, Mr. Konig was Executive Chairman and President of European Goldfields Limited until its acquisition by Eldorado Gold Corp. in February 2012 and was Chief Executive Officer of the Blackfish Capital Group from 2005 until August 2009. Mr. Konig was a main Board Director of NM Rothschild and Sons Ltd. for 15 years and held senior positions at Goldman Sachs and UBS. Mr. Konig is a Barrister and Fellow of the Chartered Institute of Bankers.                                                                                                                                                  
|                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|RANDALL OLIPHANT
        Ontario, Canada
        Director since:
        June 1, 2009
        Non- Independent | Randall Oliphant has worked in the mining industry in many capacities for 30 years.  From 1999 to 2003, Mr. Oliphant was the President and Chief Executive Officer of Barrick Gold Corporation, and since that time he has served on the boards of a number of public companies and not-for-profit organizations.  Mr. Oliphant was the Chairman of Western Goldfields Inc. from 2006 until its business combination with New Gold in 2009.  Mr. Oliphant served as the Executive Chairman of New Gold from the time of the business combination to January 2017.  Mr. Oliphant presently serves on the advisory board of Metalmark Capital LLC, a leading private equity firm, and the boards of directors of Franco-Nevada Corporation and WesternZagros Resources Ltd.  In addition, in 2013 Mr. Oliphant was elected as Chairman of the World Gold Council.  Mr. Oliphant is a Chartered Professional Accountant, FCPA, FCA. Mr. Oliphant’s principal occupation is as a Corporate Director.    



71







|IAN PEARCE
        Ontario, Canada
        Director since:
        April 27, 2016
        Independent                        | Ian Pearce is the Chair of the Board of New Gold.  Mr. Pearce has over 25 years of experience in the mining industry.  From 1993 to 2003, Mr. Pearce held progressively more senior engineering and project management roles with Fluor Inc., including managing numerous significant development projects in the extractive sector. From 2003 to 2006, Mr. Pearce held executive roles at Falconbridge Limited, including Chief Operating Officer, and he subsequently served as Chief Executive Officer of Xstrata Nickel, a subsidiary of Xstrata plc, from 2006 to 2013.  Since 2013, Mr. Pearce has been a partner of X2 Resources, a private partnership focused on building a mid-tier diversified mining and metals group. Mr. Pearce currently serves on the boards of directors of Outotec Oyj and Nevsun Resources Ltd., and is the Chair of MineSense Technologies Ltd., a technology company seeking to improve the ore extraction and recovery process. He holds a Higher National Diploma in Engineering (Mineral Processing) and a Bachelor of Science degree from the University of the Witwatersrand in South Africa.  Mr. Pearce’s principal occupation is as a partner of X2 Resources.                                                                                                      
|---------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|KAY PRIESTLY
        Utah, United States
        Director since:
        June 3, 2015
        Independent                    | Kay Priestly has over 35 years of experience in finance, accounting and executive management.  She spent 24 years with Arthur Andersen LLP as a Certified Public Accountant where she provided auditing, tax and consulting services and held various senior leadership positions.  She ultimately served on the firm’s global executive team as Managing Partner, People.  From 2006 to 2014, Ms. Priestly held various executive positions with Rio Tinto and its affiliates, including Chief Financial Officer, Copper for Rio Tinto’s global copper product group from 2008 to 2012 and Chief Executive Officer of Turquoise Hill Resources Ltd. from 2012 to 2014.   Ms. Priestly currently serves on the board of directors of TechnipFMC plc.  She holds a Bachelor of Science, Accounting from Louisiana State University.  Ms. Priestly’s principal occupation is as a Corporate Director.                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|RAYMOND THRELKELD
        North Carolina, United States
        Director since:
        June 1, 2009
        Non-Independent | Raymond Threlkeld is currently the Interim Chief Operating Officer of New Gold. Mr. Threlkeld has over 30 years of mineral industry experience.  From 2009 to 2013, Mr. Threlkeld was the President and Chief Executive Officer of Rainy River Resources Ltd. From 2005 to 2009, Mr. Threlkeld was the Chief Operating Officer of Silver Bear Resources Inc.  From 2006 to 2009, he was the President and Chief Executive Officer of Western Goldfields Inc. From 1996 to 2005, Mr. Threlkeld held various senior management positions in precious metal mine development with Barrick Gold Corporation and Coeur d’Alene Mines Corporation including in connection with the development of the Pierina Mine in Peru, the Bulyanhulu Mine in Tanzania and the Veladero Mine in Argentina. Mr. Threlkeld has had exploration acquisition success in the western United States in addition to his management and project development experience. Mr. Threlkeld currently serves on the boards of directors of Euromax Resources Ltd. and Kirkland Lake Gold Ltd.  Mr. Threlkeld holds a Bachelor of Science in Geology from the University of Nevada Mackay School of Earth Sciences and Engineering.  Mr. Threlkeld’s principal occupation is a Corporate Director and consultant on natural resource development.



72







|HANNES PORTMANN
        Ontario, Canada
        President and Chief Executive Officer                | Hannes Portmann is President and Chief Executive Officer of New Gold. Mr. Portmann joined the Company in 2009 following its merger with Western Goldfields Inc. with the primary focus of leading New Gold’s corporate development and investor relations teams. Since that time, he has taken on progressively more responsibility for other facets of the business, and was appointed Executive Vice President of Business Development in December 2015 with added responsibility for human resources and exploration, and most recently was appointed President and Chief Executive Officer of New Gold in January 2017.  Previously, Mr. Portmann held roles in the Merrill Lynch Investment Banking Mining Group and in the assurance and advisory practices of PricewaterhouseCoopers LLP. Mr. Portmann holds a Bachelor of Science in Mining Engineering from Queen’s University, a Masters of Management and Professional Accounting from the Rotman School of Management, University of Toronto and is a Chartered Professional Accountant, CPA, CA.
|---------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|BRIAN PENNY
        Ontario, Canada
        Executive Vice President and Chief Financial Officer     | Mr. Penny has been the Executive Vice President and Chief Financial Officer of the Company since June 2009.  He was the Chief Financial Officer of Western Goldfields from 2006 to 2009. From 2005 to spring 2012, Mr. Penny was also the Chief Financial Officer of Silver Bear Resources Inc. From 2004, Mr. Penny was a Director of and chaired the Audit Committee of Equinox Minerals Limited until the acquisition of the company by Barrick in 2012. Mr. Penny was the Chief Financial Officer of Kinross Gold Corporation from 1993 to 2004. Mr. Penny is a Chartered Professional Accountant, CMA.  Mr. Penny’s principal occupation is Executive Vice President and Chief Financial Officer of New Gold.                                                                                                                                                                                                                                                                                                                                           
|                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|LISA DAMIANI
        Ontario, Canada
        Vice President, General Counsel and Corporate Secretary | Ms. Damiani has been the Vice President, General Counsel and Corporate Secretary of New Gold since June 2013.  Previously, she was engaged in the private practice of law at Davies Ward Phillips & Vineberg LLP from 2001 as a partner, and from 1999 to 2000 as an associate.  Mr. Damiani has over 15 years' experience in corporate and securities law and mergers and acquisitions with a focus on the mining sector and has received extensive recognition in the industry. Ms. Damiani holds a Bachelor of Arts, a Bachelor of Laws and a Masters of Business Administration from the University of Toronto. Ms. Damiani’s principal occupation is Vice President, General Counsel and Corporate Secretary of New Gold.                                                                                                                                                                                                                                                                                                                               
|                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|MARK PETERSEN
        Ontario, Canada
        Vice President, Exploration                            | Mr. Petersen is an economic geologist with over 30 years of experience in the mining industry. He has been the Vice President, Exploration of New Gold since 2008.  Previously, Mr. Petersen held the position of Vice President of Exploration for Metallica Resources Inc., where he was responsible for directing the company’s exploration activities in U.S. and Latin America. Prior to his term with Metallica, Mr. Petersen held positions as an exploration geologist with Lac Minerals Inc. and predecessor companies Bond Gold Inc. and St. Joe Gold Inc.  Mr. Petersen holds a Bachelor of Arts with a major in Geology from The College of Wooster, a Master of Science in Geology from Kent State University, and a Master of Business Administration from the University of Colorado. Mr. Petersen is also a Certified                                                                                                                                                                                                                        



73











| | Professional Geologist with the American Institute of Professional Geologists and a Registered Member of the Society for Mining, Metallurgy and Exploration.  Mr. Petersen’s principal occupation is Vice President, Exploration of New Gold.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Standing Committees
of the Board



There are currently four standing committees of the board of
directors: the Audit Committee, the Compensation Committee; the Corporate Governance and Nominating Committee, and the Health,
Safety, Environment and Corporate Social Responsibility Committee. The following table identifies the members of each of these
committees and indicates whether each committee member is considered independent or non-independent:



|Board Committee                                                           | Committee Members         | Status         
|------------------------------------------------------------------------- | ------------------------- | ---------------
|Audit Committee                                                           | Kay Priestly (Chair)      | Independent    
|                                                                          | David Emerson             | Independent    
|Martyn Konig                                                              | Independent              
|Compensation Committee                                                    | Martyn Konig (Chair)      | Independent    
|James Estey                                                               | Independent              
|Kay Priestly                                                              | Independent              
|Corporate Governance and Nominating Committee                             | Vahan Kololian (Chair)    | Independent    
|David Emerson                                                             | Independent              
|Ian Pearce                                                                | Independent              
|Health, Safety, Environment and Corporate Social Responsibility Committee | Raymond Threlkeld (Chair) | Non-Independent
|Robert Gallagher                                                          | Non-Independent          
|Ian Pearce                                                                | Independent              



Corporate Cease
Trade Orders, Bankruptcies, Penalties or Sanctions



No director or executive officer of the Company is, or within
ten years prior to the date of this Annual Information Form has been, a director, chief executive officer or chief financial officer
of any company (including New Gold) that (i) was subject to a cease trade order, an order similar to a cease trade order or an
order that denied the relevant company access to any exemption under securities legislation, and that was in effect for a period
of more than 30 consecutive days, that was issued while the director or executive officer was acting in the capacity as director,
chief executive officer or chief financial officer of such company; or (ii) was subject to a cease trade order, an order similar
to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation, that
was in effect for a period of more than 30 consecutive days, that was issued after the director or executive officer ceased to
be a director, chief executive officer or chief financial officer of such company and which resulted from an event that occurred
while that person was acting in the capacity as director, chief executive officer or chief financial officer.



No director or executive officer of the Company, or a shareholder
holding a sufficient number of securities of the Company to materially affect the control of the Company, (i) is, or within ten
years prior to the date of this Annual Information Form has been, a director or executive officer of any company (including New
Gold) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became
bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings,
arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets, other than
(a) Mr. Kololian who was a board member (but had previously resigned from the board) of ClearPoint Business Resources Inc., which
filed for voluntary bankruptcy on or about June 23, 2010; and (b) Ms. Priestly who was a board member of Stone Energy Corporation,
which filed voluntary petitions under chapter 11 of title 11 of the United



74







States Code in the United States Bankruptcy Court for the Southern
District of Texas on December 14, 2016. On February 28, 2017, Stone Energy Corporation announced the completion of the conditions
precedent to emerging from Chapter 11 reorganization, and, accordingly, the Second Amended Joint Prepackaged Plan of Reorganization
of Stone Energy Corporation and its Debtor Affiliates, dated December 28, 2016, that was confirmed on February 15, 2017 by the
U.S. Bankruptcy Court for the Southern District of Texas, Houston Division, became effective on February 28, 2017. As a result
of the Plan of Reorganization becoming effective, in accordance with its terms, the previous board of directors of Stone Energy
Corporation, of which Ms. Priestly was a member, was replaced by a new board of directors; or (ii) has, within ten years prior
to the date of this Annual Information Form, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency,
or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager
or trustee appointed to hold the assets of the director, executive officer or shareholder.



No director or executive officer of the Company, or a shareholder
holding a sufficient number of securities of the Company to affect materially the control of the Company, has been subject to (i)
any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has
entered into a settlement agreement with a securities regulatory authority; or (ii) any other penalties or sanctions imposed by
a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.



Conflicts of
Interest



Certain directors and officers of the Company also serve as
directors or officers of other companies involved in natural resource exploration and development and consequently there exists
the possibility for such directors and officers to be in a position of conflict. Randall Oliphant is currently director of Franco-Nevada
Corporation which holds royalty interests in New Gold’s Mesquite Mine and Cerro San Pedro Mine. The Company has adopted a
Code of Business Conduct and Ethics that addresses potential conflicts of interest.



Audit Committee



Audit Committee Charter



The Company’s Audit Committee Charter is set out in full
in Schedule A.



Composition of the Audit Committee



The following directors are members of the Audit Committee
as at March 29, 2017:



|Kay Priestly (Chair) | Independent (1) | Financially literate (2)
|-------------------- | --------------- | ------------------------
|David Emerson        | Independent (1) | Financially literate (2)
|Martyn Konig         | Independent (1) | Financially literate (2)



| | (1) | A member of an Audit Committee is independent if the member has no direct or indirect material relationship with the Company
which could, in the view of the Company’s board of directors, reasonably interfere with the exercise of the member’s
independent judgment.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | An individual is financially literate if he or she has the ability to read and understand a set of financial statements
that present a breadth of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues
that can reasonably be expected to be raised by the Company’s financial statements.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



75







Relevant Education and Experience



The education and experience of each Audit Committee member
relevant to the performance of his responsibilities as a member of the Audit Committee is described in their respective biographies
set out under the heading “Directors and Officers” on page 69.



Pre-Approval Policies and Procedures



The Committee is responsible for the pre-approval of all audit,
audit-related and non-audit services provided by the independent auditor. The Committee has delegated to the Chair the authority
to pre-approve proposals for non-audit related services to be provided by the Company’s auditors up to a value of C$100,000
per engagement, and to report any such approvals to the Committee as a whole at the next Committee meeting. The Chair of the Committee
is responsible for proper implementation of and compliance with this policy. In accordance with this policy, 100% of external auditor
services described below were pre-approved by the Audit Committee or the Chair of the Audit Committee. None of the audit-related
services described below were approved by the Audit Committee pursuant to the de minimis exception provided by Section (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X.



External Auditor Service Fees (by category)



The aggregate fees billed by the Company’s external auditor
in each of the last two fiscal years are as follows:



|Financial Years EndingDecember 31 | Audit Fees (1) | Audit Related Fees (2) | Tax Fees (3) | All Other Fees
|--------------------------------- | -------------- | ---------------------- | ------------ | --------------
|2016                              | C$1,803,972    | C$180,000              | C$68,895     | C$31,600      
|2015                              | C$2,108,283    | nil                    | C$23,895     | C$25,000      



| | (1) | The aggregate fees billed for the performance of the audit or review of the Company’s financial statements.
| | --- | -----------------------------------------------------------------------------------------------------------



| | (2) | The aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit
or review of the Company’s financial statements which are not included under the heading “Audit Fees”.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | The aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning.
| | --- | -------------------------------------------------------------------------------------------------------------



Deloitte LLP is the independent registered public accounting
firm that has been appointed as the external auditor of New Gold, and is independent within the meaning of the Rules of Professional
Conduct of the Chartered Professional Accountants of Ontario.



LEGAL PROCEEDINGS
AND REGULATORY ACTIONS



The Company is, from time to time, involved in various claims,
legal proceedings and complaints arising in the ordinary course of business. As of the date hereof, there are no outstanding material
proceedings to which the Company is a party.



INTEREST OF MANAGEMENT
AND OTHERS IN MATERIAL TRANSACTIONS



Since January 1, 2014, no director, executive officer or 10%
shareholder of the Company or any associate or affiliate of any such person or company, has or had any material interest, direct
or indirect, in any transaction that has materially affected or is reasonably expected to materially affect the Company.



76







TRANSFER AGENT AND
REGISTRAR



The Company’s transfer agent and registrar is Computershare
Investor Services Inc. Transfers may be effected and registration facilities are maintained at each of the following offices: (i)
510 Burrard Street, Vancouver, British Columbia, V6C 2T5; and (ii) 100 University Avenue, Toronto, Ontario, M5J 2Y1.



MATERIAL CONTRACTS



Except for contracts entered into in the ordinary course of
business, the Company has not entered into any material contracts during the most recently completed financial year or prior financial
year which are still in force and effect and which may reasonably be regarded as presently material other than as set out below:



| | · | Indenture dated as of April 5, 2012 between New Gold Inc., the Guarantors (Metallica Resources Inc., Minera San Xavier S.A.
de C.V., Peak Gold Ltd., Peak Gold Mines Pty Ltd., Rockcliff Group Limited, Western Goldfields Inc. and Western Mesquite Mines,
Inc.), and Computershare Trust Company, N.A. (as Trustee) relating to the 7% Senior Notes due 2020. See “Notes” on
page 66 for more information.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Indenture dated as of November 14, 2012 between New Gold Inc., the Guarantors (Metallica Resources Inc., Minera San Xavier
S.A. de C.V., Peak Gold Ltd., Peak Gold Mines Pty Ltd., Rockcliff Group Limited, Western Goldfields Inc. and Western Mesquite Mines,
Inc.), and Computershare Trust Company, N.A. (as Trustee) relating to the 6.25% Senior Notes due 2022. See “Notes”
on page 66 for more information.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Credit Agreement dated as of August 14, 2014, as amended on November 4, 2015, February 17, 2016, and October 4, 2016, between
New Gold Inc. (as borrower) and The Bank of Nova Scotia and RBC Capital Markets (as Co-Lead Arrangers and Joint Book Runners) and
The Bank of Nova Scotia (as Administrative Agent) and Royal Bank of Canada (as Syndication Agent) and The Bank of Nova Scotia,
Royal Bank of Canada, JPMorgan Chase Bank, N.A., The Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, Bank of Montreal,
Export Development Canada and Bank of America, N.A., Canada Branch (as Lenders) described under the heading “General Development
of the Business - Developments - Financial” on page 12.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



TECHNICAL REPORTS



Below are the titles, authors and dates of the most recent
technical reports for each of New Gold’s material properties (as described under “Description of the Business”
on page 13), which are all filed in accordance with NI 43-101 and available under the Company’s profile on SEDAR at www.sedar.com.



| | · | The most recent technical report on the New Afton Mine that is filed on SEDAR at www.sedar.com is titled “Technical Report
on the New Afton Mine, British Columbia, Canada” dated March 23, 2015 by David W. Rennie, P. Eng, R. Dennis Bergen, P. Eng.,
and Holger Krutzelmann, P. Eng., for Roscoe Postle Associates Inc.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The most recent technical report on the Mesquite Mine that is filed on SEDAR at www.sedar.com is titled “Technical Report
on the Mesquite Mine, Imperial County, California, U.S.A.” dated February 28, 2014 by Wayne W. Valliant, P. Geo., Kathleen
A. Altman, P.E., and Richard J. Lambert, P.E., for Roscoe Postle Associates, Inc.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The most recent technical report on the Rainy River Project that is filed on SEDAR at www.sedar.com is titled “Feasibility
Study of the Rainy River Project, Ontario, Canada dated February 14, 2014 with an effective date of February 22, 2014 by Colin
Hardie, P. Eng., David Runnels, Eng., and Patrice Live, Eng., for BBA Inc.; Sheila E. Daniel, M.Sc., P. Geo., David G. Ritchie,
P. Eng., and Adam Coulson, PhD., P.Eng., for AMEC; Glen Cole, P. Geo., and Dorota
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



77







El-Rassi, P.Eng., for SRK Consulting (Canada) Inc.;
and Colm Keogh, P.Eng., and Mo Molavi, P. Eng., for AMC Mining Consultants (Canada) Ltd.



None of the authors of the technical reports listed above held
any securities of the Company or of any associate or affiliate of the Company when they prepared the applicable technical report
or received any securities following the preparation of such report.



78







SCHEDULE
A
Audit Committee Charter



| | 1. | Purpose and Authority
| | -- | ---------------------



The Audit Committee (“Committee”)
is a committee of the Board of Directors (“the Board”). Its primary function shall be to assist the Board in
fulfilling its oversight responsibilities with respect to accounting and financial reporting processes, the integrity of the financial
statements of New Gold Inc. (the “Company”), compliance with legal and regulatory requirements, the overall
adequacy and maintenance of the systems of internal controls that management has established and the overall responsibility for
the Company's external and internal audit processes including the external auditor’s qualifications, independence and performance.



The Committee shall have access to such
officers and employees of the Company, its external auditor and its legal counsel as the Committee considers to be necessary or
desirable in order to perform its duties and responsibilities. In addition, the Committee shall have the authority and funding
to retain independent legal, accounting and other consultants to advise the Committee. The Company shall provide for appropriate
funding, as determined by the Committee, for payment of compensation to any advisers retained by the Committee and to the external
auditor engaged by the Company for the purpose of rendering or issuing an audit report or performing other audit, review or attest
services and ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.



The Committee shall be accountable to
the Board. In the course of fulfilling its specific responsibilities, the Committee shall maintain open communication between the
Company's external auditor and the Board.



The responsibilities of a member of the
Committee shall be in addition to such member's duties as a member of the Board.



The Committee has the duty to review and
ensure that the Company's financial disclosures are complete and accurate, are in accordance with generally accepted accounting
principles and fairly present the financial position and risks of the organization. The Committee should, where it deems appropriate,
review compliance with laws and regulations and the Company's own policies.



The Committee will provide the Board with
such recommendations and reports with respect to the financial disclosures of the Company as it deems advisable.



| | 2. | Membership and Composition
| | -- | --------------------------



The Committee shall consist of at least
three independent directors who shall serve on behalf of the Board. The Board, at its organizational meeting held in conjunction
with each annual general meeting of the Shareholders, shall appoint the members of the Committee for the ensuing year. Each member
shall meet the independence, financial literacy and experience requirementsof the TSX, the NYSE MKT and any other exchange
upon which the securities of the Company may be listed to the extent required by the rules of such exchange, National Instrument
52-110 – Audit Committees,theU.S. Sarbanes-Oxley Act of 2002, Rule 10A-3 under the Securities Exchange
Act of 1934, and any other applicable regulatory bodies, as required. Each member of the Committee must not have participated
in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time in the preceding
three years. The Board may, at any time and from time to time, remove or replace any member of the Committee, fill any vacancy
in the Committee or add a member to the Committee.



Financial literacy requires that all members
of the Committee shall have the ability to read and understand a set of financial statements that present the breadth and level
of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be
expected to be raised by the Company’s financial statements. At least one member of the Committee shall be able to analyze
and interpret a full set of financial statements, including the related notes, in accordance with International Financial Reporting
Standards (“IFRS”) and at least one member of the Committee shall
qualify and be designated as the Audit Committee Financial Expert as determined in the judgment of the Board with reference to
applicable law and stock exchange rules.



A-1







A majority of members of the Committee,
present in person or by telephone or other telecommunication device that permits all persons participating in the meeting to speak
and to hear each other, will constitute a quorum for a meeting of the Committee.



The Board will appoint one member of the
Committee to act as the chair (“Chair”) of the Committee. In his or her absence, the Committee may appoint another
person to act as chair of a meeting of the Committee provided a quorum is present. The Chair will appoint a secretary of the meeting,
who need not be a member of the Committee and who will maintain the minutes of the meeting.



| | 3. | Meetings
| | -- | --------



At the request of the external auditor,
the Chair of the Board, the President and Chief Executive Officer (“CEO”) or the Chief Financial Officer (“CFO”)
of the Company or any member of the Committee, the Chair of the Committee will convene a meeting of the Committee. In advance of
every meeting of the Committee, the Chair, with the assistance of the CFO, will ensure that the agenda and meeting materials are
distributed in a timely manner.



The Committee shall meet regularly and
at least on a quarterly basis. The Committee shall hold in camera sessions without the presence of management after each meeting.



| | 4. | Duties and Responsibilities
| | -- | ---------------------------



The Committee shall take charge of all
responsibilities imparted on an audit committee of the Company, as they may apply from time to time, under theBusiness Corporations
Act(British Columbia), National Instrument 52-110 – Audit Committees, the U.S. Sarbanes Oxley Act of 2002,
Rule 10A-3 under the Securities Exchange Act of 1934, and stock exchange rules. The duties and responsibilities of the Committee
include the following:



| | 4.1 | Financial Reporting and Disclosure
| | --- | ----------------------------------



| | a. | Review and discuss with management and the external auditor at the completion of the annual examination:
| | -- | --------------------------------------------------------------------------------------------------------



| | i. | the Company's audited financial statements and related notes;
| | -- | -------------------------------------------------------------



| | ii. | the external auditor's audit of the financial statements and their report;
| | --- | --------------------------------------------------------------------------



| | iii. | any significant changes required in the external auditor's audit plan;
| | ---- | ----------------------------------------------------------------------



| | iv. | any serious difficulties or disputes with management encountered during the course of the audit;
and
| | --- | ----------------------------------------------------------------------------------------------------



| | v. | other matters related to the conduct of the audit which are to be communicated to the Committee under IFRS.
| | -- | -----------------------------------------------------------------------------------------------------------



| | b. | Review and discuss with management and the external auditor at the completion of any review engagement
or other examination, the Company's quarterly financial statements.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | Review and discuss with management, prior to their public disclosure,
the annual reports, quarterly reports, Management’s Discussion and Analysis (“MD&A”), earnings press
releases and any other material disclosure documents containing or incorporating by reference audited or unaudited financial statements
of
                                         the Company and, if thought advisable, provide their recommendations on such documents
                                         to the Board.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | Review and discuss with management any guidance being provided to shareholders on the expected
earnings of the Company and, if thought advisable, provide their recommendations on such documents to the Board.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





A-2







| | e. | Inquire of the auditors regarding the quality and acceptability of the Company's accounting principles
and estimates, including the clarity of financial disclosure and the degree of conservatism or aggressiveness of the accounting
policies and estimates.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f. | Review the Company's compliance with any policies and reports received from regulators. Discuss
with management and the external auditor the effect on the Company's financial statements of significant regulatory initiatives.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | g. | Meet with the external auditor and management in separate executive sessions, as necessary or appropriate,
to discuss any matters that the Committee or any of these groups believe should be discussed privately with the Committee.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | h. | Ensure that management has the proper and adequate systems and procedures in place for the review
of the Company's financial statements, financial reports and other financial information including all Company disclosure of financial
information extracted or derived from the Company’s financial statements, and that they satisfy all legal and regulatory
requirements. The Committee shall periodically assess the adequacy of such procedures.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | i. | Review with the Company's counsel, management and the external auditor any legal or regulatory
matter, including reports or correspondence, which could have a material impact on the Company's financial statements or compliance
policies.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | j. | Based on discussions with the external auditor concerning the audit, the financial statement review
and such other matters as the Committee deems appropriate, recommend to the Board the filing of the audited annual and unaudited
quarterly financial statements and MD&A on SEDAR and the inclusion of the audited financial statements in the Annual Report
on Form 40-F.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.2 | External Auditor
| | --- | ----------------



| | a. | Be responsible for recommending to the Board the appointment of the Company's external auditor
and for the compensation, retention and oversight of the work of the external auditor engaged by the Company. The external auditor
shall report directly to the Committee. The Committee shall be responsible to resolve disagreements, if any, between management
and the external auditor regarding financial reporting.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Consider, in consultation with the external auditor, the audit scope and plan of the external auditor.
| | -- | ------------------------------------------------------------------------------------------------------



| | c. | Confirm with the external auditor and receive written confirmation at least once per year as to
the external auditor's internal processes and quality control and disclosure of any investigations or government enquiries, reviews
or investigations of the external auditor.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | Take reasonable steps to confirm at least annually the independence of the external auditor, which
shall include:
| | -- | -----------------------------------------------------------------------------------------------------------------



| | i. | ensuring receipt from the external auditor of a formal written statement delineating all relationships
between the external auditor and the Company, consistent with IFRS, and determine that they satisfy the requirements of all applicable
securities laws,
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | ii. | considering and discussing with the external auditor any disclosed relationships or services, including
non-audit services, that may impact the objectivity and independence of the external auditor, and
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | iii. | approving in advance any audit or permissible non-audit related services provided by the external
auditor to the Company with a view to ensuring independence of the external auditor, and in accordance with any applicable regulatory
requirements, including the requirements of all applicable securities laws with respect to approval of non-audit related serviced
performed by the external auditor.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A-3







| | e. | Approve the lead audit partner for the Company's external auditor, confirm that such lead partner
has not performed audit services for the Company for more than five previous fiscal years, and otherwise ensure the rotation of
the lead partner and other partners in accordance with all applicable securities laws.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f. | Review and approve the Company's hiring policies regarding partners, employees and former employees
of the present and former external auditors of the Company.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.3 | Internal Controls and Audit
| | --- | ---------------------------



| | a. | Review and assess the adequacy and effectiveness of the Company's systems of internal control and
management information systems through discussion with management and the external auditor to ensure that the Company maintains
appropriate systems, is able to assess the pertinent risks of the Company and that the risk of a material misstatement in the financial
disclosures can be detected.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Assess the requirement for the appointment of an internal auditor for the Company.
| | -- | ----------------------------------------------------------------------------------



| | c. | Review disclosures made to the Committee by the Company's CEO and CFO during their certification
process required under applicable Canadian and United States securities laws. Review any significant deficiencies in the design
and operation of internal controls over financial reporting or disclosure controls and procedures and any fraud involving management
or other employees who have a significant role in the Company's internal controls.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.4 | General
| | --- | -------



| | a. | Unless otherwise delegated to another committee by the Board, conduct an ongoing review of any transaction now in effect, and
review and approve in advance any proposed transaction, that could be within the scope of "related party transactions"
as such term is defined in applicable securities laws, and establish appropriate procedures to receive material information about
and prior notice of any such transaction.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal
accounting controls or auditing matters; and for the confidential, anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | Conduct or authorize investigations into any matter within the scope of this Charter. The Committee may request that any officer
or employee of the Company, its external legal counsel or its external auditor attend a meeting of the Committee or meet with any
member(s) of the Committee.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | Review the qualifications of the senior accounting and financial personnel.
| | -- | ---------------------------------------------------------------------------



| | e. | Enquire of management and the external auditor regarding significant financial risks or exposures and the steps management
has taken to minimize such risks to the Company.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f. | Provide oversight of the Company’s policies, procedures and practices with respect to the maintenance of the books, records
and accounts, and the filing of reports, by the Company with respect to third party payments in compliance with the Foreign
Corrupt Practices Act (United States), Corruption of Foreign Public Officials Act (Canada), the Extractive Sector
Transparency Measures Act (Canada) and similar applicable laws.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A-4







| | g. | Perform any other activities consistent with this Charter, the Company's Articles and governing law, as the Committee or the
Board deems necessary or appropriate.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.5 | Oversight Function
| | --- | ------------------



While the Committee has the responsibilities
and powers set out in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company’s
financial statements are complete and accurate or are in accordance with IFRS and applicable rules and regulations. These are the
responsibilities of management and the external auditor. The Committee and the Chair and any members of the Committee identified
as having accounting or related financial expertise are members of the Board, appointed to the Committee to provide broad oversight
of the financial, risk and control related activities of the Company, and are not specifically accountable or responsible for the
day to day operation or performance of such activities. Although the designation of a member as having accounting or related financial
expertise for disclosure purposes is based on that individual's education and experience, which that individual will bring to bear
in carrying out his or her duties on the Committee, such designation does not impose on such person any duties, obligations or
liability that are greater than the duties, obligations and liability imposed on such person as a member of the Committee and the
Board in the absence of such designation. Rather, the role of a member of the Committee who is identified as having accounting
or related financial expertise, like the role of all members of the Committee, is to oversee the process, not to certify or guarantee
the internal or external audit of the Company’s financial information or public disclosure.



| | 5. | Chair of the Committee
| | -- | ----------------------



The Chair of the Committee:



| | a. | provides leadership to the Committee with respect to its functions as described in this Charter and as otherwise may be appropriate,
including overseeing the logistics of the operations of the Committee;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | chairs meetings of the Committee, unless not present, including in camera sessions, and reports to the Board following each
meeting of the Committee on the findings, activities and any recommendations of the Committee;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | ensures that the Committee meets on a regular basis and at least quarterly;
| | -- | ---------------------------------------------------------------------------



| | d. | in consultation with the Chair of the Board and the Committee members, establishes a calendar for holding meetings of the Committee;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------



| | e. | establishes the agenda for each meeting of the Committee, with input from other Committee members, the Chair of the Board and
any other parties as applicable;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f. | acts as liaison and maintains communication with the Chair of the Board and the Board to optimize and co-ordinate input from
Board members, and to optimize the effectiveness of the Committee. This includes reporting to the full Board on all proceedings
and deliberations of the Committee at the first meeting of the Board after each Committee meeting and at such other times and in
such manner as the Committee considers advisable;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | g. | reports annually to the Board on the role of the Committee and the effectiveness of the Committee’s role in contributing
to the objectives and responsibilities of the Board as a whole;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | h. | ensures that the members of the Committee understand and discharge their duties and obligations;
| | -- | ------------------------------------------------------------------------------------------------



| | i. | fosters ethical and responsible decision making by the Committee and its individual members;
| | -- | --------------------------------------------------------------------------------------------



A-5







| | j. | together with the Corporate Governance and Nominating Committee, oversees the structure, composition, membership and activities
delegated to the Committee from time to time;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | k. | ensures that resources and expertise are available to the Committee so that it may conduct its work effectively and efficiently
and pre-approves work to be done for the Committee by consultants;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l. | facilitates effective communication between members of the Committee and management;
| | -- | ------------------------------------------------------------------------------------



| | m. | addresses, or causes to be addressed, all concerns communicated to him or her under the Company’s Whistleblower Policy
or Code of Conduct; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------



| | n. | performs such other duties and responsibilities as may be delegated to the Chair of the Committee by the Board from time to
time.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------

This Charter will be reviewed annually and any recommended
changes will be submitted to the Board for approval.



Reviewed and approved by the Board on February 15, 2017.



A-6







SCHEDULE
B
DEFINITIONS



Unless otherwise defined, technical terms used in this Annual
Information Form have the following meanings. CIM Standards definitions are marked with an asterisk (*).



|Term                   | Definition                                                                                                                                                                                                                                                                                                                                                                         
|---------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|atomic absorption (AA) | A spectroanalytical procedure for the quantitative determination of chemical elements employing the absorption of optical radiation (light) by free atoms in the gaseous state.                                                                                                                                                                                                    
|alteration             | Change in the mineralogical composition of a rock, typically brought about by the action of hydrothermal solutions.                                                                                                                                                                                                                                                                
|andesite               | An extrusive igneous, volcanic rock of intermediate composition, with aphanitic to porphyritic texture.                                                                                                                                                                                                                                                                            
|assay                  | Analysis to determine the amount or proportion of the element of interest contained within a sample.                                                                                                                                                                                                                                                                               
|ball mill              | A horizontal rotating steel cylinder which grinds ore to fine particles. The grinding is carried out by the pounding and rolling of a charge of steel balls carried within the cylinder.                                                                                                                                                                                           
|batholith              | A very large igneous intrusion extending deep in the earth's crust.                                                                                                                                                                                                                                                                                                                
|block cave             | Used to mine massive, steeply-dipping ore bodies. An undercut with haulage access is driven under the ore body, with "drawbells" excavated between the top of the haulage level and the bottom of the undercut. The drawbells serve as a place for caving rock to fall into. The ore body is drilled and blasted above the undercut, and the ore is removed via the haulage access.
|block model            | A three-dimensional model that forms the basic framework of a mineral resource estimate.                                                                                                                                                                                                                                                                                           
|bornite                | A brittle reddish-brown crystalline mineral with an iridescent purple tarnish, consisting of a sulphide of copper and iron.                                                                                                                                                                                                                                                        
|breccia                | A coarse-grained clastic rock, composed of angular broken rock fragments held together by a mineral cement or in a fine-grained matrix; it differs from conglomerate in that the fragments have sharp edges and unworn corners.                                                                                                                                                    
|bullion                | Gold or silver in bulk before coining, or valued by weight.                                                                                                                                                                                                                                                                                                                        
|by-product             | A secondary metal or mineral product that is recovered along with the primary metal or mineral product during the ore concentration process.                                                                                                                                                                                                                                       
|calc-alkalic           | Rocks are rich in alkaline earths (magnesia and calcium oxide) and alkali metals and make up a major part of the crust of the earth's continents.                                                                                                                                                                                                                                  
|Cenozoic               | The current and most recent of the three Phanerozoic geological eras, following the Mesozoic Era and covering the period from about 65 million years ago to the present.                                                                                                                                                                                                           
|chalcocite             | A dark gray mineral that is an important ore of copper.                                                                                                                                                                                                                                                                                                                            



B-1







|Term                   | Definition                                                                                                                                                                                                                                                                                          
|---------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|chalcopyrite           | A copper mineral composed of copper, iron and sulphur. It tarnishes easily; going from bronze or brassy yellow to yellowish or grayish brown, has a dark streak, and is lighter in weight and harder than gold.                                                                                     
|CIM                    | The Canadian Institute of Mining, Metallurgy and Petroleum.                                                                                                                                                                                                                                         
|concentrate            | A processing product containing the valuable ore mineral from which most of the waste mineral has been eliminated.                                                                                                                                                                                  
|core                   | Cylindrical rock cores produced by diamond drilling method that uses a rotating barrel and an annular-shaped, diamond-impregnated rock-cutting bit to produce cores and lift them to the surface to be examined.                                                                                    
|Cretaceous             | A geologic period and system from circa 145 to 66 million years ago. The Cretaceous follows the Jurassic period and is followed by the Paleogene period of the Cenozoic era. It is the last period of the Mesozoic Era, and, spanning 80 million years, the longest period of the Phanerozoic Eon.  
|crushing               | Breaking of ore into smaller and more uniform fragments to be then fed to grinding mills or to a leach pad.                                                                                                                                                                                         
|crust                  | The outermost solid shell of a rocky planet, which is chemically distinct from the underlying mantle.                                                                                                                                                                                               
|cyanidation            | A method of extracting exposed gold or silver grains from crushed or ground ore by dissolving the contained gold and silver in a weak cyanide solution.                                                                                                                                             
|decline                | A downward inclined underground tunnel.                                                                                                                                                                                                                                                             
|deformation            | Change in the form or in the dimensions of a body produced by stress.                                                                                                                                                                                                                               
|Devonian               | A geologic period and system of the Paleozoic Era spanning from the end of the Silurian Period, about 419 million years ago, to the beginning of the Carboniferous Period, about 359 million years ago.                                                                                             
|differential flotation | Process of separation of a complex ore into two or more mineral components and gangue by flotation.                                                                                                                                                                                                 
|dilution               | The effect of waste or low-grade ore being included unavoidably in the mine ore, lowering the recovered grade.                                                                                                                                                                                      
|doré                   | Unrefined gold and silver bullion bars, which will be further refined to almost pure metal.                                                                                                                                                                                                         
|drift                  | A horizontal tunnel generally driven within or alongside an ore body and aligned parallel to the long dimension of the ore.                                                                                                                                                                         
|ejido                  | In Mexico, a piece of land farmed communally under a system supported by the state.                                                                                                                                                                                                                 
|electrowinning         | Recovery of a metal from a solution by means of electro-chemical processes.                                                                                                                                                                                                                         
|Eocene                 | A major division of the geologic timescale and the second epoch of the Paleogene Period in the Cenozoic Era. The Eocene spans the time from the end of the Palaeocene Epoch to the beginning of the Oligocene Epoch. The start of the Eocene is marked by the emergence of the first modern mammals.
|epithermal             | A hydrothermal mineral deposit formed within about one kilometre of the Earth’s surface and in the temperature range of 50 to 200 degrees Celsius, occurring mainly as veins.                                                                                                                       



B-2







|Term                        | Definition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|fault                       | A fracture in the earth’s crust accompanied by a displacement of one side of the fracture with respect to the other and in a direction parallel to the fracture.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Feasibility Study           | A comprehensive technical and economic study of the selected development option for a mineral project that includes appropriately detailed assessments of applicable Modifying Factors together with any other relevant operational factors and detailed financial analysis, that are necessary to demonstrate at the time of reporting that extraction is reasonably justified (economically mineable). The results of the study may reasonably serve as the basis for a final decision by a proponent or financial institution to proceed with, or finance, the development of the project. The confidence level of the study will be higher than that of a Pre-Feasibility Study.        
|felsic                      | Silicate minerals, magma, and rocks which are enriched in the lighter elements such as silicon, oxygen, aluminium, sodium, and potassium.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|fire assay                  | Analysis to determine the amount or proportion of the element of interest contained within a sample alloy by removal of other metals. Also known as gravimetric analysis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|flotation                   | A separation process in which valuable mineral particles are induced to become attached to bubbles and float, while the non-valuable minerals sink.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|formation                   | Unit of sedimentary rock of characteristic composition or genesis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|geophysical survey          | Exploration activity mapping an area showing the physics of the earth.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|grade                       | The amount of metal in each tonne of ore, expressed as grams per tonne for precious metals.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|granite                     | A very hard, granular, crystalline, igneous rock consisting mainly of quartz, mica, and feldspar and often used as a building stone.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|grinding (milling)          | Powdering or pulverising of ore, by pressure or abrasion, to liberate valuable minerals for further metallurgical processing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|heap leaching               | A process whereby gold is extracted by “heaping” broken ore on sloping impermeable pads and repeatedly spraying the heaps with a weak cyanide solution which dissolves the gold content. The gold-laden solution is collected for gold recovery.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|hectares                    | A metric unit of area measuring 100 metres by 100 metres.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|hedging                     | Taking a buy or sell position in a futures market opposite to a position held in the cash market to minimize the risk of financial loss from an adverse price change.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Indicated Mineral Resource* | The part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of Modifying Factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit.  Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to assume geological and grade or quality continuity between points of observation. An Indicated Mineral Resource has a lower level of confidence than that applying to a Measured Mineral Resource and may only be converted to a Probable Mineral Reserve.



B-3







|Term                                  | Definition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Inferred Mineral Resource*            | The part of a Mineral Resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. Geological evidence is sufficient to imply but not verify geological and grade or quality continuity. An Inferred Mineral Resource has a lower level of confidence than that applying to an Indicated Mineral Resource and must not be converted to a Mineral Reserve. It is reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral Resources with continued exploration.                                                                                                                                                                             
|infill                                | The collection of additional samples between existing samples, used to provide greater geological detail and to provide more closely-spaced assay data.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|intrusive                             | Igneous rock which, while molten, penetrated into or between other rocks and solidified before reaching the surface.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|lode                                  | A mineral deposit, consisting of a zone of veins, veinlets or disseminations, in consolidated rock as opposed to a placer deposit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|low-grade                             | Descriptive of ores relatively poor in the metal they are mined for; lean ore.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|mafic                                 | A group of dark-colored minerals, composed chiefly of magnesium and iron, that occur in igneous rocks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Measured Mineral Resource*            | The part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the deposit. Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and grade or quality continuity between points of observation. A Measured Mineral Resource has a higher level of confidence than that applying to either an Indicated Mineral Resource or an Inferred Mineral Resource. It may be converted to a Proven Mineral Reserve or to a Probable Mineral Reserve.
|metamorphism                          | The process by which the form or structure of rocks is changed by heat and pressure.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|mill                                  | A processing facility where ore is finely ground and then undergoes physical or chemical treatment to extract the valuable metals. Also, the device used to perform grinding (milling).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|mineral claim / property / concession | Authorizes the holder to prospect and mine for minerals and to carry out works in connection with prospecting and mining.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Mineral Reserve*                      | The economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at Pre-Feasibility or Feasibility level as appropriate that include application of Modifying Factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified. Mineral Reserves are sub-divided in order of increasing confidence into Probable Mineral Reserves and Proven Mineral Reserves. A Probable Mineral Reserve has a lower level of confidence than a Proven Mineral Reserve.                                                                                            



B-4







|Term                                  | Definition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Mineral Resource*                     | A concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade or quality, continuity and other geological characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling.  Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories. An Inferred Mineral Resource has a lower level of confidence than that applied to an Indicated Mineral Resource. An Indicated Mineral Resource has a higher level of confidence than an Inferred Mineral Resource but has a lower level of confidence than a Measured Mineral Resource.
|Modifying Factors                     | Modifying Factors are considerations used to convert Mineral Resources to Mineral Reserves. These include, but are not restricted to, mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social and governmental factors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|muscovite                             | A phyllosilicate mineral of aluminium and potassium. It has a highly-perfect basal cleavage yielding very thin sheets, which are often highly elastic.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|NI 43-101                             | Canadian National Instrument NI 43-101 - Standards of Disclosure for Mineral Projects.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|open-pit mine                         | A mine where materials are removed entirely from a working that is open to the surface.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|ore                                   | Rock, generally containing metallic or non-metallic minerals, which can be mined and processed at a profit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|oxidation                             | Reaction of a material with an oxidizer such as pure oxygen or air in order to alter the state of the material.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|oxide ore                             | Mineralized rock in which some of the original minerals have been oxidized. Oxidation tends to make the ore more amenable to cyanide solutions so that minute particles of gold will be readily dissolved.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Paleozoic                             | An era of geologic time that includes the Cambrian, Ordovician, Silurian, Devonian, Mississippian, Pennsylvanian and Permian periods and is characterized by the appearance of marine invertebrates, primitive fishes, land plants and primitive reptiles.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|preliminary economic assessment (PEA) | A study, other than a Pre-Feasibility Study or Feasibility Study, which includes an economic analysis of the potential viability of Mineral Resources.  The PEA is preliminary in nature and includes Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves and there is no certainty that the PEA based on these Mineral Resources will be realized.  Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.                                                                                                                                                                                                                                                                            
|porphyry                              | A variety of igneous rock consisting of large-grained crystals, such as feldspar or quartz, dispersed in a fine-grained feldspathic matrix or groundmass.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             



B-5







|Term | Definition
|---- | ----------

|Pre-Feasibility Study                         | A comprehensive study of a range of options for the technical and economic viability of a mineral project that has advanced to a stage where a preferred mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, is established and an effective method of mineral processing is determined. It includes a financial analysis based on reasonable assumptions on the Modifying Factors and the evaluation of any other relevant factors which are sufficient for a Qualified Person, acting reasonably, to determine if all or part of the Mineral Resource may be converted to a Mineral Reserve at the time of reporting. A Pre-Feasibility Study is at a lower confidence level than a Feasibility Study.                                                                                                                                                                                                                                                                                                                                                                                                   
|--------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Probable Mineral Reserve*                     | The economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource. The confidence in the Modifying Factors applying to a Probable Mineral Reserve is lower than that applying to a Proven Mineral Reserve.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Proven Mineral Reserve*                       | The economically mineable part of a Measured Mineral Resource. A Proven Mineral Reserve implies a high degree of confidence in the Modifying Factors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|pyrite                                        | A yellow iron sulphide mineral, normally of little value. It is sometimes referred to as “fool’s gold.”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|pyroclastic                                   | Rocks produced by explosive or aerial ejection of ash, fragments, and glassy material from a volcanic vent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|pyrrhotite                                    | A brownish yellow iron sulphide mineral.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Qualified Person*                             | An individual who (i) is an engineer or geoscientist with a university degree, or equivalent accreditation, in an area of geosciences, or engineering, relating to mineral exploration or mining; (ii) has at least five years’ experience in mineral exploration, mine development or operation or mineral project assessment, or any combination of these, that is relevant to his or her professional degree or area of practice; (iii) has experience relevant to the subject matter of the mineral project and the technical report; (iv) is in good standing with a professional association; (v) and in the case of a professional association in a foreign jurisdiction, has a membership designation that (a) requires attainment of a position of responsibility in their profession that requires the exercise of independent judgment; and (ii) requires (1) a favourable confidential peer evaluation of the individual’s character, professional judgment, experience, and ethical fitness; or (2) a recommendation for membership by at least two peers, and demonstrated prominence or expertise in the field of mineral exploration or mining.
|quality assurance and quality control (QA/QC) | The process of measuring and assuring product quality to meet consumer expectations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|reclamation                                   | The restoration of a site after mining or exploration activity is completed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|reclamation and closure costs                 | The cost of reclamation plus other costs, including without limitation certain personnel costs, insurance, property holding costs such as taxes, rental and claim fees, and community programs associated with closing an operating mine.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|recovered grade                               | Actual metal grade realized by the metallurgical process and treatment or ore, based on actual experience or laboratory testing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



B-6







|Term                       | Definition                                                                                                                                                                                                                                                                                                                                     
|-------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|recovery                   | A term used in process metallurgy to indicate the proportion of valuable material obtained in the processing of an ore. It is generally stated as a percentage of valuable metal in the ore that is recovered compared to the total valuable metal present in the ore.                                                                         
|refining                   | The final stage of metal production in which impurities are removed from the molten metal.                                                                                                                                                                                                                                                     
|refractory material        | Mineralized material in which the metal is not amenable to recovery by conventional cyanide methods without any pre-treatment.                                                                                                                                                                                                                 
|reverse circulation        | A drilling method that uses a rotating cutting bit within a double-walled drill pipe and produces rock chips rather than core. Air or water is circulated down to the bit between the inner and outer wall of the drill pipe. The chips are forced to the surface through the centre of the drill pipe and are collected, examined and assayed.
|run-of-mine (ROM)          | Ore in its natural, unprocessed state; pertaining to ore just as it is mined.                                                                                                                                                                                                                                                                  
|sample                     | A small portion of rock, or a mineral deposit, taken so that the metal content can be determined by assaying.                                                                                                                                                                                                                                  
|scoping study              | A technical and economic study conducted to investigate the approximate economics and viability of various development options for the mining and treatment of a mineral deposit.                                                                                                                                                              
|sedimentary rocks          | Secondary rocks formed from material derived from other rocks and laid down under water. Examples are limestone, shale and sandstone.                                                                                                                                                                                                          
|semi-autogenous (SAG) mill | A steel cylinder with steel balls into which run-of-mine material is fed. The ore is ground with the action of large lumps of rock and steel balls.                                                                                                                                                                                            
|shaft                      | A vertical passageway to an underground mine for ventilation, moving personnel, equipment, supplies and material including ore and waste rock.                                                                                                                                                                                                 
|shear zone                 | A geological term used to describe a geological area in which shearing has occurred on a large scale.                                                                                                                                                                                                                                          
|silica                     | The dioxide of silicon occurring in crystalline, amorphous, and impure forms (as in quartz, opal, and sand respectively). Used to manufacture a wide variety of materials, especially glass and concrete.                                                                                                                                      
|sphalerite                 | A zinc mineral which is composed of zinc and sulphur.                                                                                                                                                                                                                                                                                          
|stock                      | A magma that has intruded into pre-existing rock in a columnar shape, typically a kilometre or more in diameter.                                                                                                                                                                                                                               
|stockpile                  | Broken ore heaped on the surface, pending treatment or shipment.                                                                                                                                                                                                                                                                               
|tailings                   | The material that remains after all metals considered economic have been removed from ore during milling.                                                                                                                                                                                                                                      
|tailings storage facility  | A natural or man-made confined area suitable for depositing the material that remains after the treatment of ore.                                                                                                                                                                                                                              
|terrane                    | Area of land of a particular character, e.g., mountainous, swampy.                                                                                                                                                                                                                                                                             



B-7







|Term | Definition
|---- | ----------

|tonne     | Metric unit of mass equaling 1,000 kilograms or 2,240 pounds. Called a "long ton."                      
|--------- | --------------------------------------------------------------------------------------------------------
|ton       | Unit of weight equaling 2,000 pounds. Called a "short ton."                                             
|tuff      | Rock composed of fine volcanic ash.                                                                     
|vein      | A fissure, fault or crack in a rock filled by minerals that have traveled upwards from some deep source.
|volcanics | A general collective term for extrusive igneous and pyroclastic material and rocks.                     



B-8







SCHEDULE
C
ABBREVIATIONS AND MEASUREMENT CONVERSION



Unless otherwise defined, abbreviations used in this Annual
Information Form have the following meanings:



|m    | micron                                                                
|---- | ----------------------------------------------------------------------
|AA   | Atomic Absorption                                                     
|Ag   | Silver                                                                
|Au   | Gold                                                                  
|°C   | degree Celsius                                                        
|°F   | degree Fahrenheit                                                     
|mg   | microgram                                                             
|cm   | centimetre                                                            
|cm2  | square centimetre                                                     
|Cu   | Copper                                                                
|ft   | foot                                                                  
|g    | gram                                                                  
|G    | giga (billion)                                                        
|HQ   | diamond drill core measuring 2.5 inches in diameter (6.35 centimetres)
|ICP  | Induction Coupled Plasmaspectrometry                                  
|in   | inch                                                                  
|IRR  | internal rate of return                                               
|K    | kilo (thousand)                                                       
|KWh  | kilowatt-hour                                                         
|kg   | kilogram                                                              
|km   | kilometre                                                             
|km2  | kilometres squared                                                    
|L    | litre                                                                 
|lb   | pound                                                                 
|m    | metre                                                                 
|m2   | metres squared                                                        
|M    | mega (million)                                                        
|mm   | millimetre                                                            
|NPV  | net present value.                                                    
|NQ   | diamond drill core measuring 1.78 inches in diameter (4.5 centimetres)
|NSR  | net smelter return                                                    
|oz/t | ounce per ton                                                         
|oz   | Troy ounce/ounce (31.1035g)                                           
|Pb   | Lead                                                                  
|PQ   | diamond drill core measuring 3.35 inches in diameter (8.5 centimetres)
|RC   | reverse circulation                                                   
|s    | second                                                                
|st   | short ton (one short ton equals 0.907 metric tonnes)                  
|t    | metric tonne (one metric tonne equals 1.102 short tons)               



C-1







|tpa | metric tonne per year
|--- | ---------------------
|tpd | metric tonne per day 
|W   | watt                 
|yd  | yard                 
|Zn  | Zinc                 



The following table lists Imperial measurements and their equivalent
value under the Metric system:



|Imperial                  | Converts to | Metric             
|------------------------- | ----------- | -------------------
|1 in                      | =           | 2.54 cm            
|1 ft (12 in)              | =           | 0.3048 m           
|1 yd (3ft)                | =           | 0.9144 m           
|1 mile (1760 yd)          | =           | 1.6093 km          
|1 square in (in2)         | =           | 6.4516 cm2         
|1 square ft (ft2)         | =           | 0.0929 m2          
|1 square yd (yd2)         | =           | 0.8361 m2          
|1 acre (4840 yd2)         | =           | 4046.9 m2          
|1 square mile (640 acres) | =           | 2.59 km2           
|short ton                 | =           | 0.907 metric tonnes



C-2







SCHEDULE
D
EXCHANGE RATE AND METAL PRICE INFORMATION



Exchange Rate



The high, low, average and closing exchange rates for Canadian
dollars in terms of the United States dollar (noon) for each of the three years ended December 31, 2016, 2015 and 2014, as quoted
by the Bank of Canada, were as follows:



|            | 2016   | 2015   | 2014  
|----------- | ------ | ------ | ------
|High        | 1.4589 | 1.3990 | 1.1643
|Low         | 1.2544 | 1.1728 | 1.0614
|Average (1) | 1.3248 | 1.2767 | 1.1045
|Closing     | 1.3427 | 1.3825 | 1.1601



(1) Calculated as an average of the
daily noon rates for each period.



On March 28, 2017, the average exchange rate for Canadian dollars
in terms of the United States dollar, as quoted by the Bank of Canada, was US$1 = C$1.3363 and C$1= US$0.7483.



Gold Prices



The high, low, average and closing afternoon fixing gold prices
per troy ounce for each of the three years ended December 31, 2016, 2015 and 2014, as quoted by the London Bullion Market Association
(“LBMA”), were as follows:



|        | 2016($) | 2015($) | 2014($)
|------- | ------- | ------- | -------
|High    | 1,366   | 1,296   | 1,385  
|Low     | 1,077   | 1,049   | 1,142  
|Average | 1,251   | 1,160   | 1,266  
|Closing | 1,146   | 1,060   | 1,206  



OnMarch 28, 2017, the closing afternoon LBMA gold price
per troy ounce, as quoted by the London Bullion Market Association, was $1,257.



Silver Prices



The high, low, average and closing silver prices per troy ounce
for each of the three years ended December 31, 2016, 2015 and 2014, as quoted by the London Bullion Market Association, were as
follows:



|        | 2016($) | 2015($) | 2014($)
|------- | ------- | ------- | -------
|High    | 20.71   | 18.23   | 22.05  
|Low     | 13.58   | 13.71   | 15.28  
|Average | 17.14   | 15.68   | 19.08  
|Closing | 16.24   | 13.82   | 15.97  



OnMarch 28, 2017, the closing LBMA silver price per
troy ounce, as quoted by the London Bullion Market Association, was $17.94.





D-1







Copper Prices



The high, low, average and closing official cash settlement
copper prices per pound for each of the three years ended December 31, 2016, 2015 and 2014, as quoted by the London Metal Exchange,
were as follows:



|        | 2016($) | 2015($) | 2014($)
|------- | ------- | ------- | -------
|High    | 2.69    | 2.92    | 3.37   
|Low     | 1.96    | 2.05    | 2.86   
|Average | 2.21    | 2.49    | 3.11   
|Closing | 2.50    | 2.13    | 2.88   



On March 28, 2017, the closing official cash settlement copper
price per pound, as quoted by the London Metal Exchange, was $2.62.



D-2