Exhibit 99.2






















MANAGEMENT’S
RESPONSIBILITY FOR FINANCIAL STATEMENTS

The
consolidated financial statements, the notes thereto and other financial information contained in the Management’s Discussion
and Analysis have been prepared in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board and are the responsibility of the management of New Gold Inc. The financial information presented in
the Management’s Discussion and Analysis is consistent with the data that is contained in the consolidated financial statements.
The consolidated financial statements, where necessary, include amounts which are based on the best estimates and judgment of
management.

In
order to discharge management’s responsibility for the integrity of the financial statements, the Company maintains a system
of internal accounting controls. These controls are designed to provide reasonable assurance that the Company’s assets are
safeguarded, transactions are executed and recorded in accordance with management’s authorization, proper records are maintained
and relevant and reliable financial information is produced. These controls include maintaining quality standards in hiring and
training of employees, policies and procedures manuals, a corporate code of conduct and ensuring that there is proper accountability
for performance within appropriate and well-defined areas of responsibility. The system of internal controls is further supported
by a compliance function, which is designed to ensure that we and our employees comply with securities legislation and conflict
of interest rules.

The
Board of Directors is responsible for overseeing management’s performance of its responsibilities for financial reporting
and internal control. The Audit Committee, which is composed of non-executive directors, meets with management as well as the
external auditors to ensure that management is properly fulfilling its financial reporting responsibilities to the Directors who
approve the consolidated financial statements. The external auditors have full and unrestricted access to the Audit Committee
to discuss the scope of their audits, the adequacy of the system of internal controls and review financial reporting issues.

The
consolidated financial statements have been audited by Deloitte LLP, the Company’s independent registered public accounting
firm, in accordance with Canadian generally accepted auditing standards and standards of the Public Company Accounting Oversight
Board (United States).

|(Signed)
    Robert Gallagher |  | (Signed)
    Brian Penny        
|----------------------------- |  | --------------------------------
|Robert
    Gallagher          |  | Brian
    Penny                 
|Chief
    Executive Officer   |  | Executive
    Vice-President and
|                              |  | Chief
    Financial Officer     
|Toronto,
    Canada           |  |                                 
|February
    19, 2015         |  |                                 



WWW.NEWGOLD.COM
                                         TSX:NGD NYSE MKT:NGD












MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The
Company’s management, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing
and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule
13a-15(f) and Rule 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers
and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian
generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies
and procedures that:

| | • | pertain
                                         to the maintenance of records that, in reasonable detail, accurately and fairly reflect
                                         the transactions and dispositions of the assets of the Company;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | provide
                                         reasonable assurance that transactions are recorded as necessary to permit preparation
                                         of financial statements in accordance with generally accepted accounting principles,
                                         and that receipts and expenditures of the Company are being made only in accordance with
                                         authorizations of management and directors of the Company; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | provide
                                         reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
                                         use or disposition of the Company’s assets that could have a material effect on
                                         the financial statements.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Company’s management, under the supervision of the Chief Executive Officer and the Chief Financial Officer, assessed the
effectiveness of the Company’s internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d—15(f)
under the Exchange Act as of December 31, 2014. In making this assessment, it used the criteria set forth in the Internal Control-Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment,
management has concluded that, as of December 31, 2014, the Company’s internal control over financial reporting is effective
based on those criteria. There are no material weaknesses that have been identified by management.

The
effectiveness of the Company’s internal control over financial reporting as of December 31, 2014 has been audited by Deloitte
LLP, the Company’s independent registered public accounting firm, as stated in their report immediately preceding the Company’s
audited consolidated financial statements for the year ended December 31, 2014.



|(Signed)
    Robert Gallagher |  | (Signed)
    Brian Penny        
|----------------------------- |  | --------------------------------
|Robert
    Gallagher          |  | Brian
    Penny                 
|Chief
    Executive Officer   |  | Executive
    Vice-President and
|                              |  | Chief
    Financial Officer     
|Toronto,
    Canada           |  |                                 
|February
    19, 2015         |  |                                 



WWW.NEWGOLD.COM   TSX:NGD  NYSE MKT:NGD














Report
of Independent Registered Public Accounting Firm

To
the Board of Directors and Shareholdersof

New
Gold Inc.

We
have audited the accompanying consolidated financial statements of New Gold Inc. and subsidiaries (the “Company”),
which comprise the consolidated statements of financial position as at December 31, 2014 and December 31, 2013, and the consolidated
income statements,consolidated statements of comprehensive loss, consolidated statements
of changes in equity, and consolidated statements of cash flows for the years then ended, and a summary of significant accounting
policies and other explanatory information.

Management's
Responsibility for the Consolidated Financial Statements

Management
is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.

Auditor's
Responsibility

Our
responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An
audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement
of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.

We
believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit
opinion.







WWW.NEWGOLD.COM   TSX:NGD  NYSE MKT:NGD












Opinion

In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of New Gold
Inc. and subsidiaries as at December 31, 2014 and December 31, 2013, and their financial performance and their cash flows for
the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board.

Other
Matter

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s
internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control —
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated
February 19, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting.



(Signed)
Deloitte LLP

Chartered
Professional Accountants, Chartered Accountants

Licensed
Public Accountants

February
19, 2015

Toronto,
Canada



WWW.NEWGOLD.COM   TSX:NGD  NYSE MKT:NGD














Report
of Independent Registered Public Accounting Firm

To
the Board of Directors and Shareholders of

New
Gold Inc.

We
have audited the internal control over financial reporting of New Gold Inc. and subsidiaries (the “Company”) as of
December 31, 2014, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the Company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal
executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections
of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk
that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December
31, 2014, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.

We
have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2014 of the Company
and our report dated February 19, 2015 expressed an unmodified opinion on those financial statements.

(Signed)
Deloitte LLP

Chartered
Professional Accountants, Chartered Accountants

Licensed
Public Accountants

February
19, 2015

Toronto,
Canada



WWW.NEWGOLD.COM   TSX:NGD  NYSE MKT:NGD












Contents

|CONSOLIDATED
    INCOME STATEMENTS                                   | 2 
|-------------------------------------------------------------------- | --
|CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE LOSS                    | 3 
|CONSOLIDATED
    STATEMENTS OF FINANCIAL POSITION                    | 4 
|CONSOLIDATED
    STATEMENTS OF CHANGES IN EQUITY                     | 5 
|CONSOLIDATED
    STATEMENTS OF CASH FLOW                             | 6 
|NOTES
    TO THE CONSOLIDATED FINANCIAL STATEMENTS                   | 7 
|1.
    Description of business and nature of operations              | 7 
|2.
    Signficant accounting policies                                | 7 
|3.
    Critical judgments and estimation uncertainties               | 19
|4.
    Future changes in accounting policies                         | 22
|5.
    Expenses                                                      | 24
|6.
    Trade and other receivables                                   | 25
|7.
    Trade and other payables                                      | 26
|8.
    Inventories                                                   | 26
|9.
    Mining interest                                               | 27
|10.
    Impairment                                                   | 29
|11.
    Investment in associate                                      | 32
|12.
    Long-term debt                                               | 33
|13.
    Derivative instruments                                       | 36
|14.
    Share capital                                                | 38
|15.
    Income and mining taxes                                      | 43
|16.
    Reclamation and closure cost obligations                     | 46
|17.
    Supplemental cash flow information                           | 47
|18.
    Segmented information                                        | 48
|19.
    Capital risk management                                      | 50
|20.
    Financial risk management                                    | 51
|21.
    Fair value measurment                                        | 56
|22.
    Provisions                                                   | 59
|23.
    Operating leases                                             | 60
|24.
    Compensation of directors and other key management personnel | 60
|25.
    Commitments and contingencies                                | 60





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CONSOLIDATED
INCOME STATEMENTS

|                                                                | Year
    ended December 31
|--------------------------------------------------------------- | --------------------------
|(in
    millions of U.S. dollars, except per share amounts)     |                           
|Revenues                                                        |                           
|Operating
    expenses                                          |                           
|Depreciation
    and depletion                                  |                           
|Earnings
    from mine operations                               |                           
|                                                                |                           
|Corporate
    administration                                    |                           
|Share-based
    payment expenses                                |                           
|Asset
    impairment                                            |                           
|Exploration
    and business development                        |                           
|Loss
    from operations                                        |                           
|                                                                |                           
|Finance
    income                                              |                           
|Finance
    costs                                               |                           
|Rainy
    River acquisition costs                               |                           
|Other
    (losses) gains                                        |                           
|Loss
    before taxes                                           |                           
|Income
    tax (expense) recovery                               |                           
|Net
        loss                                                |                           
|Loss
    per share                                              |                           
|Basic                                                           |                           
|Diluted                                                         |                           
|Weighted
    average number of shares outstanding (in millions) |                           
|Basic                                                           |                           
|Diluted                                                         |                           
|                                                                |                           

See
accompanying notes to the consolidated financial statements.

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CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS

|                                                                                         | Year
    ended December 31
|---------------------------------------------------------------------------------------- | --------------------------
|(in
    millions of U.S. dollars)                                                        |                           
|Net
    loss                                                                             |                           
|Other
    comprehensive income(1)                                                        |                           
|Unrealized
    gains on mark-to-market of gold contracts                                 |                           
|Realized
    gains on settlement of gold contracts                                       |                           
|Reclassification
    of discontinued gold contracts                                      |                           
|Reclassification
    of unrealized losses on impairment of available-for-sale securities |                           
|Deferred
    Income tax related to gold contracts                                        |                           
|Total
    other comprehensive income                                                     |                           
|Total
    comprehensive loss                                                             |                           
|                                                                                         |                           

| | 1. | All
                                         items recorded in other comprehensive income will be reclassified in subsequent periods
                                         to net earnings.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See
accompanying notes to the consolidated financial statements.

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CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION

|                                             | As
    at December 31
|-------------------------------------------- | ---------------------
|(in
    millions of U.S. dollars)            | Note                 
|Assets                                       |                      
|Current
        assets                       |                      
|Cash
        and cash equivalents            |                      
|Trade
        and other receivables          | 6                    
|Inventories                                  | 8                    
|Current
        income tax receivable        |                      
|Prepaid
    expenses and other               |                      
|Total
        current assets                 |                      
|Non-current
        inventories              | 8                    
|Mining
    interests                         | 9                    
|Deferred
    tax assets                      | 15                   
|Other                                        |                      
|Total
        assets                         |                      
|Liabilities
    and equity                   |                      
|Current
    liabilities                      |                      
|Trade
    and other payables                 | 7                    
|Current
    income tax payable               |                      
|Total
    current liabilities                |                      
|Reclamation
    and closure cost obligations | 16                   
|Provisions                                   | 22                   
|Share
    purchase warrants                  | 13                   
|Long-term
        debt                       | 12                   
|Deferred
        tax liabilities             | 15                   
|Deferred
        benefit                     | 11                   
|Other                                        |                      
|Total
        liabilities                    |                      
|Equity                                       |                      
|Common
    shares                            | 14                   
|Contributed
    surplus                      |                      
|Other
    reserves                           |                      
|Deficit                                      |                      
|Total
    equity                             |                      
|Total
    liabilities and equity             |                      

See
accompanying notes to the consolidated financial statements.





Approved
and authorized by the Board of Directors on February 19, 2015





|“Robert
    Gallagher”         |  | “James
    Estey”        
|------------------------------ |  | -------------------------
|Robert
    Gallagher, Director |  | James
    Estey, Director







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CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY

|                                                             | Year
    ended December 31
|------------------------------------------------------------ | --------------------------
|(in
    millions of U.S. dollars)                            |                           
|Common
    shares                                            |                           
|Balance,
    beginning of year                               |                           
|Acquisition
    of Rainy River                               |                           
|Shares
    issued for exercise of options and land purchases |                           
|Shares
    issued for exercise of warrants                   |                           
|Balance,
    end of year                                     |                           
|Contributed
    surplus                                      |                           
|Balance,
    beginning of year                               |                           
|Exercise
    of options                                      |                           
|Equity
    settled share-based payments                      |                           
|Purchase
    of non-controlling interest                     |                           
|Reclassification
    of share-based payments(1)              |                           
|Balance,
    end of year                                     |                           
|Other
    reserves                                           |                           
|Balance,
    beginning of year                               |                           
|Change
    in fair value of available-for-sale investments   |                           
|Change
    in fair value of hedging instruments (net of tax) |                           
|Balance,
    end of year                                     |                           
|Retained
    (deficit) earnings                              |                           
|Balance,
    beginning of year                               |                           
|Net
    (loss) earnings                                      |                           
|Balance,
    end of year                                     |                           
|Total
    equity                                             |                           
|                                                             |                           

|1. |  | On
                                         April 30th, 2014, at the Company's annual general and special meeting of shareholders,
                                         the terms of the performance share units were modified resulting in the performance share
                                         units being reclassified as equity settled share-based payments.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See
accompanying notes to the consolidated financial statements.

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CONSOLIDATED
STATEMENTS OF CASH FLOW

|                                                              |    |     | Year
    ended December 31
|------------------------------------------------------------- | -- | --- | --------------------------
|(in millions of U.S. dollars)                                 |    |     | Note                      
|Operating activities                                          |    |     |                           
|Net loss                                                      |    |     |                           
|Adjustments for:                                              |    |     |                           
|Realized losses on gold contracts                             |    |     | 13                        
|Realized and unrealized foreign exchange losses               |    | 5   | 47.5                      
|Settlement payment of gold hedge contracts                    |    | 13  | -                         
|Payment of Rainy River acquisition expenses                   |    |     | -                         
|Reclamation and closure costs paid                            |    |     | 16                        
|Loss on disposal and impairment of assets                     |    |     | 397.5                     
|Depreciation and depletion                                    |    |     |                           
|Other non-cash adjustments                                    |    |     | 17                        
|Income tax expense (recovery)                                 |    |     | 15                        
|Finance income                                                |    |     | 5                         
|Finance costs                                                 |    |     | 5                         
|                                                              |    |     |                           
|Change in non-cash operating working capital                  |    | 17  | (41.6)                    
|Income taxes refunded (paid)                                  |    |     |                           
|Net cash generated from operations                            |    |     |                           
|Investing activities                                          |    |     |                           
|Mining interests                                              |    |     |                           
|Government grant received                                     |    |     | 9                         
|Proceeds from the sale of assets                              |    |     |                           
|Acquisition of Rainy River (net of cash received)             |    |     | -                         
|Interest received                                             |    |     |                           
|Cash used in investing activities                             |    |     |                           
|Financing activities                                          |    |     |                           
|Issuance of common shares on exercise of options and warrants | 14 | 1.6 | 5.5                       
|Financing initiation costs                                    |    |     |                           
|Interest paid                                                 |    |     |                           
|Cash used by financing activities                             |    |     | (52.9)                    
|Effect of exchange rate changes on cash and cash equivalents  |    |     | (2.1)                     
|Change in cash and cash equivalents                           |    |     |                           
|Cash and cash equivalents, beginning of year                  |    |     | 414.4                     
|Cash and cash equivalents, end of year                        |    |     | 370.5                     
|Cash and cash equivalents are comprised of:                   |    |     |                           
|Cash                                                          |    |     |                           
|Short-term money market instruments                           |    |     |                           
|                                                              |    |     |                           



See
accompanying notes to the consolidated financial statements.

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NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS

For
the years ended December 31, 2014 and 2013

(Amounts
expressed in millions of U.S. dollars, except per share amounts and except where noted)

1.
Description of business and nature of operations

New
Gold Inc. (“New Gold” or the “Company”) is an intermediate gold mining company engaged in the development
and operation of mineral properties. The assets of the Company, directly or through its Subsidiaries, are comprised of the New
Afton Mine in Canada (“New Afton”), the Mesquite Mine in the United States (“Mesquite”), the Peak Mines
in Australia (“Peak Mines”) and the Cerro San Pedro Mine in Mexico (“Cerro San Pedro”). Significant projects
include the Rainy River (“Rainy River”) and Blackwater (“Blackwater”) projects, both in Canada, and a
30% interest in the El Morro copper-gold project (“El Morro”) in Chile.

The
Company is a corporation governed by the Business Corporations Act (British Columbia). The Company’s shares are listed
on the Toronto Stock Exchange and the New York Stock Exchange MKT under the symbol NGD.

The
Company’s registered office is located at 1800 – 555 Burrard Street, Vancouver, British Columbia, V7X 1M9, Canada.

2.
SignIficant accounting policies

(a)
Statement of compliance

The
consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, as issued
by the International Accounting Standards Board (“IASB”), referred to as IFRS.

These
consolidated financial statements were approved by the Board of Directors of the Company on February 19, 2015.

(b)
Basis of preparation

The
consolidated financial statements have been prepared on the historical cost basis except for the following, which are measured
at fair value:

| | • | derivative
                                         financial instruments;
| | - | --------------------------------------------------------------------------

| | • | financial
                                         instruments at fair value through profit or loss; and
| | - | --------------------------------------------------------------------------------------------------------

| | • | available-for-sale
                                         securities.
| | - | -----------------------------------------------------------------------

(c)
Basis of consolidation

Subsidiaries

These
consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (“Subsidiaries”).
Control exists when the Company is exposed, or has rights, to variable returns from its involvement with the Subsidiary and has
the ability to affect those returns through its power over the Subsidiary. The financial statements of Subsidiaries are included
in the consolidated financial statements.

Associates

Associates
are those entities in which the Company has significant influence over the financial and operating policies but not control and
that is not a Subsidiary (“Associates”). Significant influence is normally presumed to exist when the Company holds
between 20 and 50 percent of the voting power of another entity. The Company’s share of net assets and net earnings or loss
is accounted for in the consolidated financial statements using the equity method.

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The
principal Subsidiaries and Associates of the Company are as follows:

|Name
    of subsidiary/ associate                            | Principal
    activity | Method
    of accounting | Country
    of incorporation and operation | Interest
    as at December 31, 2014 | Interest
    as at December 31, 2013
|------------------------------------------------------------ | ---------------------- | ------------------------ | ------------------------------------------ | ------------------------------------ | ------------------------------------
|New
    Gold Canada Inc.                                     | Holding
    company    | Consolidated             | Canada                                     | 100%                                 | 100%                                
|Minera
    San Xavier S.A. de C.V.                           | Mining                 | Consolidated             | Mexico                                     | 100%                                 | 100%                                
|Peak
    Gold Mines Pty Ltd                                  | Mining                 | Consolidated             | Australia                                  | 100%                                 | 100%                                
|Inversiones
    El Morro Limitada                            | Holding
    company    | Consolidated             | Chile                                      | 100%                                 | 100%                                
|Sociedad
        Contractual
        Minera
        El Morro | Mining                 | Equity                   | Chile                                      | 30%                                  | 30%                                 
|Western
    Mesquite Mines Inc                               | Mining                 | Consolidated             | USA                                        | 100%                                 | 100%                                



(d)
Business combinations

A
business combination is an acquisition of assets and liabilities that constitute a business. A business is an integrated set of
activities and assets that is capable of being conducted and managed for the purpose of providing a return to the Company and
its shareholders in the form of improved earnings, lower costs or other economic benefits.

Business
combinations are accounted for using the acquisition method whereby identifiable assets acquired and liabilities assumed, including
contingent liabilities, are recorded at 100% of their acquisition-date fair values. The acquisition date is the date the Company
obtains control over the acquiree, which is generally the date that consideration is transferred and the Company acquires the
assets and assumes the liabilities of the acquiree. The Company considers all relevant facts and circumstances in determining
the acquisition date.

The
consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date
fair values of the assets transferred by the Company, the liabilities, including contingent consideration, incurred and payable
by the Company to former owners of the acquiree and the equity interests issued by the Company. The measurement date for equity
interests issued by the Company is the acquisition date.

Acquisition-related
costs, other than costs to issue debt or equity securities, of the Company, including investment banking fees, legal fees, accounting
fees, valuation fees, and other professional or consulting fees are expensed as incurred. The costs to issue equity securities
of the Company as consideration for the acquisition are reduced from share capital as share issue costs.

Asset
acquisitions

The
Company accounts for the purchase of assets and assumption of liabilities as an acquisition of net assets. The transactions do
not qualify as a business combination under IFRS 3R, Business Combinations, as the significant inputs and processes that
constitute a business are not identified. Therefore, the transactions are treated as asset acquisitions. The purchase consideration
is allocated to the fair value of the assets acquired and liabilities assumed based on management’s best estimates and available
information at the time of the acquisition. Acquisition-related costs, other than costs to issue debt or equity securities, of
the Company, including investment banking fees, legal fees, accounting fees, valuation fees, and other professional or consulting
fees are capitalized as part of the asset acquisition.

(e)
Cash and cash equivalents

The
Company considers all highly liquid investments with original maturities of three months or less at the date of acquisition to
be cash equivalents. These highly liquid investments only comprise short-term Canadian and United States government treasury bills
and other evidences of indebtedness and treasury bills of the Canadian provinces with a minimum credit rating of R-1 mid from
the Dominion Bond Rating Service or an equivalent rating from Standard & Poor’s and Moody’s. In addition, the
Company invests in bankers’ acceptances and other evidences of indebtedness of certain financial institutions, including
Canadian banks.

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(f)
Inventories

Finished
goods, work-in-process, heap leach ore and stockpiled ore are valued at the lower of weighted average production cost or net realizable
value. Production costs include the cost of raw materials, direct labour, mine-site overhead expenses and depreciation and depletion
of mining interests. Net realizable value is calculated as the estimated price at the time of sale based on prevailing and long-term
metal prices less estimated future production costs to convert the inventories into saleable form.

The
recovery of gold and silver from certain ores is achieved through the heap leaching process. Under this method, ore is placed
on leach pads where it is treated with a chemical solution which dissolves the gold contained ore. The resulting “pregnant”
solution is further processed in a plant where the gold is recovered. For accounting purposes, costs are added to ore on leach
pads for current mining and leaching costs, including applicable depreciation, depletion and amortization relating to mining interests.
Costs are removed from ore on leach pads as ounces of gold and silver are recovered based on the average cost per recoverable
ounce on the leach pad.

Estimates
of recoverable gold and silver on the leach pads are calculated from the quantities of ore placed on the leach pads (measured
tonnes added to the leach pads), the grade of ore placed on the leach pads (based on assay data), and a recovery percentage (based
on ore type). Although the quantities of recoverable gold and silver placed on each leach pad are reconciled by comparing the
grades of ore placed on the leach pad to the quantities actually recovered, the nature of the leaching process inherently limits
the ability to precisely monitor inventory levels. The recovery of gold and silver from the leach pad is not known until the leaching
process has concluded. In the event that the Company determines, based on engineering estimates, that a quantity of gold or other
metal (silver) contained in ore on leach pads is to be recovered over a period exceeding 12 months, that portion is classified
as long-term.

Work-in-process
inventory represents materials that are currently in the process of being converted into finished goods. The average production
cost of finished goods represents the average cost of work-in-process inventories incurred prior to the refining process, plus
applicable refining, selling, shipping costs and associated royalties.

Supplies
are valued at the lower of weighted average cost and net realizable value.

(g)
Mining interests

Mining
interests represent capitalized expenditures related to the development of mining properties, plant and equipment and advanced
exploration expenditures arising from property acquisitions. Capitalized costs are depreciated and depleted using either a unit-of-production
method over the estimated economic life of the mine to which they relate, or for plant and equipment, using the straight-line
method over their estimated useful lives, if shorter than the mine life. Mining interests also include the investments in Associates
whose assets primarily consist of mineral interests.

Mining
properties

The
costs associated with mining properties are separately allocated to Mineral Reserves, Mineral Resources and exploration potential,
and include acquired interests in production, development and exploration stage properties representing the fair value at the
time they were acquired.

Mining
properties include costs directly attributable to bringing a mineral asset into the state where it is capable of operating in
the manner intended by management. The determination of development costs to be capitalized during the production stage of a mine
operation requires the use of judgments and estimates.

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The
value associated with Mineral Resources and exploration potential is the value beyond Proven and Probable Mineral Reserves assigned
through acquisition. The Mineral Resource value represents the property interests that are believed to potentially contain economic
mineralized material such as inferred material within pits, Measured, Indicated, and Inferred Mineral Resources with insufficient
drill spacing to qualify as Proven and Probable Mineral Reserves, and Inferred Mineral Resources in close proximity to Proven
and Probable Mineral Reserves. Exploration potential represents the estimated mineralized material contained within (i) areas
adjacent to existing Reserves and mineralization located within the immediate mine area; (ii) areas outside of immediate
mine areas that are not part of Measured, Indicated, or Inferred Resources; and (iii) greenfields exploration potential that
is not associated with any other production, development, or exploration stage property, as described above. At least annually
or when otherwise appropriate, and subsequent to its review and evaluation for impairment, value from the non-depletable category
is transferred to the depletable category as a result of an analysis of the conversion of Mineral Resources or exploration potential
into Mineral Reserves.

The
Company estimates its ore Reserves and Mineral Resources based on information compiled by appropriately qualified persons. The
estimation of recoverable Reserves will be impacted by forecast commodity prices, exchange rates, production costs and recoveries
amongst other factors. Changes in the Reserve or Resource estimates may impact the carrying value of assets and depreciation and
impairment charges recorded in the income statement.

A
mining property is considered to be capable of operating in a manner intended by management when it commences commercial production.
Upon commencement of commercial production, a mining property is depleted on a unit-of-production method. Unit-of-production depletion
rates are determined based on the estimate recoverable Proven and Probable Mineral Reserves at the mine.

Costs
related to property acquisitions are capitalized until the viability of the mineral property is determined. When either external
or internal triggering events determined that a property is not economically recoverable the capitalized costs are written off.

The
costs associated with the acquisition of land holdings are in included within mining interest and are not depleted.

Exploration
and evaluation

Exploration
and evaluation costs are expensed until the probability that future economic benefits will flow to the entity and the asset cost
or value can be measured reliably. Management uses the following criteria to determine the economic recoverability and probability
of future economic benefits:

| | • | The
                                         Company controls access to the benefit;
| | - | ------------------------------------------------------------------------------------

| | • | Internal
                                         project economics are beneficial to the Company;
| | - | --------------------------------------------------------------------------------------------------

| | • | The
                                         project is technically feasible; and
| | - | ---------------------------------------------------------------------------------

| | • | Costs
                                         can be reliably measured.
| | - | ------------------------------------------------------------------------

Further
development expenditures are capitalized to the property.

Drilling
and related costs incurred on sites without an existing mine and on areas outside the boundary of a known mineral deposit which
contains Proven and Probable Reserves are exploration expenditures and are expensed as incurred to the date of establishing that
property costs are economically recoverable. Further development expenditures, subsequent to the establishment of economic recoverability,
are capitalized to the property.

Property,
plant and equipment

Plant
and equipment consists of buildings and fixtures, and surface and underground fixed and mobile equipment.

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Depreciation
and depletion rates of major categories of asset costs

Mining
assets are depleted using a unit-of-production method based on the estimated economically recoverable Reserves, to which they
relate. Plant and equipment is depreciated using the straight-line method over their estimated useful lives, or the remaining
life of the mine if shorter.

|Asset
    class         | Estimated
    useful life (years)
|----------------------- | ---------------------------------
|Building                | 15
    – 17                      
|Plant
    and machinery | 3
    – 17                       
|Office
    equipment    | 5
    – 10                       
|Vehicles                | 5
    – 7                        
|Computer
    equipment  | 3
    – 5                        

Capitalized
borrowing costs

Borrowing
costs directly attributable to the acquisition, construction or production of a qualifying asset that necessarily takes a substantial
period of time to get ready for its intended use are capitalized until such time as the assets are substantially ready for their
intended use. Other borrowing costs are recognized as an expense in the period in which they are incurred.

Where
funds are borrowed specifically to finance a project, the amount capitalized represents the actual borrowing costs incurred. Where
the funds used to finance a project form part of general borrowings, the amount capitalized is calculated using a weighted average
of interest rates applicable to relevant general borrowings of the Company during the period, to a maximum of actual borrowing
costs incurred. Capitalization of interest is suspended during extended periods in which active development is interrupted. The
Company does not capitalize interest to investments in Associates.

Commencement
of commercial production

There
are a number of factors the Company considers when determining if conditions exist for the commencement of commercial production
of an operating mine. Management examines the following when making that judgment:

| | • | All
                                         major capital expenditures to bring the mine to the condition necessary for it to be
                                         capable of operating in the manner intended by management have been completed;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | The
                                         completion of a reasonable period of testing of the mine plant and equipment;
| | - | --------------------------------------------------------------------------------------------------------------------------

| | • | The
                                         mine or mill has reached a pre-determined percentage of design capacity; and
| | - | -------------------------------------------------------------------------------------------------------------------------

| | • | The
                                         ability to sustain ongoing production of ore.
| | - | ------------------------------------------------------------------------------------------

The
list is not exhaustive and each specific circumstance is taken into account before making the decision.

Stripping
costs in surface mining

As
part of its operations, the Company incurs stripping costs both during the development phase and production phase of its operations.
Stripping costs incurred as part of development stage mining activities incurred by the Company are deferred and capitalized as
part of mining properties.

Stripping
costs incurred during the production stage are incurred in order to produce inventory or to improve access to ore which will be
mined in the future. Where the costs are incurred to produce inventory, the production stripping costs are accounted for as a
cost of producing those inventories. Where the costs are incurred to improve access to ore which will be mined in the future,
the costs are deferred and capitalized to the balance sheet as a stripping activity asset (a non-current asset) if the following
criteria are met: improved access to the ore body is probable; the component of the ore body can be accurately identified; and
the costs relating to the stripping activity associated with the component be reliably measured. If these criteria are not met
the costs are expensed in the period in which they are incurred.

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The
stripping activity asset is subsequently depleted using the units-of-production depletion method over the life of the identified
component of the ore body to which access has been approved as a result of the stripping activity.

Derecognition

Upon
sale or abandonment, the cost of the property and equipment, and related accumulated depreciation or depletion, are removed from
the accounts and any gains or losses thereon are recognized in net earnings.

(h)
Impairment of long-lived assets

The
Company reviews and evaluates its mining interests for indicators of impairment at the end of each reporting period. 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 and development project represents a separate CGU as each mine site or development project has the ability
or the potential to generate cash inflows that are separately identifiable and independent of each other. 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
recoverable amount of a mine site is the greater of its fair value less costs to dispose and value in use. In determining the
recoverable amounts of the Company’s mine sites, the Company uses the fair value less costs to dispose as this will generally
be greater than or equal to the value in use. When there is no binding sales agreement, fair value less costs to dispose is estimated
as the discounted future after-tax cash flows expected to be derived from a mine site, less an amount for costs to dispose estimated
based on similar past transactions. The inputs used in the fair value measurement constitute Level 3 inputs under the fair value
hierarchy. When discounting estimated future cash flows, the Company uses an after-tax discount rate that would approximate what
market participants would assign. Estimated cash flows are based on expected future production, metal selling prices, operating
costs and capital costs. If the recoverable amount of a mine site is estimated to be less than its carrying amount, the carrying
amount is reduced to its recoverable amount. The carrying amount of each mine site includes the carrying amounts of mining properties,
plant and equipment, goodwill and related deferred tax balances. Impairment losses are recognized as other operating expenses
in the period they are incurred. The allocation of an impairment loss, if any, for a particular mine site to its mining properties
and plant and equipment is based on the relative book values of these assets at the date of impairment.

The
Company assesses at the end of each reporting period whether there is any indication that an impairment loss recognized in prior
periods for a long-lived asset may no longer exist or may have decreased. If any such indication exists, the Company estimates
the recoverable amount of that CGU. A reversal of an impairment loss is recognized up to the lesser of the recoverable amount
or the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized
for the CGU in prior years. Reversals of impairment losses are recognized in net earnings in the period the reversals occur.

(i)
Reclamation and closure cost obligations

The
Company’s mining and exploration activities are subject to various governmental laws and regulations relating to the protection
of the environment. The Company has made, and intends to make in the future, expenditures to comply with such laws and regulations.
The Company has recorded a liability and corresponding asset for the estimated future cost of reclamation and closure, including
site rehabilitation and long-term treatment and monitoring costs, discounted to net present value. Such estimates are, however,
subject to change based on negotiations with regulatory authorities, changes in laws and regulations or changes to market inputs
to the decommissioning model.

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The
present value of estimated costs is recorded in the period in which the asset is installed or the environment is disturbed and
a reasonable estimate of future costs and discount rates can be made. The provision is discounted using a risk-free rate and estimates
of future cash flows are adjusted to reflect risk.

After
the initial measurement, the obligation is adjusted to reflect the passage of time and changes in the estimated future cash flows
underlying the obligation. The increase in the provision due to the passage of time is recognized in finance costs, whereas increases
and decreases due to changes in the estimated future cash flows are included in inventory or capitalized and depreciated over
the life of the related asset unless the amount deducted from the cost exceeds the carrying value of the asset, in which case
the excess is recorded in net earnings. Actual costs incurred upon settlement of the site restoration obligation are charged against
the provision to the extent the provision was established for those costs. Upon settlement of the liability, a gain or loss may
be recorded in net earnings.

(j)
Income taxes

The
income tax expense or benefit for the period consists of two components: current and deferred.

Current
Tax

The
tax currently payable is based on taxable earnings for the year. Taxable earnings differs from earnings before taxes due to items
of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. Current tax
is calculated using tax rates and laws that were enacted or substantively enacted at the balance sheet date in each of the jurisdictions
and includes any adjustments for taxes payable or recovery in respect of prior periods.

Deferred
Tax

Deferred
tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated statement
of financial position and the corresponding tax bases used in the computation of taxable net earnings. Deferred tax is calculated
based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates that
are expected to apply in the year of realization or settlement based on tax rates and laws enacted or substantively enacted at
the balance sheet date.

Deferred
tax liabilities are generally recorded for all taxable temporary differences. Deferred tax liabilities are recognized for taxable
temporary differences arising on investments in Subsidiaries and Associates except where the reversal of the temporary difference
can be controlled and it is probable that the difference will not reverse in the foreseeable future.

Deferred
tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable earnings
will be available against which those deductible temporary differences can be utilized. The carrying amount of the deferred tax
assets are reviewed at each balance sheet date and are reduced to the extent that it is no longer probable that sufficient taxable
profit will be available to allow all or part of the asset to be recovered.

Deferred
tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition
(other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit
nor the accounting profit.

Deferred
tax assets and liabilities are offset where they relate to income taxes levied by the same taxation authority and where the Company
has the legal right and intent to offset.

The
Company records foreign exchange gains and losses representing the impacts of movements in foreign exchange rates on the tax bases
of non-monetary assets and liabilities which are denominated in foreign currencies. Foreign exchange gains and losses relating
to deferred income taxes are included within foreign exchange gains in the consolidated income statement.

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Current
and deferred tax for the year

Current
and deferred tax are recognized in net earnings except when they arise as a result of items recognized in other comprehensive
income or directly in equity in the current or prior periods, in which case the related current and deferred income taxes are
also recognized in other comprehensive income or directly in equity, respectively.

Government
assistance and tax credits

Any
federal or provincial tax credits received by the Company, with respect to exploration or development work conducted on any of
its properties, are credited as a reduction to the carrying costs of the property to which the credits related. The Company records
these tax credits when there is reasonable assurance with regard to collections and assessments as well as reasonable assurance
that the Company will comply with the conditions associated to them and that the grants will be received.

(k)
Foreign currency translation

The
individual financial statements of each Subsidiary or Associate are presented in the currency of the primary economic environment
in which that entity operates (its functional currency). The functional currency of the Company and the presentation currency
of the consolidated financial statements is the United States dollar (“U.S. dollar”).

Management
determines the functional currency by examining the primary economic environment of each operating mine, development and exploration
project. The Company considers the following factors in determining its functional currency:

| | • | The
                                         main influences of sales prices for goods and the country whose competitive forces and
                                         regulations mainly determine the sales price;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | The
                                         currency that mainly influences labour, material and other costs of providing goods;
| | - | ---------------------------------------------------------------------------------------------------------------------------------

| | • | The
                                         currency in which funds from financing activities are generated; and
| | - | -----------------------------------------------------------------------------------------------------------------

| | • | The
                                         currency in which receipts from operating activities are usually retained.
| | - | -----------------------------------------------------------------------------------------------------------------------

When
preparing the consolidated financial statements of the Company, the Company translates non-U.S. dollar balances into U.S. dollars
as follows:

| | • | Mining
                                         interest and equity method investments using historical exchange rates;
| | - | -----------------------------------------------------------------------------------------------------------------------

| | • | Financial
                                         instruments measured at fair value through profit or loss using the closing exchange
                                         rate as at the balance sheet date with translation gains and losses recorded in net earnings;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | Available-for-sale
                                         securities using the closing exchange rate as at the balance sheet date with translation
                                         gains and losses recorded in other comprehensive income;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | Deferred
                                         tax assets and liabilities using the closing exchange rate as at the balance sheet date
                                         with translation gains and losses recorded in net earnings;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | Other
                                         assets and liabilities using the closing exchange rate as at the balance sheet date with
                                         translation gains and losses recorded in net earnings; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | Income
                                         and expenses using the average exchange rate for the period, except for expenses that
                                         relate to non-monetary assets and liabilities measured at historical rates, which are
                                         translated using the same historical rate as the associated non-monetary assets and liabilities.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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(l)
(Loss) earnings per share

(Loss)
earnings per share calculations are based on the weighted average number of common shares and common shares equivalents issued
and outstanding during the year. Diluted earnings per share are calculated using the treasury stock method. This requires the
calculation of diluted earnings per share by assuming that outstanding stock options and warrants with an average market price
that exceeds the average exercise prices of the options and warrants for the year, are exercised and the assumed proceeds are
used to repurchase shares of the Company at the average market price of the common share for the year.

(m)
Revenue recognition

Revenue
from the sale of metals and metals in concentrate is recognized when all the following conditions are satisfied:

| | · | The
                                         Company has transferred to the buyer the significant risks and rewards of ownership;
| | - | ---------------------------------------------------------------------------------------------------------------------------------

| | · | The
                                         Company retains neither continuing managerial involvement to the degree usually associated
                                         with ownership nor effective control over the goods sold;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The
                                         amount of revenue can be measured reliably;
| | - | ----------------------------------------------------------------------------------------

| | · | It
                                         is probable that the economic benefits associated with the transaction will flow to the
                                         entity; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The
                                         costs incurred or to be incurred in respect of the transaction can be measured reliably.
| | - | -------------------------------------------------------------------------------------------------------------------------------------

Revenue
from the sale of metals in concentrate may be subject to adjustment upon final settlement of estimated metal prices, weights and
assays. Adjustments to revenue for metal prices are recorded monthly and other adjustments are recorded on final settlement. Refining
and treatment charges are netted against revenue for sales of metal concentrate.

(n)
Share-based payments

The
Company maintains a Restricted Share Unit (“RSU”) plan, a Performance Share Unit (“PSU”) plan and a stock
option plan for employees as well as a Deferred Share Unit (“DSU”) plan for directors.

Cash-settled
transactions which include RSUs and DSUs, are initially measured at fair value and recognized as an obligation at the grant date.
The liabilities are re-measured to fair value at each reporting date up to and including the settlement date, with changes in
fair value recognized in net earnings. The fair value of RSUs determined at the grant date is recognized over the vesting period
in accordance with the vesting terms and conditions. The Company values the liabilities based on the change in the Company’s
share price. The non-current portion of RSU and DSU liabilities are included in provisions on the consolidated statement of financial
position, and changes in the fair value of the liabilities are recorded in the consolidated income statement.

Equity-settled
transactions which include PSUs and the stock option plan are measured by reference to the fair value at the grant date. Fair
value for stock options is determined using a Black-Scholes option pricing model, which relies on estimates of the future risk-free
interest rate, future dividend payments, future share price volatility and the expected average life of the options. Fair value
for PSUs is determined using a Monte Carlo options pricing model, which relies on estimates of the future risk-free interest rate,
future dividend payments, future share price volatility and the correlation between the Company’s total return performance
relative to the S&P/TSX Global Gold Index Total Return Index Value. The Company believes these models adequately capture the
substantive features of the option awards and PSUs, and are appropriate to calculate their fair values. The fair value determined
at grant date is recognized over the vesting period in accordance with vesting terms and conditions, with a corresponding increase
to contributed surplus. The amount recognized as an expense is adjusted to reflect the number of awards for which the related
service and non-market vesting conditions are expected to be met.

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(o)
Non-derivative financial assets

The
Company recognizes all financial assets initially at fair value and classifies them into one of the following four categories:

|Category                                        | Description                                                                                                                                                                        
|----------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Fair
    value through profit or loss (“FVTPL”) | Includes
    financial assets held for trading; derivatives, unless accounted for as hedges, and other financial assets designated to this
    category under the fair value option
|Held-to-maturity                                | Non-derivative
    financial assets with fixed or determinable payments and fixed maturity that the Company has the positive intent and ability
    to hold to maturity            
|Loans
    and receivables                       | Non-derivative
    financial assets with fixed or determinable payments that are not quoted in an active market                                                                    
|Available-for-sale
    (“AFS”)                  | Includes
    all financial assets that are not classified in another category and any financial asset designated to this category on initial
    recognition.                      



Financial
assets held to maturity and loans and receivables are measured at amortized cost. AFS assets are measured at fair value with unrealized
gains and losses recognized in other comprehensive income. Instruments classified as FVTPL are measured at fair value with unrealized
gains and losses recognized in net earnings.

The
fair value of financial instruments traded in active markets (such as FVTPL and AFS securities) is based on quoted market prices
at the date of the statement of financial position. The quoted market price used for financial assets held by the Company is the
last bid price of the day.

Changes
in fair values of AFS assets are recognized in other comprehensive income, except when there is objective evidence that the asset
is impaired, at which point the cumulative loss that had been previously recognized in other comprehensive income is recognized
within net (loss) earnings. An AFS asset is deemed to be impaired when an adverse effect on future cash flows from the asset can
be reliably estimated or, in the case of AFS securities, there is a significant or prolonged decline in the fair value of the
investment below its cost.

The
Company has classified cash and cash equivalents, trade receivables and reclamation deposits as loans and receivables. Investments
are classified as AFS assets.

Transaction
costs related to financial assets classified as FVTPL are recognized immediately into net earnings. For financial instruments
assets classified as other than FVTPL, transaction costs are included in the initial carrying value of the instrument.

(p)
Non-derivative financial liabilities

Financial
liabilities are classified as either financial liabilities at FVTPL or other financial liabilities. Financial liabilities classified
as FVTPL are measured at fair value with unrealized gains and losses recognized in net earnings. Other financial liabilities including
borrowings are initially measured at fair value net of transaction costs, and subsequently measured at amortized cost.

Trade
and other payables, short-term borrowings and long-term debt are classified as other financial liabilities. Provisions related
to the RSU and DSU plans have been classified as FVTPL.

Transaction
costs related to financial liabilities classified as FVTPL are recognized immediately into income. For financial liabilities classified
as other than FVTPL, transaction costs are included in the initial carrying value of the instrument.

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(q)
Derivative instruments, including hedge accounting

Derivative
instruments, including embedded derivatives, are recorded at fair value on initial recognition and at each subsequent reporting
period. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are recorded
in net earnings.

Hedge
accounting

The
Company has previously entered into arrangements for the sale of gold. The Company designated this derivative as a cash flow hedge.
At the inception of a hedge relationship, the Company formally designated and documented the hedge relationship to which the Company
wished to apply hedge accounting and risk management objective and strategy for understanding the hedge. In addition, at the inception
of the hedge and on an ongoing basis, the Company documented whether the hedging instrument was effective. Hedge accounting is
discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting.
The Company settled its outstanding gold hedge position on May 15, 2013, and discontinued hedge accounting relating to this arrangement
on that date.

Gains
and losses for the effective portion of the hedging instruments were included in other comprehensive income. Gains and losses
for any ineffective portion of hedging instruments were included in net earnings. Amounts previously recognized in other comprehensive
income and accumulated in equity are reclassified to net earnings in the period when the hedged items is recognized in profit
or loss in the same line of the income statement. Upon discontinuation of hedge accounting, any cumulative gain or loss on the
hedging instrument recognized in equity remains deferred in equity until the original forecasted transaction occurs. When the
forecasted transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognized immediately
in net earnings.

Provisional
pricing

Certain
products are “provisionally priced” whereby the selling price is subject to final adjustment up to 150 days after
delivery to the customer. The final price is based on the market price at the relevant quotation point stipulated in the contract.
As is customary in the industry, revenue on provisionally priced sales is recognized based on estimates of the fair value of the
consideration receivable based on relevant forward market prices. At each reporting date, provisionally priced metal is marked
to market based on the forward selling price for the quotational period stipulated in the contract. For this purpose, the selling
price can be measured reliably for those products, such as gold and copper, for which there exists active and freely traded commodity
markets. The marking to market of provisionally priced sales contracts is recorded as an adjustment to sales revenue.

Copper
swaps

In
order to mitigate a portion of the metal price exposure associated with the time lag between the provisional and final determination
of concentrate sales, the Company has entered into cash settled derivative copper contracts to swap future contracted monthly
average metal prices for fixed metal prices. At each reporting date, these copper swap agreements are marked to market based on
corresponding forward copper prices. The marking to market of copper swap agreements is recorded as an adjustment to sales revenue.

Share
purchase warrants

The
Company’s share purchase warrants with Canadian dollar exercise prices are derivative liabilities and accordingly, they
are recorded at fair value at each reporting period, with the gains or losses recorded in profit or loss for the period.

(r)
Trade and other receivables

Trade
and other receivables are carried at amortized cost less impairment. Trade and other receivables are impaired as they are determined
to be uncollectible.

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(s)
Leases

Leases
are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards incidental to ownership
of the leased asset to the lessee. All other leases are classified as operating leases.

Operating
lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis
is more representative of the time pattern in which economic benefits from the leased asset are consumed.

(t)
Changes in accounting policies

The
Company has adopted the following new and revised IFRS policies along with any amendments, effective January 1, 2014. These changes
were made in accordance with the applicable transitional provisions.

IFRIC
21, Levies

IFRIC
21, Levies (“IFRIC 21”), an interpretation of IAS 37, Provisions, Contingent Liabilities and Contingent
Assets (“IAS 37”), on the accounting for levies imposed by governments was issued by the IASB in May 2013. IAS
37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation
as a result of a past event (“obligating event”). IFRIC 21 clarifies that the obligating event that gives rise to
a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. The adoption
of IFRIC 21 did not have a significant impact on the Company’s consolidated financial statements.

IAS
32, Financial instruments: presentation

IAS
32, Financial instruments: presentation (“IAS 32”), was amended by the IASB in December 2011. The amendment
clarifies that an entity has a legally enforceable right to offset financial assets and financial liabilities if that right is
not contingent on a future event and it is enforceable both in the normal course of business and in the event of default, insolvency
or bankruptcy of the entity and all counterparties. The adoption of this standard did not have any significant impact on the Company’s
consolidated financial statements.

IAS
36, Impairment of assets

IAS
36, Impairment of assets (“IAS 36”), was amended by the IASB in May 2013. The amendment requires the disclosure
of the recoverable amount of impaired assets when an impairment loss has been recognized or reversed during the period and additional
disclosures about the measurement of the recoverable amount of impaired assets when the recoverable amount is based on fair value
less costs of disposal, including the discount rate when a present value technique is used to measure the recoverable amount.
The adoption of this standard did not have any significant impact on the Company’s consolidated financial statements.

IFRS
2, Share-based payments

IFRS
2, Share-based payments(“IFRS 2”) was amended by the IASB in December 2013. The amendment changes the definitions
of “vesting condition” and “market condition” in the standard, and add definitions for “performance
condition” and “service condition”. They also clarify that any failure to complete a specified service period,
even due to the termination of an employee’s employment or a voluntary departure, would result in a failure to satisfy a
service condition. This would result in the reversal, in the current period, of compensation expense previously recorded reflecting
the fact that the employee failed to complete a specified service condition. These amendments are effective for transactions with
a grant date on or after July 1, 2014. These amendments had no impact on the Company’s consolidated financial statements.

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IFRS
3, Business combinations (contingent consideration)

IFRS
3, Business combinations(“IFRS 3”) was amended by the IASB in December 2013. The amendment clarifies the guidance
in respect of the initial classification requirements and subsequent measurement of contingent consideration. This will result
in the need to measure the contingent consideration at fair value at each reporting date, irrespective of whether it is a financial
instrument or a non-financial asset or liability. Changes in fair value will need to be recognized in profit and loss.  These
amendments are effective for transactions with acquisition dates on or after July 1, 2014. These amendments had no impact on the
Company’s consolidated financial statements.

3.
Critical judgments and estimation uncertainties

The
preparation of the Company’s consolidated financial statements in conformity with IFRS requires the Company’s management
to make judgments, estimates and assumptions about the future events that affect the amounts reported in the consolidated financial
statements and related notes to the financial statements. Estimates and assumptions are continually evaluated and are based on
management’s experience and other facts and circumstances. Revisions to estimates and the resulting effects on the carrying
amounts of the Company’s assets and liabilities are accounted for prospectively.

The
areas which require management to make significant judgments, estimates and assumptions in determining carrying values include,
but are not limited to:

(a)
Critical judgments in the application of accounting policies

(i)
Commencement of commercial production

Prior
to the period when a mine has reached management’s intended operating levels, costs incurred as part of the development
of the related mining property are capitalized and any mineral sales during the commissioning period are offset against the costs
capitalized. The Company defines the commencement of commercial production as the date that a mine has achieved a consistent level
of production. Depletion of capitalized costs for mining properties begins when operating levels intended by management have been
reached.

There
are a number of factors the Company considers when determining if conditions exist for the commencement of commercial production
of an operating mine. Management examines the following when making that judgment:

| | • | All
                                         major capital expenditures to bring the mine to the condition necessary for it to be
                                         capable of operating in the manner intended by management have been completed;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | The
                                         completion of a reasonable period of testing of the mine plant and equipment;
| | - | --------------------------------------------------------------------------------------------------------------------------

| | • | The
                                         mine or mill has reached a pre-determined percentage of design capacity; and
| | - | -------------------------------------------------------------------------------------------------------------------------

| | • | The
                                         ability to sustain ongoing production of ore.
| | - | ------------------------------------------------------------------------------------------

The
list is not exhaustive and each specific circumstance is taken into account before making the decision.

(ii)
Functional currency

The
functional currency for each of the Company’s Subsidiaries and Associates is the currency of the primary economic environment
in which the entity operates. The Company has determined the functional currency of each entity as the U.S. dollar. Determination
of the functional currency may involve certain judgments to determine the primary economic environment and the Company reconsiders
the functional currency of its entities if there is a change in events and conditions which determines the primary economic environment.

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(iii)
Determination of economic viability

Management
has determined that exploratory drilling, evaluation, development and related costs incurred on Blackwater, Rainy River and New
Afton C-zone project have future economic benefits and are economically recoverable. In making this judgment, management has assessed
various criteria including but not limited to the geologic and metallurgic information, history of conversion of mineral deposits
to Proven and Probable Mineral Reserves, operating management expertise, existing permits, the expectation of receiving additional
permits and life-of-mine (“LOM”) plans.

(iv)
Carrying value of long-lived assets and impairment charges

In
determining whether the impairment of the carrying value of an asset is necessary, management first determines whether there are
external or internal indicators that would signal the need to test for impairment. These indicators consist of but are not limited
to the prolonged significant decline in commodity prices, per ounce multiples, unfavourable changes to the legal environment in
which the entity operates and evidence of long-term reduced production of the asset. If an impairment indicator is identified,
the Company compares the carrying value of the asset against the recoverable amount. These determinations and their individual
assumptions require that management make a decision based on the best available information at each reporting period.

Indicators
of impairment existed at the Mesquite CGU and the Cerro San Pedro CGU (both operating mines) and the Blackwater CGU and the El
Morro CGU (both development properties). At Cerro San Pedro and Mesquite the Company updated its Mineral Reserves and Mineral
Resources statement, which has reduced the Mineral Reserves and Mineral Resource estimate at the CGU, and updated the LOM plan,
which revised the expected production profiles going forward. At Blackwater the decision was made to close the exploration camp
and slow down related project activity. On October 7, 2014 the Chilean Supreme Court invalidated the El Morro project’s
environmental permit and the permit was subsequently withdrawn by Sociedad Contractual Minera El Morro. The Company has identified
the revised production profile of Cerro San Pedro and Mesquite, along with the reduction in Blackwater activity and the continued
delays imposed in connection with various legal challenges at El Morro as indicators of impairment and performed an impairment
assessment to determine the recoverable amount of these CGUs. The results of the assessment, including the significant estimates
and assumptions used, are set out in Note 10.

(v)
Determination of CGU

In
determining a CGU, management had to examine the smallest identifiable group of assets that generates cash inflows that are largely
independent of cash inflows from other assets or groups of assets. The Company has determined that each mine site and development
project qualifies as an individual CGU. Each of these assets generates or will have the ability to generate cash inflows that
are independent of the other assets and therefore qualifies as an individual asset for impairment testing purposes.

(vi)
Determination of purchase price allocation

Business
combinations require the Company to determine the identifiable asset and liability in fair values and the allocation of the purchase
consideration over the fair value of the assets and liabilities. This requires management to make judgments and estimates to determine
the fair value, including the amount of Mineral Reserves and Resources acquired, future metal prices, future operating costs,
capital expenditure requirements and discount rates. The Company employs third party independent valuators to assist in this process.

(b)
Key sources of estimation uncertainty in the application of accounting policies

(i) Revenue
recognition

Revenue
from sales of concentrate is recorded when the rights and rewards of ownership pass to the buyer. Variations between the prices
set in the contracts and final settlement prices may be caused by changes in the market prices and result in an embedded derivative
in the accounts receivable. The embedded derivative is recorded at fair value each reporting period until final settlement occurs,
with changes in the fair value being recorded as revenue. For changes in metal quantities upon receipt of new information and
assays, the provisional sales quantities are adjusted as well.

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(ii) Inventory
valuation

Management
values inventory at the average production costs or net realizable value (“NRV”). Average production costs include
expenditures incurred and depreciation and depletion of assets used in mining and processing activities that are deferred and
accumulated as the cost of ore in stockpiles, ore on leach pad, work-in-process and finished metals inventories. The allocation
of costs to ore in stockpiles, ore on leach pads and in-process inventories and the determination of NRV involve the use of estimates.
Costs are removed from the leach pad based on the average cost per recoverable ounce of gold and silver on the leach pad as gold
and silver are recovered. Estimates of recoverable gold and silver on the leach pads are calculated from the quantities of ore
placed on the pads, the grade of ore placed on the leach pads and an estimated percentage of recovery. Timing and ultimate recovery
of gold and silver contained on leach pads can vary significantly from the estimates.

(iii) Mineral
Reserves

The
figures for Mineral Reserves and Mineral Resources are determined in accordance with National Instrument 43-101, “Standards
of Disclosure for Mineral Projects”, issued by the Canadian Securities Administrators. There are numerous estimates in determining
the Mineral Reserves and estimates. Such estimation is a subjective process, and the accuracy of any Mineral Reserve or Resource
estimate is a function of the quantity and quality of available data and of the assumptions made and judgments used in engineering
and geological interpretation. Differences between management’s assumptions including economic assumptions, such as metal
prices and market conditions, could have a material effect in the future on the Company’s financial position and results
of operations.

(iv) Estimated
recoverable ounces

The
carrying amounts of the Company’s mining properties are depleted based on recoverable ounces. Changes to estimates of recoverable
ounces and depletable costs including changes resulting from revisions to the Company’s mine plans and changes in metal
price forecasts can result in a change to future depletion rates.

(v) Deferred
income taxes

In
assessing the probability of realizing income tax assets recognized, management makes estimates related to expectations of future
taxable income, applicable tax planning opportunities, expected timing of reversals of existing temporary differences and the
likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. In making its assessments,
management gives additional weight to positive and negative evidence that can be objectively verified. Estimates of future taxable
income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. Forecasted
cash flows from operations are based on LOM projections internally developed and reviewed by management. The Company considers
tax planning opportunities that are within the Company’s control, are feasible and implementable without significant obstacles.
Examination by applicable tax authorities is supported based on individual facts and circumstances of the relevant tax position
examined in light of all available evidence. Where applicable tax laws and regulations are either unclear or subject to ongoing
varying interpretations, it is possible that changes in these estimates can occur that materially affect the amounts of income
tax asset recognized. At the end of each reporting period, the Company reassesses unrecognized income tax assets.

(vi) Reclamation
and closure cost obligations

The
Company’s provision for reclamation and closure cost obligations represents management’s best estimate of the present
value of the future cash outflows required to settle the liability which reflects estimates of future costs, inflation, movements
in foreign exchange rates and assumptions of risks associated with the future cash outflows, and the applicable risk-free interest
rates for discounting the future cash outflows. Changes in the above factors can result in a change to the provision recognized
by the Company.

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4.
Future changes in accounting policies

Depreciation

On
May 12, 2014, the IASB issued amendments to IAS 16, Property, Plant and Equipment (“IAS 16”), and IAS 38, Intangible
Assets (“IAS 38”). In issuing the amendments, the IASB has clarified that the use of revenue-based methods to
calculate the depreciation of a tangible asset is not appropriate because revenue generated by an activity that includes the use
of a tangible asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The
IASB has also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic
benefits embodied in an intangible asset.  This presumption for an intangible asset, however, can be rebutted in certain
limited circumstances.  The standard is to be applied prospectively for reporting periods beginning on or after January 1,
2016 with early application permitted. The Company is currently evaluating the impact of applying the amendments but does not
anticipate that there will be any impact on its current method of calculating depreciation or amortization.

Revenue

On
May 28, 2014 the IASB issued IFRS 15, Revenue from Contracts with Customers (“IFRS 15”). This standard outlines
a single comprehensive model with prescriptive guidance for entities to use in accounting for revenue arising from contacts with
its customers. IFRS 15 uses a control based approach to recognize revenue which is a change from the risk and reward approach
under the current standard. This standard replaces IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations.
The effective date is for reporting periods beginning on or after January 1, 2017 with early application permitted. The Company
has not yet determined the effect of adoption of IFRS 15 on its consolidated financial statements.

Financial
instruments

On
July 24, 2014 the IASB issued IFRS 9, Financial Instruments (“IFRS 9”) as a complete standard. This standard
replaces the guidance in IAS 39 Financial Instruments: Recognition and Measurement on the classification and measurement
of financial assets and financial liabilities. IFRS 9 utilizes a single approach to determine whether a financial asset is measured
at amortized cost or fair value and a new mixed measurement model for debt instruments having only two categories: amortized cost
and fair value. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business
model and the contractual cash flow characteristics of the financial assets.  Final amendments released on July 24, 2014
also introduce a new expected loss impairment model and limited changes to the classification and measurement requirements for
financial assets. The IASB has tentatively decided to require an entity to apply IFRS 9 for annual periods beginning on or after
January 1, 2018. The Company has not yet determined the effect of adoption of IFRS 9 on its consolidated financial statements.

Joint
Arrangements

On
May 6, 2014 the IASB amended IFRS 11, Joint Arrangements (“IFRS 11”).  The amendments add new guidance
on how to account for the acquisition of an interest in a joint operation that constitutes a business. The amendments are effective
for annual periods beginning on or after January 1, 2016. The adoption of these amendments is not expected to have a material
impact on the Company’s consolidated financial statements.

Operating
Segments

On
December 12, 2013 the IASB amended IFRS 8, Operating Segments (“IFRS 8”).  The amendments add a disclosure
requirement for the aggregation of operating segments and clarify the reconciliation of the total reportable segments' assets
to the entity's assets. The amendments are effective for annual periods beginning on or after July 1, 2014. The adoption of these
amendments is not expected to have a material impact on the Company’s consolidated financial statements.

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Fair
Value Measurement

On
December 12, 2013 the IASB amended IFRS 13, Fair Value Measurement (“IFRS 13”).  The amendments clarify
that the portfolio exception applies to all contracts within the scope of IAS 39, Financial Instruments: Recognition and Measurement(“IAS 39”) or IFRS 9 regardless of whether they are financial assets or financial liabilities. The amendments
are effective for annual periods beginning on or after July 1, 2014. The adoption of these amendments is not expected to have
a material impact on the Company’s consolidated financial statements.

Presentation
of Financial Statements

On
December 18, 2014 the IASB amended IAS 1, Presentation of Financial Statements (“IAS 1”). The amendments
to existing IAS 1 requirements relate to materiality; order of the notes; subtotals; accounting policies; and disaggregation.
The amendments are effective for annual periods beginning on or after January 1, 2016. The adoption of these amendments is not
expected to have a material impact on the Company’s consolidated financial statements.

Property,
Plant and Equipment

On
May 12, 2014 the IASB amended IAS 16, Property, Plant, and Equipment (“IAS 16”). The amendments to IAS
16 clarify that the use of revenue-based methods to determine the depreciation of an asset is not appropriate. However, the amendments
provide limited circumstances when a revenue-based method can be an appropriate basis for amortization. The amendments are effective
for annual periods beginning on or after January 1, 2016. The adoption of these amendments is not expected to have a material
impact on the Company’s consolidated financial statements.

Employee
Benefits

On
November 13, 2013 the IASB amended IAS 19, Employee Benefits (“IAS 19”). The amendments provide additional
guidance to IAS 19 on the accounting for contributions from employees or third parties set out in the formal terms of a defined
benefit plan. The amendments are effective for annual periods beginning on or after July 1, 2014.  IAS 19 was further amended
on July 30, 2014.  The amendments to IAS 19 clarify the application of the requirements of IAS 19 on determination of the
discount rate to a regional market consisting of multiple countries sharing the same currency. The amendments are effective for
annual periods beginning on or after January 1, 2016. The adoption of these amendments is not expected to have a material impact
on the Company’s consolidated financial statements.

Related
Party Disclosures

On
December 12, 2013 the IASB amended IAS 24, Related Party Disclosures (“IAS 24”). The amendments clarify the
identification and disclosure requirements for related party transactions when key management personnel services are provided
by a management entity. The amendments are effective for annual periods beginning on or after July 1, 2014. The adoption of these
amendments is not expected to have a material impact on the Company’s consolidated financial statements.

Intangible
Assets

On
May 12 2014 the IASB amended IAS 38, Intangible Assets (“IAS 38”). The amendments clarify that an amortization
method based on revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits
embodied in an intangible asset. However, the amendments provide limited circumstances when a revenue-based method can be an appropriate
basis for amortization. The amendments are effective for annual periods beginning on or after January 1, 2016. The adoption of
these amendments is not expected to have a material impact on the Company’s consolidated financial statements.

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5.
Expenses

(a) Operating
expenses by nature

|                                               | Year
     ended December 31
|---------------------------------------------- | ---------------------------
|(in
    millions of U.S. dollars)              |                            
|Operating
    expenses by nature               |                            
|Raw
    materials and consumables              |                            
|Salaries
    and employee benefits             |                            
|Redundancy
    charges                         |                            
|Repairs
    and maintenance                    |                            
|Contractors                                    |                            
|Royalties                                      |                            
|Change
    in inventories and work-in-progress |                            
|Inventory
    write down (Note 8)              |                            
|Operating
    leases                           |                            
|Drilling
    and analytical                    |                            
|General
    and administrative                 |                            
|Other                                          |                            
|Total
    operating expenses                   |                            

(b) Finance
costs and income

|                                                             | Year
     ended December 31
|------------------------------------------------------------ | ---------------------------
|(in
    millions of U.S. dollars)                            |                            
|Finance
    costs                                            |                            
|Interest
    on senior unsecured notes                       |                            
|Other
    interest                                           |                            
|Unwinding
    of the discount on decommissioning obligations |                            
|Other
    finance costs                                      |                            
|                                                             |                            
|Less:
    amounts included in cost of qualifying assets      |                            
|Total
    finance costs                                      |                            
|Finance
    income                                           |                            
|Interest
    income                                          |                            

(c) Other
(losses) gains

|                                                   | Year
     ended December 31
|-------------------------------------------------- | ---------------------------
|(in
    millions of U.S. dollars)                  |                            
|Other
    (losses) gains                           |                            
|Unrealized
    gain on share purchase warrants (i) |                            
|Loss
    on foreign exchange                       |                            
|Loss
    on disposal of assets                     |                            
|Impairment
    of AFS securities                   |                            
|Ineffectiveness
    of hedging instruments (ii)    |                            
|Company’s
    share of the net loss of El Morro    |                            
|Other                                              |                            
|Total
    other (losses) gains                     |                            





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(i)
Share purchase warrants

The
Company has outstanding share purchase warrants (“Warrants”), as at December 31, 2014. The Warrants have an exercise
price denominated in a currency other than the Company’s functional currency and therefore are classified as a non-hedged
derivative liability. The Warrants are measured at fair value on initial recognition, and subsequently re-measured at fair value
at the end of each reporting period. Gains or losses are recognized in net earnings.

At
December 31, 2014, the fair value of the Warrants was $16.9 million (2013 - $27.8 million). For the year ended December 31, 2014,
the change in fair value resulted in a gain of $8.5 million and a foreign exchange gain of $2.4 million (2013 – fair value
gain of $49.3 million and a foreign exchange gain of $3.2 million).

The
following table presents the realized and unrealized gains for the year ended December 31:

|                                                                    | Year
     ended December 31
|------------------------------------------------------------------- | ---------------------------
|(in
    millions of U.S. dollars)                                   |                            
|Realized
    gain on fair value of share purchase warrants          |                            
|Silver
    Quest Warrants - B                                       |                            
|                                                                    |                            
|Unrealized
    gain (loss) on fair value of share purchase warrants |                            
|New
    Gold Series A                                               |                            
|Rainy
    River Warrants                                            |                            
|                                                                    |                            
|Total
    gain on fair value of share purchase warrants             |                            



(ii)
Ineffectiveness of hedging instruments

On
May 15, 2013, the Company settled its outstanding gold hedge contracts, paying $65.7 million to fully close all hedges dated to
December 31, 2014 (as described in Note 13(b)). At the settlement date the hedge was deemed to be fully effective and the Company
reclassified the cumulative ineffective portion of the hedge from other comprehensive income to net earnings. The Company reclassified
$10.0 million upon settlement to net earnings and recognized a loss on the ineffective portion of $0.5 million during the year
ended December 31, 2013.



6.
Trade and other receivables

|                                                                                     | As
    at  December 31
|------------------------------------------------------------------------------------ | ----------------------
|(in
    millions of U.S. dollars)                                                    |                       
|Trade
    and other receivables                                                      |                       
|Trade
    receivables                                                                |                       
|Sales
    tax receivable                                                             |                       
|Unsettled
    provisionally priced concentrate derivatives and copper swap contracts |                       
|Other                                                                                |                       
|Total
    trade and other receivables                                                |                       



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7.
Trade and other payables

|                                                             | As
    at  December 31
|------------------------------------------------------------ | ----------------------
|(in
    millions of U.S. dollars)                            |                       
|Trade
    and other payables                                 |                       
|Trade
    payables                                           |                       
|Interest
    payable                                         |                       
|Accruals                                                     |                       
|Current
    portion of decommissioning obligations (Note 16) |                       
|Total
    trade and other payables                           |                       



8.
Inventories

|                                     | As
    at December 31
|------------------------------------ | ---------------------
|(in
    millions of U.S. dollars)    |                      
|Inventories                          |                      
|Heap
    leach ore                   |                      
|Work-in-process                      |                      
|Finished
    goods(1)                |                      
|Stockpile
    ore                    |                      
|Supplies                             |                      
|                                     |                      
|Less:
    non-current inventories(2) |                      
|Total
    current inventories        |                      

| | 1. | The
                                         amount of inventories recognized in operating expenses for the year ended December 31,
                                         2014 was $384.1 million (2013 – $421.7 million).
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Heap
                                         leach inventories of $66.5 million (December 31, 2013 – $31.0 million) are expected
                                         to be recovered after one year.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During
the year ended December 31, 2014 the Company wrote down $10.4 million of inventory of which $9.0 million was included in operating
expenses and $1.4 million was included in depreciation and depletion. (2013 – $6.5 million in operating expenses and $0.8
million in depreciation and depletion) as a result of net realizable value and recoverability analysis performed at the reporting
date, the majority of which related to Cerro San Pedro. At Cerro San Pedro, during its annual update of its LOM plan, the Company
estimated that the long-term recoverable silver ounces on the pad at Cerro San Pedro had reduced by 1.3 million ounces. In addition,
the net realizable value of finished goods was lower than the weighted average production costs. As a result, the Company wrote
down the silver inventory and recorded a charge of $9.7 million in net loss. The write-down consisted of $8.5 million included
in operating expenses and $1.2 million included in depreciation and depletion.

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9.
Mining interest

|                              | Depletable | Non-
 depletable | Plant & equipment | Construction in progress | Exploration & evaluation | Total  
|----------------------------- | ---------- | ---------------- | ----------------- | ------------------------ | ------------------------ | -------
|(in millions of U.S. dollars) |            |                  |                   |                          |                          |        
|Cost                          |            |                  |                   |                          |                          |        
|As at December 31, 2012       | 1,499.7    | 1,327.9          | 664.3             | 54.7                     | 9.7                      | 3,556.3
|Additions                     | 66.6       | 113.9            | 31.3              | 120.4                    | -                        | 332.2  
|Acquisition of Rainy River    | -          | 352.2            | 1.3               | -                        | -                        | 353.5  
|Disposals                     | -          | -                | (9.3)             | -                        | -                        | (9.3)  
|Impairments                   | (338.1)    | (70.7)           | (6.3)             | -                        | -                        | (415.1)
|Government grants             | -          | (5.7)            | -                 | -                        | -                        | (5.7)  
|Transfers                     | 121.9      | (26.9)           | 54.4              | (149.4)                  | -                        | -      
|As at December 31, 2013       | 1,350.1    | 1,690.7          | 735.7             | 25.7                     | 9.7                      | 3,811.9
|Additions                     | 68.7       | 58.3             | 3.9               | 208.3                    | 7.5                      | 346.7  
|Disposals                     | -          | -                | (15.5)            | -                        | (9.7)                    | (25.2) 
|Impairments (Note 10)         | (75.0)     | (334.7)          | (18.7)            | (6.7)                    | -                        | (435.1)
|Government grants             | -          | (25.7)           | -                 | -                        | -                        | (25.7) 
|Transfers                     | 81.5       | (36.0)           | 44.0              | (89.5)                   | -                        | -      
|As at December 31, 2014       | 1,425.3    | 1,352.6          | 749.4             | 137.8                    | 7.5                      | 3,672.6
|Accumulated depreciation      |            |                  |                   |                          |                          |        
|As at December 31, 2012       | 254.6      | -                | 166.8             | -                        | -                        | 421.4  
|Depreciation for the year     | 134.2      | -                | 68.7              | -                        | -                        | 202.9  
|Disposals                     | -          | -                | (6.3)             | -                        | -                        | (6.3)  
|Impairments                   | (139.8)    | -                | (2.8)             | -                        | -                        | (142.6)
|As at December 31, 2013       | 249.0      | -                | 226.4             | -                        | -                        | 475.4  
|Depreciation for the year     | 157.2      | -                | 86.1              | -                        | -                        | 243.3  
|Disposals                     | -          | -                | (15.5)            | -                        | -                        | (15.5) 
|Impairments (Note 10)         | (29.4)     | -                | (9.9)             | -                        | -                        | (39.3) 
|As at December 31, 2014       | 376.8      | -                | 287.1             | -                        | -                        | 663.9  
|carrying amount               |            |                  |                   |                          |                          |        
|As at December 31, 2013       | 1,101.1    | 1,690.7          | 509.3             | 25.7                     | 9.7                      | 3,336.5
|As at December 31, 2014       | 1,048.5    | 1,352.6          | 462.3             | 137.8                    | 7.5                      | 3,008.7



The
Company capitalized interest of $35.3 million for the year ended December 31, 2014 (2013 – $21.7 million) to qualifying
development projects. The Company’s annualized capitalization rate is 6.74% (2013 – 6.74%).

Government
grants

The
province of British Columbia provides an incentive for exploration in British Columbia as a refundable tax credit. The credit
is based on 20% of qualifying exploration plus 10% additional credit if the exploration is carried out in a pine beetle affected
area. This refundable tax credit is treated as government assistance and reduces mining interest or is included within net earnings
when receivable. For the year ended December 31, 2014, the Company received $24.4 million (2013 - $5.7 million) with $20.5
million reducing mining interest and $3.9 million included within net loss (2013 – $5.7 million reducing mining interest).

The
Canadian federal government provides an incentive for pre-production exploration and development as an investment tax credit against
future tax payable. The credit is based on 10% of qualifying pre-production exploration and development. This tax credit is treated
as government assistance and reduces mining interest or is included within net earnings when receivable. For the year ended December
31, 2014, the Company received $5.2 million of investment tax credits, all of which reduced mining interest.

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Asset
acquisition

On
January 1, 2015 the Company completed the acquisition of Bayfield Ventures Corp. Under the terms of the acquisition, the Company
acquired all of Bayfield’s assets which include a 100% interest in three mineral properties, totalling 10 square kilometres,
located adjacent to New Gold’s Rainy River project in northwestern Ontario. The acquisition will be accounted for as a purchase
of assets and assumption of liabilities by the Company.

Disposal
of exploration and evaluation asset

On
October 14, 2014 the Company disposed of its interest in the Rio Figueroa exploration and evaluation asset located in Chile, in
exchange for a 3% NSR royalty. The transaction was accounted for as an exchange of assets with the 3% NSR royalty recognized at
its fair value of $7.5 million at the date of acquisition.

Carrying
amount by property as at December 31, 2014:

|                                            | As
    at December 31, 2014
|------------------------------------------- | ---------------------------
|(in
    millions of U.S. dollars)           | Depletable                 
|mining
    interest by site                 |                            
|New
    Afton                               | 745.2                      
|Mesquite                                    | 179.5                      
|Peak
    Mines                              | 123.8                      
|Cerro
    San Pedro                         | -                          
|Rainy
    River                             | -                          
|Blackwater                                  | -                          
|El
    Morro                                | -                          
|Other(1)                                    | -                          
|Carrying
    amount as at December 31, 2014 | 1,048.5                    

| | 1. | Other
                                         includes corporate balances and exploration properties.
| | -- | ------------------------------------------------------------------------------------------------------

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Carrying
amount by property as at December 31, 2013:

|                                            | As
    at December 31, 2013
|------------------------------------------- | ---------------------------
|(in
    millions of U.S. dollars)           | Depletable                 
|mining
    interest by site                 |                            
|New
    Afton                               | 783.1                      
|Mesquite                                    | 166.3                      
|Peak
    Mines                              | 121.4                      
|Cerro
    San Pedro                         | 30.3                       
|Rainy
    River                             | -                          
|Blackwater                                  | -                          
|El
    Morro                                | -                          
|Other(1)                                    | -                          
|Carrying
    amount as at December 31, 2013 | 1,101.1                    

| | 1. | Other
                                         includes corporate balances and exploration properties.
| | -- | ------------------------------------------------------------------------------------------------------



10.
Impairment

In
accordance with the Company’s accounting policies, the recoverable amount of a CGU is estimated when an indication of impairment
exists. Indicators of impairment existed at the Mesquite CGU and the Cerro San Pedro CGU (both operating mines) and the Blackwater
CGU and the El Morro CGU (both development properties). At Mesquite and Cerro San Pedro the Company updated its Mineral Reserves
and Mineral Resources statements, which has reduced the Mineral Reserves and Mineral Resource estimate at the CGUs, and updated
the LOM plans, which revised the expected production profiles for each mine going forward. At Blackwater the decision was made
to close the exploration camp and slow down related project activity. On October 7, 2014 the Chilean Supreme Court invalidated
the El Morro project’s environmental permit and the permit was subsequently withdrawn by Sociedad Contractual Minera El
Morro. The Company has identified the revised production profile of Mesquite and Cerro San Pedro, along with the reduction in
Blackwater activity and the continued delays imposed in connection with various legal challenges at El Morro as indicators of
impairment and performed an impairment assessment to determine the recoverable amount of these CGUs.

For
the year ended December 31, 2014, the Company recorded after-tax impairment charges of $393.8 million within income from operations
(2013 - $206.3), as noted below:

|                                                             | Year
    ended December 31, 2014
|------------------------------------------------------------ | --------------------------------
|(in
    millions of U.S. dollars)                            |                                 
|Impairment
    charge included within income from operations |                                 
|Blackwater
    non-depletable mining interest                |                                 
|Cerro
    San Pedro depletable mining interest               |                                 
|Cerro
    San Pedro plant & equipment                        |                                 
|Total
    impairment charge before tax                       |                                 
|Tax
    recovery                                             |                                 
|Total
    impairment charge after tax                        |                                 



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|                                                                                                  |  | Year ended December 31, 2013
|------------------------------------------------------------------------------------------------- |  | ----------------------------
|(in millions of U.S. dollars)                                                                     |  | Cerro San Pedro             
|Impairment
                                         charge included within income from operations |  |                             
|Cerro San Pedro plant & equipment                                                                 |  | 3.5                         
|Cerro San Pedro depletable mining interest                                                        |  | 191.9                       
|Cerro San Pedro non-depletable mining interest                                                    |  | 70.7                        
|Peak Mines depletable mining interest                                                             |  | -                           
|Total impairment charge before tax                                                                |  | 266.1                       
|Tax recovery                                                                                      |  | (64.2)                      
|Total impairment charge after tax                                                                 |  | 201.9                       









(i)
Methodology and key assumptions

Impairment
is recognized when the carrying amount of a CGU exceeds its recoverable amount. 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 and development project represents a separate CGU as each mine site or project has the ability to, or the potential to, generate
cash inflows that are separately identifiable and independent of each other. The Company has the following CGUs: New Afton, Mesquite,
Peak Mines, Cerro San Pedro, Rainy River, Blackwater and El Morro. Other assets consist of corporate assets and exploration properties.

As
outlined in the accounting policies, the Company uses the fair value less cost of disposal to determine the recoverable amount
as it believes that this will generally result in a value greater than or equal to the value in use. When there is no binding
sales agreement, fair value less costs of disposal is estimated as the discounted future after-tax cash flows expected to be derived
from a mine site, less an amount for costs to sell estimated based on similar past transactions. The inputs used in the fair value
measurement constitute Level 3 inputs under the fair value hierarchy. Key estimates and judgments used in the fair value less
cost of disposal calculation are estimates of production levels, operating costs and capital expenditures reflected in the Company’s
LOM plans, the value of in situ ounces, exploration potential and land holdings, as well as economic factors beyond management’s
control, such as gold, silver and copper prices, discount rates and foreign exchange rates. The Company considers this approach
to be consistent with the valuation approach taken by market participants.

Life-of-Mine
plans

Estimated
cash flows are based on LOM plans which estimate expected future production, commodity prices, exchange assumptions, operating
costs and capital costs. Current LOM plans range from one to 17 years with an average mine life of 10 years. LOM plans use Proven
and Probable Mineral Reserves only and do not utilize Mineral Resource estimates for a CGU. When options exist for the future
extraction and processing of these Resources, an estimate of the value of the unmined Mineral Resources (also referred to as in-situ
ounces), along with an estimate of value of exploration potential is included in the determination of fair value.

In-situ
ounces and exploration potential

In-situ
ounces are excluded from the LOM plans due to the need to continually reassess the economic returns on and timing of specific
production options in the current economic environment. The value of in-situ ounces has been estimated using an enterprise value
per equivalent resource ounce, with the enterprise value based on the market capitalization of a subset of publicly traded companies.
A higher in-situ value has been applied to the operating and active development CGUs while a lower in-situ value has been applied
to longer term development projects. Estimated exploration potential has been determined by the Company based on industry standard
multiples.

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Land
Holdings

Land
value has been estimated on a per hectare basis with reference to recent comparable land purchases.

Discount
rates

When
discounting estimated future cash flows, the Company uses a real after-tax discount rate that is designed to approximate what
market participants would assign. This discount rate is calculated using the Capital Assets Pricing Model (“CAPM”)
with an additional premium applied as needed to reflect development or jurisdictional risk. The CAPM model includes market participant’s
estimates for equity risk premium, cost of debt, target debt to equity, risk free rates and inflation. For the December 31, 2014
impairment analysis, real discount rates of between 5% and 8% were used with an average rate of 5.80%.

Commodity
prices and exchange rates

Commodity
prices and exchange rates are estimated with reference to external market forecasts. The rates applied have been estimated using
consensus commodity prices and exchange rate forecasts. For the December 31, 2014 impairment analysis the following commodity
prices and exchange rate assumptions were used:

|                                          | 
|----------------------------------------- | 
|(in
    U.S. dollars, except where noted) | 
|Commodity
    prices                      | 
|Gold
    ($/ounce)                        | 
|Silver
    ($/ounce)                      | 
|Copper
    ($/pound)                      | 
|Exchange
    rates                        | 
|CAD:USD                                   | 
|AUD:USD                                   | 
|MXN:USD                                   | 
|CLP:USD                                   | 



Significant
judgments and assumptions are required in making estimates of fair value. It should be noted that the CGU valuations are subject
to variability in key assumptions including, but not limited to, long-term gold prices, currency exchange rates, discount rates,
production and operating and capital costs. An adverse change in one or more of the assumptions used to estimate fair value could
result in a reduction in a CGU’s fair value.

(ii)
Impact of impairment tests

As
noted above, at December 31, 2014, it was determined that there were indicators of impairment for the Mesquite CGU, the Cerro
San Pedro CGU, the Blackwater CGU and the El Morro CGU. The Company calculated the recoverable amount of these CGUs using the
fair value less cost of disposal method as noted above. For the year ended December 31, 2014 the Company recorded pre-tax impairment
charges of $395.8 million, $393.8 million net of tax (2013 - $272.5 million, $206.3 million net of tax) within income from operations
related to CGU level impairments, as noted above.

The
fair value of the Cerro San Pedro CGU has been significantly impacted by the short and medium-term gold and silver commodity prices
and the revised expected residual leach production profile. The fair value of the Blackwater CGU has been significantly impacted
by the timing of expected cash flows and the lower in-situ value applied to longer term development projects, in addition to a
lower gold price assumption.

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The
recoverable amount of Mesquite and El Morro exceeded their carrying value and accordingly no impairment charges were recorded
for these CGUs at the CGU level.

(iii)
Sensitivity analysis

After
effecting the impairments for Cerro San Pedro and Blackwater, the fair value of each of these CGUs is assessed as being equal
to their respective carrying amounts as at December 31, 2014. Any variation in the key assumptions used to determine fair value
would result in a change of the assessed fair value. If the variation in the assumptions had a negative impact on fair value,
it could indicate a requirement for additional impairment to the CGU. It is estimated that changes in the key assumptions would
have the following approximate impact on the fair value of Cerro San Pedro and Blackwater at December 31, 2014:

|                                                                          | 
|------------------------------------------------------------------------- | 
|(in
    millions of U.S. dollars)                                         | 
|Impact
    of changes in the key assumptions used to determine fair value | 
|$100
    per ounce change in gold price                                   | 
|0.5%
    change in discount rate                                          | 
|5%
    change in exchange rate                                            | 
|5%
    change in operating costs                                          | 
|5%
    change in in-situ ounces                                           | 



11.
Investment in associate

The
Company holds a 30% interest in Sociedad Contractual Minera El Morro (“SCM El Morro”), which holds the El Morro project,
a development copper-gold project located in the Atacama region of north-central Chile. Goldcorp Inc. (“Goldcorp”)
holds the remaining 70% interest in the project after completion of the Acquisition and Funding Agreement (the “Agreement”)
with the Company on February 16, 2010.

As
part of the Agreement, the Company received $50.0 million from Goldcorp. The Company has recorded the $50.0 million, net
of $3.7 million of transaction costs, as a deferred benefit which will be amortized into net earnings at the commencement of commercial
production over the life of the amended shareholder’s agreement. Goldcorp has agreed to fund 100% of the Company’s
El Morro funding commitments until commencement of commercial production, as outlined in Note 12 (c).

The
Company accounts for its investment in SCM El Morro using equity method accounting. Under the equity method, the investment is
initially recognized at cost, and the carrying amount is increased or decreased to recognize the Company’s share of the
net earnings after the date of acquisition. The Company adjusts SCM El Morro’s financial results to give effect to uniform
accounting policies. The amount recorded in net loss for the year ended December 31, 2014 related to SCM El Morro is a loss of
$0.7 million (2013 – $nil). The Company does not capitalize general borrowing interest to the project as it is accounted
for as an equity investment. The Company includes the carrying amount of SCM El Morro within mineral interests.

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El
Morro is a private entity that is not listed on any public exchange. The following table illustrates the summarized financial
information for the Company’s investment in SCM El Morro:

|                                                                      | As
    at December 31
|--------------------------------------------------------------------- | ---------------------
|(in
    millions of U.S. dollars)                                     |                      
|Investment
    in SCM El Morro                                        |                      
|Current
    assets                                                    |                      
|Non-current
    assets                                                |                      
|Current
    liabilities                                               |                      
|Equity                                                                |                      
|Portion
    of the Company’s ownership                                |                      
|The
    Company’s share of net assets in Associate                    |                      
|Initial
    purchase price allocation and other consolidation entries |                      
|Company’s
    share of the net loss of El Morro(1)                    |                      
|Carrying
    amount of the investment                                 |                      

| | 1. | The
                                         Company’s share of the net loss of SCM El Morro has been included within other
                                         (losses) gains.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12.
Long-term debt

Long-term
debt consists of the following:

|                                                       | As
    at  December 31
|------------------------------------------------------ | ----------------------
|(in
    millions of U.S. dollars)                      |                       
|Long-term
    debt                                     |                       
|Senior
    unsecured notes - due April 15, 2020 (a)    |                       
|Senior
    unsecured notes - due November 15, 2022 (b) |                       
|El
    Morro funding loan (c)                          |                       
|Revolving
    credit facility (d)                      |                       
|Total
    long-term debt                               |                       

(a) Senior
Unsecured Notes – due April 15, 2020

On
April 5, 2012, the Company issued $300.0 million of Senior Unsecured Notes (“2020 Unsecured Notes”). As at December 31,
2014 the face value was $300.0 million.The 2020 Unsecured Notes
are denominated in U.S. dollars, mature and become due and payable on April 15, 2020, and bear interest at the rate of 7% per
annum. Interest is payable in arrears in equal semi-annual instalments on April 15 and October 15 in each year.

The
Company incurred transaction costs of $8.0 million which have been offset against the carrying amount of the 2020 Unsecured Notes
and are being amortized to net earnings using the effective interest method.

The
2020 Unsecured Notes are subject to a minimum interest coverage incurrence covenant (EBITDA to interest) of 2:1. The test is applied
on a pro-forma basis prior to the Company incurring additional debt, entering into business combinations or acquiring significant
assets, or certain other corporate actions.

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The
2020 Unsecured Notes are redeemable by the Company in whole or in part:

| | • | At
                                         any time prior to April 15, 2016 at a redemption price of 100% of the aggregate principal
                                         amount of the 2020 Unsecured Notes, plus a make-whole premium, plus accrued and unpaid
                                         interest, if any, to the redemption date.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | During
                                         the 12-month period beginning on April 15 of the years indicated at the redemption prices
                                         below, expressed as a percentage of the principal amount of the 2020 Unsecured Notes
                                         to be redeemed, plus accrued and unpaid interest, if any, to the redemption date:
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date                    | Redemption
    prices (%)
|----------------------- | -------------------------
|2016                    | 103.50%                  
|2017                    | 101.75%                  
|2018
    and thereafter | 100.00%                  

(b) Senior
Unsecured Notes – due November 15, 2022

On
November 15, 2012, the Company issued $500.0 million of Senior Unsecured Notes (“2022 Unsecured Notes”). As at December
31, 2014 the face value was $500.0 million.The 2022 Unsecured
Notes are denominated in U.S. dollars, mature and become due and payable on November 15, 2022, and bear interest at the rate of
6.25% per annum. Interest is payable in arrears in equal semi-annual instalments on May 15 and November 15 in each year.

The
Company incurred transaction costs of $9.9 million which have been offset against the carrying amount of the 2022 Unsecured Notes
and are being amortized to net earnings using the effective interest method.

The
2022 Unsecured Notes are subject to a minimum interest coverage incurrence covenant (EBITDA to interest) of 2:1. The test is applied
on a pro-forma basis prior to the Company incurring additional debt, entering into business combinations or acquiring significant
assets, or certain other corporate actions.

The
2022 Unsecured Notes are redeemable by the Company in whole or in part:

| | • | At
                                         any time prior to November 15, 2017 at a redemption price of 100% of the aggregate principal
                                         amount of the 2022 Unsecured Notes, plus a make-whole premium, plus accrued and unpaid
                                         interest, if any, to the redemption date.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | During
                                         the 12-month period beginning on November 15 of the years indicated at the redemption
                                         prices below, expressed as a percentage of the principal amount of the 2022 Unsecured
                                         Notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date:
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date                    | Redemption
    prices (%)
|----------------------- | -------------------------
|2017                    | 103.13%                  
|2018                    | 102.08%                  
|2019                    | 101.04%                  
|2020
    and thereafter | 100.00%                  

(c) El
Morro funding loan

The
Company owns a 30% interest in the Chilean company SCM El Morro with Goldcorp Inc. (“Goldcorp”) holding the remaining
70% interest.  SCM El Morro is the operator of the El Morro project.

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Goldcorp
has agreed to fund 100% of the Company’s El Morro funding commitments until commencement of commercial production. These
amounts, plus interest, will be repaid out of 80% of the Company’s distributions once El Morro is in production.

The
interest rate on the Company’s share of the capital funded by Goldcorp is 4.58%. For the year ended December 31 2014, non-cash
investing activities were $6.3 million (2013 – $9.9 million) excluding accrued interest, and represent the Company’s
share of contributions to El Morro funded by Goldcorp. The loan is secured against all rights and interests of the Company’s
Chilean subsidiaries, including a pledge of the SCM El Morro shares, limiting recourse to the Company’s investment in its
Chilean subsidiaries.

(d) Revolving
credit facility

On
August 14, 2014, the Company replaced its $150.0 million revolving credit facility (due to expire on December 14, 2014) with a
$300.0 million revolving credit facility (the “Facility”) which expires on August 14, 2018. The Facility also provides
the Company with the option, subject to commitments, to draw an additional $50.0 million above and beyond the base $300.0 million.
The terms of the Facility result in a reduction in pricing compared to the replaced revolving credit facility. Net debt will continue
to be used to calculate leverage for the purpose of covenant tests and pricing levels and the Facility contains two financial
covenant tests, minimum interest coverage ratio and maximum leverage ratio, with the Facility no longer requiring the minimum
tangible net worth test which was required under the replaced revolving credit facility. The Facility also contains a lower limit
on the minimum interest coverage ratio and a higher limit on the maximum leverage ratio.

The
Facility contains various covenants customary for a loan facility of this nature, including limits on indebtedness, asset sales
and liens. Significant financial covenants are as follows:

|                                                         | Year
    ended December 31
|-------------------------------------------------------- | --------------------------
|                                                         | Financial
    covenant    
|Financial
    covenants                                  |                           
|Minimum
    interest coverage ratio (EBITDA to interest) | >3.0
    : 1              
|Maximum
    leverage ratio (net debt to EBITDA)          | <3.5
    : 1              



The
interest margin on drawings under the Facility ranges from 1.00% to 3.25% over LIBOR, the Prime Rate or the Base Rate, based on
the Company’s debt to EBITDA ratio and the currency and type of credit selected by the Company. The standby fees on undrawn
amounts under the Facility range from 0.45% to 0.73%, depending on the Company’s net debt to EBITDA ratio. Based on the
Company’s net debt to EBITDA ratio, the rate is 0.51% as at December 31, 2014 (2013 – 0.63% under the previous facility).

As
at December 31, 2014,the Company has not drawn any funds under
the Facility; however the Facility has been used to issue letters of credit of $18.8 million relating to environmental and reclamation
requirements at Cerro San Pedro, A$10.2 million for Peak Mines’ reclamation bond for the State of New South Wales, C$9.5
million for New Afton’s reclamation requirements, C$3.2 million for New Afton’s commitment to B.C. Hydro for power
and transmission construction work (the B.C. Hydro letter of credit will be released over time as New Afton consumes and pays
for power in the early period of operations), C$3.3 million for Blackwater’s reclamation requirements, and $1.5 million
relating to workers’ compensation security at Mesquite. The annual fees are 1.35% of the value of the outstanding letters
of credit which totalled $41.7 million as at December 31, 2014 (2013 - $43.1 million).

Subsequent
to the year end, on January 16, 2015 a letter of credit for C$14.3 million was issued to the Ministry of Northern Development
and Mines in Ontario, to satisfy the first part of the closure plan phased bonding requirement at the Rainy River project. The
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.

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13.
Derivative instruments

(a) Provisionally
priced contracts

During
the period, the Company had provisionally priced sales for which price finalization is outstanding at the statement of financial
position date. Realized and unrealized non-hedged derivative gains (losses) on the provisional pricing of concentrate sales are
classified as revenue. The following tables summarize these realized and unrealized gains (losses):

|Year ended December 31, 2014                                      
|------------------------------------------------------------------
|(in millions of U.S. dollars)                                     
|gains
    (losses) on the provisional pricing of concentrate sales
|Realized                                                          
|Unrealized                                                        
|Total gains (losses)                                              

|Year ended December 31, 2013                                      
|------------------------------------------------------------------
|(in millions of U.S. dollars)                                     
|gains
    (losses) on the provisional pricing of concentrate sales
|Realized                                                          
|Unrealized                                                        
|Total gains (losses)                                              



As
at December 31, 2014 the Company’s exposure to the impact of movements in market metal prices for provisionally priced contracts
was 30,000 ounces of gold and 51.2 million pounds of copper.

The
Company enters into copper swap contracts to reduce exposure to copper prices. Realized and unrealized gains (losses) are recorded
as revenue. The following table summarizes these realized and unrealized gains (losses):

|                                            | Year
    ended December 31
|------------------------------------------- | --------------------------
|(in
    millions of U.S. dollars)           |                           
|Gains
    (losses) on copper swap contracts |                           
|Realized                                    |                           
|Unrealized                                  |                           
|Total
    gains (losses)                    |                           



As
at December 31, 2014, the notional amount of copper underlying the swaps outstanding was 48.4 million pounds with settlement periods
ranging from January 2015 to June 2015.

(b) Gold
hedging contracts

On
May 15, 2013, the Company eliminated its legacy gold hedges that were associated with the 2008 project financing put in place
to develop Mesquite. The Company paid $65.7 million to fully close all hedges dated to December 2014. Hedge accounting with respect
to these contracts was discontinued on May 15, 2013.

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Prior
to the discontinuance of hedge accounting, the net amount of existing gains (losses) arising from the unrealized fair value of
the Company’s gold hedging contracts, which are derivatives that are designated as cash flow hedges and are reported in
other comprehensive income, was reclassified to net earnings as contracts were settled on a monthly basis. The amount of such
reclassification was dependent upon fair values and the amounts of the contracts settled.

At
the closing date of the hedge on May 15, 2013, the Company had unrecognized losses related to the gold hedging contracts of $46.3
million, which remained deferred in other reserves and are released to net loss in the same period in which the original designated
underlying forecast sales were to occur. For the year ended December 31, 2014 the Company transferred $27.3 million of these losses
to net loss (2013 - $18.7 million).

The
following table summarizes hedging gains (losses) in other comprehensive income:

|                                                                     | Year
    ended December 31
|-------------------------------------------------------------------- | --------------------------
|(in
    millions of U.S. dollars)                                    |                           
|Effective
    portion of change in fair value of hedging instruments |                           
|Gold
    hedging contracts – unrealized                              |                           
|Gold
    hedging contracts – realized                                |                           
|Deferred
    income tax                                              |                           
|Total
    hedging gains (losses) in other comprehensive income       |                           



(c) Share
purchase Warrants

The
following table summarizes information about the outstanding Warrants.

|Warrant
    Series             | Number
    of warrants | Commonshares issuable | Exercise
    price | Expiry
    date     
|------------------------------ | ---------------------- | --------------------- | ------------------ | --------------------
|                               | (000s)                 | (000s)                | C$                 |                     
|Outstanding
    Warrants       |                        |                       |                    |                     
|At
    December 31, 2014       |                        |                       |                    |                     
|New
    Gold Series A          | 27,850                 | 27,850                | 15                 | June
    28, 2017   
|Rainy
    River Warrants       | 50                     | 50                    | 20                 | February
    2, 2017
|Total
    outstanding warrants | 27,900                 | 27,900                |                    |                     
|At
    December 31, 2013       |                        |                       |                    |                     
|New
    Gold Series A          | 27,850                 | 27,850                | 15                 | June
    28, 2017   
|Rainy
    River Warrants       | 50                     | 50                    | 20                 | February
    2, 2017
|Total
    outstanding warrants | 27,900                 | 27,900                |                    |                     



The
Warrants are classified as a non-hedged derivative liability recorded at FVTPL liability due to the currency of the Warrants.
The Warrants are priced in Canadian dollars, which is not the functional currency of the Company. Therefore, the Warrants are
fair valued using the market price with gains or losses recorded in net loss.

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14.
Share capital

At
December 31, 2014, the Company had unlimited authorized common shares and 504.7 million common shares outstanding.

(a)
No par value common shares issued

|                                                      | Number
    of shares | 
|----------------------------------------------------- | -------------------- | 
|(in
    millions of U.S. dollars, except where noted) |                      | 
|No
    par value common shares issued                 |                      | 
|Balance
    at December 31, 2012                      |                      | 
|Exercise
    of options (i)                           |                      | 
|Exercise
    of warrants                              |                      | 
|Acquisition
    of Rainy River                        |                      | 
|Balance
    at December 31, 2013                      |                      | 
|Exercise
    of options (i)                           |                      | 
|Issuance
    of shares for land purchases             |                      | 
|Balance
    at December 31, 2014                      |                      | 
|                                                      |                      | 

(i) Exercise
of options

For
the year ended December 31, 2014, the Company issued 0.6 million common shares pursuant to the exercise of stock options (2013
– 1.5 million). The Company received proceeds of $1.6 million (2013 - $5.0 million) from these exercises and transferred
$1.0 million (2013 - $3.5 million) from contributed surplus.

(ii)
Acquisition of Bayfield Ventures

Subsequent
to the year end, on January 1, 2015, the Company acquired Bayfield Ventures Corp. and in connection with that acquisition, the
Company issued 3.8 million common shares. The shares issued were valued at C$5.21 for total consideration of $16.8 million.

(b)
Share-based payment expenses

The
following table summarizes share-based payment expenses for the year ended December 31:

|                                           | Year
    ended December 31
|------------------------------------------ | --------------------------
|(in
    millions of U.S. dollars)          |                           
|Share-based
    payment expenses           |                           
|Stock
    option expense (i)               |                           
|Performance
    share unit expense (ii)    |                           
|Restricted
    share unit expense(1) (iii) |                           
|Deferred
    share unit expense (iv)       |                           
|                                           |                           

| | 1. | For
                                         the year ended December 31, 2014 $2.0 million (2013 – $0.6 million) of restricted
                                         share unit expense was recognized in operating expenses.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(i)
Stock options

Under
the Company’s Stock Option Plan (the “Plan”), the maximum number of shares reserved for exercise of all options
granted by the Company may not exceed 3.5% of the Company’s shares issued and outstanding at the time the options are granted.
The exercise price of certain options granted under the Plan is the five-day volume weighted average share price preceding the
grant date. Other options have the exercise price equal to the share price on the date of issuance. Options granted under the
Plan expire no later than the fifth or seventh anniversary of the date the options were granted and vesting provisions for issued
options are determined at the discretion of the Board. Options granted under the Plan are settled for equity. The Company has
incorporated an estimated forfeiture rate for stock options that will not vest.

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The
following table presents the changes in the Plan:

|                                 | Number
    of options | Weighted
    avg. exercise price
|-------------------------------- | --------------------- | --------------------------------
|                                 |                       |                                 
|Changes
    to the plan          |                       |                                 
|Balance
    at December 31, 2012 |                       |                                 
|Granted                          |                       |                                 
|Exercised                        |                       |                                 
|Forfeited                        |                       |                                 
|Expired                          |                       |                                 
|Balance
    at December 31, 2013 |                       |                                 
|Granted(1)                       |                       |                                 
|Exercised                        |                       |                                 
|Forfeited                        |                       |                                 
|Expired                          |                       |                                 
|Balance
    at December 31, 2014 |                       |                                 
|                                 |                       |                                 

| | 1. | During
                                         the year ended December 31, 2014 the 2013 options were granted in February 2014 and the
                                         2014 options were granted in December 2014.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
weighted average fair value of the stock options granted during the year ended December 31, 2014 was C$2.10 (2013 – C$4.40).
Options were priced using a Black-Scholes option-pricing model. Expected volatility is measured as the annualized standard deviation
of stock price returns, based on historical movements of the Company’s share price. The grant date fair value will be amortized
as part of compensation expense over the vesting period.

The
Company had the following weighted average assumptions in the Black-Scholes option-pricing model:

|                                                                           | Year
    ended December 31
|-------------------------------------------------------------------------- | --------------------------
|                                                                           |                           
|Weighted
    average assumptions in the Black-Scholes option-pricing model |                           
|Grant
    price                                                            |                           
|Expected
    dividend yield                                                |                           
|Expected
    volatility                                                    |                           
|Risk-free
    interest rate                                                |                           
|Expected
    life of options                                               |                           



At
December 31, 2014 the Company had 7.8 million stock options that were exercisable with a weighted average exercise price of C$6.14
(2013 – 6.8 million with a weighted average exercise price of C$5.05). For the year ended December 31, 2014, the weighted
average share price on the date of exercise was C$6.03 (2013 – C$8.31). The options vest one third a year over a three-year
period beginning on the first anniversary of the grant date.

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The
following table summarizes information about the stock options outstanding as at December 31, 2014:



|                      | Options outstanding                      | Options exercisable          
|--------------------- | ---------------------------------------- | -----------------------------
|                      | Weighted avg. remaining contractual life | Number of options outstanding
|Exercise
    price C$ | (years)                                  | (000s)                       
|0.87 - 0.99           | 0.7                                      | 100.0                        
|2.00 - 2.99           | 1.1                                      | 610.6                        
|3.00 - 3.99           | 1.4                                      | 2,440.0                      
|4.00 - 4.99           | 4.2                                      | 3,626.9                      
|5.00 - 5.99           | 2.8                                      | 494.1                        
|6.00 - 6.99           | 4.2                                      | 1,792.8                      
|7.00 - 7.99           | 3.1                                      | 1,513.8                      
|8.00 - 8.99           | 2.6                                      | 273.0                        
|9.00 - 9.99           | 1.4                                      | 93.5                         
|10.00
    - 10.99     | 3.1                                      | 1,336.3                      
|11.00
    - 11.99     | 2.1                                      | 1,574.0                      
|12.00
    - 12.22     | 1.9                                      | 75.0                         
|Total options         | 3.0                                      | 13,930.0                     

(ii)
Performance share units

Performance
share units (“PSUs”) are granted under the Company’s long-term incentive plan (“LTIP”). PSUs vest
on their entitlement date. The number of shares to be issued (or the amount of cash to be paid) on the entitlement date of
PSU will vary from 50% to 150% of the number of the PSUs granted, depending on (“Achieved Performance”) New Gold’s
total shareholder return compared to the return of the S&P/TSX Global Gold Index (the “Index”) for each year in
the three calendar years after the year of service to which the award relates and over that three-year period (each, a “Measurement
Period”).  If New Gold’s total shareholder return exceeds the return of the Index in a Measurement Period, the
Achieved Performance for that period will be over 100%.  Similarly, if New Gold’s total shareholder return is less
than the return of the Index in a Measurement Period, the Achieved Performance for that period will be less than 100%.  On
the entitlement date, a PSU may be settled: (i) in cash equal to the five-day volume weighted average price of the Company’s
common shares on the TSX multiplied by the number of PSUs and the Achieved Performance; or (ii) at the discretion of the Board,
by the issuance of the equivalent number of common shares of New Gold as the number of PSUs multiplied by the Achieved Performance,
in lieu of a cash payment, or (iii) a combination of both. Under the Company’s LTIP, the maximum number of shares reserved
for exercise of PSUs granted by the company may not exceed 1.25% of the Company’s shares issued and outstanding at the time
the PSUs are granted.

On
April 30th, 2014, at the Company’s annual general and special meeting of shareholders, the terms of the PSUs
were modified to allow, at the discretion of the Board, the issuance of the equivalent number of common shares in lieu of a cash
payment. This modification resulted in the PSUs being reclassified as equity settled share-based payments and the outstanding
liability at April 30, 2014 was transferred to contributed surplus. The fair value of PSUs is established using the Monte Carlo
option pricing model which considers the future risk-free interest rate, future dividend payments, future share price volatility
and the correlation between the Company’s total return performance relative to the Index. As outlined above the correlation
between the Company’s total return performance relative to the Index will determine number of units expected to vest, which
is estimated at the grant date. The fair value of PSUs is amortized as part of compensation expense over the vesting period.

40WWW.NEWGOLD.COM   TSX:NGD  NYSE MKT:NGD














The
Company issued 1.6 million PSUs for the year ended December 31, 2014 (2013 – 0.6 million). At December 31, 2014 the Company
had 2.0 million PSUs outstanding with a weighted average fair value of C$5.37. The table below presents changes to the number
of PSUs outstanding under the LTIP.

(iii)
Restricted share units

Restricted
share units (“RSUs”) are granted under the LTIP. Each RSU allows the recipient, subject to certain plan restrictions,
to receive cash on the vesting date equal to the volume weighted average trading price of the Company’s common shares on
the TSX for the five trading days prior to the vesting date. RSUs vest in three equal annual instalments commencing no later than
12 months from the end of the year for which the performance is being rewarded. As the Company is required to settle RSUs in cash,
it will record an accrued liability and record a corresponding compensation expense. The RSU is a financial instrument that will
be fair valued at each reporting date based on the five-day volume weighted average price of the Company’s common shares.
The changes in fair value will be included in the compensation expense for that period. It is expected that the liability will
be included in the determination of net earnings over the next 1.7 years (2013 – 1.7 years). The table below presents changes
to the number of RSUs outstanding under the LTIP.

(iv)
Deferred share units

In
2010, the Company established a deferred share unit (“DSU”) plan for the purposes of strengthening the alignment of
interests between eligible directors of the Company and shareholders by linking a portion of the annual director compensation
to the future value of the Company’s common shares.

A
director is only entitled to payment in respect of the DSUs granted to him or her when the director ceases to be a director of
the Company for any reason. On termination, the Company shall redeem each DSU held by the director for payment in cash, being
the product of: (i) the number of DSUs held by the director on ceasing to be a director and (ii) the greater of either (a) the
weighted average trading price or (b) the average of daily high and low board lot trading prices of the Company’s common
shares on the TSX for the five consecutive trading days immediately prior to the date of termination.

As
the Company is currently required to settle this award in cash, it will record an accrued liability and a corresponding compensation
expense. DSUs are financial instruments that will be fair valued at each reporting date based on the performance measurement criteria.
The table below presents the changes to the DSU plan.



|                                 |                     |                     |                    
|-------------------------------- | ------------------- | ------------------- | -------------------
|(in thousands of units)          | PSU number of units | RSU number of units | DSU number of units
|Changes to the LTIP and DSU plan |                     |                     |                    
|Balance at December 31, 2012     | -                   | 610                 | 79                 
|Granted                          | 560                 | 575                 | 68                 
|Settled/Exercised                | -                   | (606)               | -                  
|Forfeited                        | (20)                | (82)                | -                  
|Balance at December 31, 2013     | 540                 | 497                 | 147                
|Granted(1)                       | 1,550               | 2,456               | 88                 
|Settled/Exercised                | -                   | (611)               | -                  
|Forfeited                        | (101)               | (118)               | -                  
|Balance at December 31, 2014     | 1,989               | 2,224               | 235                

| | 1. | During
                                         the year ended December 31, 2014 the 2013 PSUs and RSUs awards were granted in February
                                         2014 and the 2014 PSUs and RSUs awards were granted in December 2014.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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(c)
Loss per share

The
following table sets out the computation of diluted loss per share:

|                                                                        | Year
    ended December 31
|----------------------------------------------------------------------- | --------------------------
|(in
    millions of U.S. dollars, except where noted)                   |                           
|Computation
    of diluted loss per share                               |                           
|Net
    loss                                                            |                           
|Basic
    weighted average number of shares outstanding (in millions)   |                           
|Dilution
    of securities:                                             |                           
|Stock
    options                                                       |                           
|Diluted
    weighted average number of shares outstanding (in millions) |                           
|Net
    (loss) earnings per share:                                      |                           
|Basic                                                                   |                           
|Diluted                                                                 |                           
|                                                                        |                           



The
following table lists the equity securities excluded from the computation of diluted earnings per share. The securities were excluded
as the exercise prices relating to the particular security exceed the average market price of the Company’s common shares
of C$5.95 for the year ended December 31, 2014 (2013 – C$7.48), or the inclusion of the equity securities had an anti-dilutive
effect on net loss.

For
the periods in which the Company records a loss, diluted loss per share is calculated using basic weighted average number of shares
outstanding, as using the diluted weighted average number of shares outstanding in the calculation would be anti-dilutive.

|                                                                                  | Year
    ended December 31
|--------------------------------------------------------------------------------- | --------------------------
|(in
    millions of units)                                                        |                           
|Equity
    securities excluded from the computation of diluted earnings per share |                           
|Stock
    options                                                                 |                           
|Warrants                                                                          |                           

42WWW.NEWGOLD.COM   TSX:NGD  NYSE MKT:NGD







15.
Income and mining taxes

The
following table outlines the composition of income tax expense between current tax and deferred tax:

|                                                      | Year
    ended December 31
|----------------------------------------------------- | --------------------------
|(in
    millions of U.S. dollars)                     |                           
|Current
    income and mining tax expense (recovery)  |                           
|Canada                                                |                           
|United
    States                                     |                           
|Australia                                             |                           
|Mexico                                                |                           
|Other                                                 |                           
|                                                      |                           
|Deferred
    income and mining tax expense (recovery) |                           
|Canada                                                |                           
|United
    States                                     |                           
|Australia                                             |                           
|Mexico                                                |                           
|Other                                                 |                           
|                                                      |                           
|Total
    income tax expense                          |                           



Income
tax expense differs from the amount that would result from applying the Canadian federal and provincial income tax rates to earnings
before taxes. The differences result from the following items:

|                                                                      | Year
    ended December 31
|--------------------------------------------------------------------- | --------------------------
|(in
    millions of U.S. dollars)                                     |                           
|Loss
    before taxes                                                 |                           
|Canadian
    federal and provincial income tax rates                  |                           
|Income
    tax expense based on above rates                           |                           
|Increase
    (decrease) due to                                        |                           
|Non-taxable
    income                                                |                           
|Non-deductible
    expenditures                                       |                           
|Non-deductible
    Blackwater impairment charge                       |                           
|Different
    statutory tax rates on earnings of foreign subsidiaries |                           
|Foreign
    exchange on non-monetary assets and liabilities           |                           
|Other
    foreign exchange differences                                |                           
|Prior
    years adjustments relating to tax provision and tax returns |                           
|Canadian
    mining tax                                               |                           
|Mexican
    special duty tax                                          |                           
|Uncertain
    tax position                                            |                           
|Withholding
    tax                                                   |                           
|Rate
    change in period                                             |                           
|Change
    in unrecognized deferred tax assets                        |                           
|Other                                                                 |                           
|Income
    tax expense                                                |                           





43WWW.NEWGOLD.COM   TSX:NGD  NYSE MKT:NGD














Effective
April 1, 2013, the British Columbia corporate tax rate increased from 10% to 11%. This resulted in an increase to the statutory
tax rate to 25.9% compared to 25.8% in the comparative periods.

A
Mexican Tax Reform Bill was published by the Official Gazetteon December 11, 2013 and took effect on January 1, 2014.
This enacted legislation included the imposition of a tax deductible 7.5% Special Mining Duty based on earnings before the deduction
of interest, taxes, depreciation and amortization. The legislation also included the imposition of an additional 0.5% Extraordinary
Mining Duty on precious metals revenue as well as maintaining the corporate tax rate at 30% as opposed to reducing it to 28% as
originally planned. For the year ended December 31, 2014, the Company recognized a non-cash deferred tax recovery of $1.5 million
(2013 – expense of $3.0 million) in relation to the Special Mining Duty, which is recorded within the income tax expense
section of the consolidated income statement, as it is considered an income tax. The Extraordinary Mining Duty is considered a
royalty and it is recorded in operating expenses.

A
deferred tax expense of $46.8 million has been recorded during the year ended December 31, 2014 as a result of the change in the
tax rate used in Chile from 20% to 35% due to the enactment of new legislation which was published in the Chilean Official
Gazette on September 29, 2014. This adjustment is included in the rate reconciling item of $47.9 million for rate change in
the year.

The
following tables provides analysis of the deferred tax assets and liabilities as at December 31, 2014:





|                                               |         |         |           | As
    at December 31, 2014
|---------------------------------------------- | ------- | ------- | --------- | ---------------------------
|(in millions of U.S. dollars)                  | Canada  | USA     | Australia | Mexico                     
|Deferred
    tax assets                        |         |         |           |                            
|Unused non-capital losses                      | 68.7    | 12.5    | -         | -                          
|Investment tax credits / government assistance | 44.8    | -       | -         | -                          
|Alternative minimum tax credits                | -       | 10.3    | -         | -                          
|Decommissioning obligations                    | 4.8     | 4.3     | 4.9       | 6.2                        
|Accrued liabilities and provisions             | 0.5     | 0.3     | 3.3       | 0.8                        
|Ontario Mining Tax                             | 1.1     | -       | -         | -                          
|Other                                          | 4.2     | -       | -         | 1.6                        
|                                               | 124.1   | 27.4    | 8.2       | 8.6                        
|Deferred tax liabilities                       |         |         |           |                            
|Mining interests                               | (175.6) | (65.5)  | (47.1)    | -                          
|Property, plant and equipment                  | (16.1)  | (34.8)  | 2.2       | (7.7)                      
|British Columbia Mining Tax                    | (24.7)  | -       | -         | -                          
|Mexican Mining Royalty                         | -       | -       | -         | (0.8)                      
|Other                                          | (3.4)   | (6.6)   | (1.6)     | (2.3)                      
|                                               | (219.8) | (106.9) | (46.5)    | (10.8)                     
|Deferred income tax liabilities, net(1)        | (95.7)  | (79.5)  | (38.3)    | (2.2)                      





| | 1. | Deferred
                                         tax assets and liabilities have been offset where they relate to income taxes levied
                                         by the same taxation authority and the Company has the legal right and intent to offset.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



44WWW.NEWGOLD.COM   TSX:NGD  NYSE MKT:NGD


















|                                               |         |         |           |        | As at December 31, 2013
|---------------------------------------------- | ------- | ------- | --------- | ------ | -----------------------
|(in millions of U.S. dollars)                  | Canada  | USA     | Australia | Mexico | Chile                  
|Deferred
    tax assets                        |         |         |           |        |                        
|Unused non-capital losses                      | 66.9    | 2.9     | -         | -      | -                      
|Investment tax credits / government assistance | 44.2    | -       | -         | -      | -                      
|Alternative minimum tax credits                | -       | 10.3    | -         | -      | -                      
|Derivative instruments / hedging               | -       | 5.7     | -         | -      | -                      
|Decommissioning obligations                    | 4.5     | 4.3     | 5.0       | 6.5    | -                      
|Accrued liabilities and provisions             | 0.6     | 0.3     | 3.3       | 0.6    | -                      
|British Columbia Mining Tax                    | 3.0     | -       | -         | -      | -                      
|Ontario Mining Tax                             | 4.2     | -       | -         | -      | -                      
|Other                                          | 6.9     | -       | -         | 1.6    | -                      
|                                               | 130.3   | 23.5    | 8.3       | 8.7    | -                      
|Deferred tax liabilities                       |         |         |           |        |                        
|Mining interests                               | (160.2) | (69.2)  | (49.4)    | 3.8    | (71.4)                 
|Property, plant and equipment                  | 21.4    | (33.8)  | 1.3       | (3.8)  | -                      
|British Columbia Mining Tax                    | (2.5)   | -       | -         | -      | -                      
|Mexican Mining Royalty                         | -       | -       | -         | (2.7)  | -                      
|Other                                          | (3.6)   | (4.4)   | (1.8)     | (2.5)  | -                      
|                                               | (144.9) | (107.4) | (49.9)    | (5.2)  | (71.4)                 
|Deferred income tax liabilities, net(1)        | (14.6)  | (83.9)  | (41.6)    | 3.5    | (71.4)                 



| | 1. | Deferred
                                         tax assets and liabilities have been offset where they relate to income taxes levied
                                         by the same taxation authority and the Company has the legal right and intent to offset.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
following table outlines the movement in the net deferred tax liabilities:

|                                                            | Year
    ended December 31
|----------------------------------------------------------- | --------------------------
|(in
    millions of U.S. dollars)                           |                           
|Movement
    in the net deferred tax liabilities            |                           
|Balance
    at the beginning of the year                    |                           
|Recognized
    in net loss                                  |                           
|Recognized
    in other comprehensive income                |                           
|Recognized
    as reduction in mineral properties           |                           
|Recognized
    as foreign exchange                          |                           
|Recognized
    on acquisition of Rainy River Resources Inc. |                           
|Other                                                       |                           
|Total
    movement in the net deferred tax liabilities      |                           



Deferred
income tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through
future taxable profits is probable. The Company did not recognize deductible temporary differences on the following losses by
country:

| | • | Canadian
                                         income tax losses of $34.5 million expire between 2015 to 2034;
| | - | -----------------------------------------------------------------------------------------------------------------

| | • | Canadian
                                         capital loss carry-forwards of $39.6 million with no expiry date;
| | - | -------------------------------------------------------------------------------------------------------------------

| | • | United
                                         States loss carry-forwards of $6.8 million expire between 2021 to 2028;
| | - | -----------------------------------------------------------------------------------------------------------------------

| | • | Mexican
                                         loss carry forwards of $29.3 million expire between 2015 to 2017; and
| | - | ----------------------------------------------------------------------------------------------------------------------

| | • | Other
                                         loss carry-forwards of $7.2 million with varying expiry dates.
| | - | -------------------------------------------------------------------------------------------------------------



45WWW.NEWGOLD.COM   TSX:NGD  NYSE MKT:NGD














In
addition to the above, the Company did not recognize deductible temporary differences of $182.3 million (2013 - $76.6 million)
on other temporary differences.

The
Company has $100.7 million (2013 - $62.6 million) of temporary differences associated with investment in Subsidiaries on which
deferred tax liabilities have not been recognized.

The
Company recognizes deferred taxes by taking into account the effects of local enacted tax legislation. Deferred tax assets are
fully recognized when the Company concludes that sufficient positive evidence exist to demonstrate that it is probable that a
deferred tax asset will be realized. The main factors that the Company considers, but are not limited to, are:

| | • | Historic
                                         and expected future taxable income;
| | - | -------------------------------------------------------------------------------------

| | • | Any
                                         tax planning that can be implemented to realize the tax assets; and
| | - | ----------------------------------------------------------------------------------------------------------------

| | • | The
                                         nature, amount and timing and reversal of taxable temporary differences.
| | - | ---------------------------------------------------------------------------------------------------------------------

Future
income is impacted by changes in market gold, copper and silver prices as well as forecasted future costs and expenses to produce
gold and copper Reserves. In addition, the quantities of Proven and Probable gold and copper Reserves, market interest rates and
foreign currency exchange rates also impact future levels of taxable income. Any change in any of these factors will result in
an adjustment to the recognition of deferred tax assets to reflect the Company's latest assessment of the amount of deferred tax
assets that is probable will be realized.

16.
Reclamation and closure cost obligations

Changes
to the reclamation and closure cost obligations are as follows:

|                                                    |           |          |            |                 |            |      
|--------------------------------------------------- | --------- | -------- | ---------- | --------------- | ---------- | -----
|(in millions of U.S. dollars)                       | New Afton | Mesquite | Peak Mines | Cerro San Pedro | Blackwater | Total
|Changes to reclamation and closure cost obligations |           |          |            |                
|Balance – December 31, 2012                         | 10.4      | 11.4     | 22.6       | 18.7            | 8.7        | 71.8 
|Reclamation expenditures                            | (0.9)     | (0.9)    | (0.2)      | (0.2)           | -          | (2.2)
|Unwinding of discount                               | 0.2       | 0.2      | 0.7        | 0.2             | 0.2        | 1.5  
|Revisions to expected cash flows                    | (0.9)     | (0.1)    | (3.9)      | 0.1             | 1.0        | (3.8)
|Foreign exchange movement                           | (0.6)     | -        | (3.2)      | (0.1)           | (0.4)      | (4.3)
|Balance – December 31, 2013                         | 8.2       | 10.6     | 16.0       | 18.7            | 9.5        | 63.0 
|Less: current portion of closure costs (Note 7)     | (0.3)     | (0.7)    | (0.5)      | (0.1)           | -          | (1.6)
|Non-current portion of closure costs                | 7.9       | 9.9      | 15.5       | 18.6            | 9.5        | 61.4 
|Balance – December 31, 2013                         | 8.2       | 10.6     | 16.0       | 18.7            | 9.5        | 63.0 
|Reclamation expenditures                            | (0.3)     | (0.2)    | (0.1)      | (0.8)           | -          | (1.4)
|Unwinding of discount                               | 0.2       | 0.2      | 0.6        | 0.5             | 0.3        | 1.8  
|Revisions to expected cash flows                    | 0.9       | 0.5      | 1.4        | 3.1             | 1.0        | 6.9  
|Foreign exchange movement                           | (0.7)     | -        | (1.5)      | (2.1)           | (0.8)      | (5.1)
|Balance – December 31, 2014                         | 8.3       | 11.1     | 16.4       | 19.4            | 10.0       | 65.2 
|Less: current portion of closure costs (Note 7)     | (0.2)     | (0.7)    | (0.5)      | (0.3)           | -          | (1.7)
|Non-current portion of closure costs                | 8.1       | 10.4     | 15.9       | 19.1            | 10.0       | 63.5 



46WWW.NEWGOLD.COM   TSX:NGD  NYSE MKT:NGD














Each
period the Company reviews cost estimates and other assumptions used in the valuation of the obligations at each of its mining
properties and development properties to reflect events, changes in circumstances and new information available. Changes in these
cost estimates and assumptions have a corresponding impact on the fair value of the obligation. The fair values of the obligations
are measured by discounting the expected cash flows using a discount factor that reflects the credit-adjusted risk-free rate of
interest. The Company prepares estimates of the timing and amount of expected cash flows when an obligation is incurred. Expected
cash flows are updated to reflect changes in facts and circumstances. The principal factors that can cause expected cash flows
to change are: the construction of new processing facilities; changes in the quantities of material in Reserves and a corresponding
change in the life-of-mine plan; changing ore characteristics that impact required environmental protection measures and related
costs; changes in water quality that impact the extent of water treatment required; and changes in laws and regulations governing
the protection of the environment. When expected cash flows increase, the revised cash flows are discounted using a current discount
factor whereas when expected cash flows decrease, the reduced cash flows are discounted using a historic discount factor, and
then in both cases any change in the fair value of the obligation is recorded. The fair value of an obligation is recorded when
it is incurred.

For
the year ended December 31, 2014, the Company updated the reclamation and closure cost obligations for each of its mine sites.
The impact of these assessments was an increase of $6.9 million (2013 – $3.8 million), which related to a decrease in the
current discount factor and changes in future reclamation activities at the mine sites. A significant portion of this increase
occurred at Cerro San Pedro as a result of a decrease in the current discount factor.

The
majority of the expenditures are expected to occur between 2020 and 2025. The discount rates used in estimating the site reclamation
and closure cost obligations were between 1.5% and 2.7% for the year ended December 31, 2014 (2013 – 2.5% and 4.1%), and
the inflation rate used was between 1.7% and 4.1% for the year ended December 31, 2014 (2013 – 2.0% and 4.2%).

Regulatory
authorities in certain jurisdictions require that security be provided to cover the estimated reclamation and remediation obligations.
As at December 31, 2014, letters of credit totalling $37.7 million (2013 - $39.1 million) had been issued to various regulatory
agencies to satisfy financial assurance requirements for this purpose. The letters of credit are secured by the revolving credit
facility (Note 12 (d)), and the annual fees are 1.35% of the value of the outstanding letters of credit.

17.
Supplemental cash flow information

Supplemental
cash flow information (included within operating activities) is as follows:

|                                                       | Year
    ended December 31
|------------------------------------------------------ | --------------------------
|(in
    millions of U.S. dollars)                      |                           
|Change
    in non-cash operating working capital       |                           
|Trade
    and other receivables                        |                           
|Inventories                                            |                           
|Prepaid
    expenses and other                         |                           
|Trade
    and other payables                           |                           
|Total
    change in non-cash operating working capital |                           



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|                                                              | Year
    ended December 31
|------------------------------------------------------------- | --------------------------
|(in
    millions of U.S. dollars)                             |                           
|other
    Non-cash adjustments                                |                           
|Unrealized
    gains on share purchase warrants               |                           
|Unrealized
    losses on concentrate contracts                |                           
|Impairment
    loss on AFS securities                         |                           
|Equity
    settled share-based payment expense                |                           
|Company’s
    share of net loss in El Morro                   |                           
|Realized
    and unrealized losses on cash flow hedging items |                           
|Total
    other non-cash adjustments                          |                           



18.
Segmented information

(a)
Segment revenues and results

The
Company manages its reportable operating segments by operating mines, development projects and exploration projects. The results
from operations for these reportable operating segments are summarized in the following tables:

|Year
    ended December 31, 2014        
|----------------------------------------
|(in
    millions of U.S. dollars)       
|Operating
    segment results           
|Gold
    revenues                       
|Copper
    revenues                     
|Silver
    revenues                     
|Total
    revenues(2)                   
|Operating
    expenses                  
|Depreciation
    and depletion          
|Earnings
    (loss) from mine operations
|Corporate
    administration            
|Share-based
    payment expenses        
|Asset
    impairment                    
|Exploration
    and business development
|Income
    (loss) from operations       
|Finance
    income                      
|Finance
    costs                       
|Other
    gains (losses)                
|Earnings
    (loss) before taxes        
|Income
    tax recovery (expense)       
|Net
    earnings (loss)                 

| | 1. | Other
                                         includes balances relating to the development and exploration properties that have no
                                         revenues or operating costs. The asset impairment charge included in Other relates to
                                         the impairment of the Blackwater non-depletable mining interest, as discussed in Note
                                         10.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Segmented
                                         revenue reported above represents revenue generated from external customers. There were
                                         no inter-segment sales in the period.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|                                     |           |          |            |                 |           |          |        
|------------------------------------ | --------- | -------- | ---------- | --------------- | --------- | -------- | -------
|(in millions of U.S. dollars)        | New Afton | Mesquite | Peak Mines | Cerro San Pedro | Corporate | Other(1) | Total  
|Operating segment results            |           |          |            |                 |           |          |        
|Gold revenues                        | 105.1     | 113.7    | 135.9      | 139.1           | -         | -        | 493.8  
|Copper revenues                      | 210.1     | -        | 39.8       | -               | -         | -        | 249.9  
|Silver revenues                      | 3.5       | -        | 2.0        | 30.5            | -         | -        | 36.0   
|Revenues(2)                          | 318.7     | 113.7    | 177.7      | 169.6           | -         | -        | 779.7  
|Operating expenses                   | 105.7     | 94.3     | 126.4      | 109.1           | -         | -        | 435.5  
|Depreciation and depletion           | 93.7      | 25.2     | 32.4       | 26.1            | -         | -        | 177.4  
|Earnings (loss) from mine operations | 119.3     | (5.8)    | 18.9       | 34.4            | -         | -        | 166.8  
|Corporate administration             | -         | -        | -          | -               | 26.7      | -        | 26.7   
|Share-based payment expenses         | -         | -        | -          | -               | 8.5       | -        | 8.5    
|Asset impairment                     | -         | -        | 6.4        | 266.1           | -         | -        | 272.5  
|Exploration and business development | 11.1      | 3.5      | 5.7        | -               | 0.4       | 13.4     | 34.1   
|Income from operations               | 108.2     | (9.3)    | 6.8        | (231.7)         | (35.6)    | (13.4)   | (175.0)
|Finance income                       | 0.1       | -        | 0.9        | -               | 0.8       | 0.9      | 2.7    
|Finance costs                        | (0.6)     | (0.2)    | (0.9)      | (0.3)           | (34.8)    | (3.5)    | (40.3) 
|Rainy River acquisition costs        | -         | -        | -          | -               | (5.0)     | -        | (5.0)  
|Other gains (losses)                 | (18.0)    | 7.2      | (1.4)      | (0.9)           | 49.6      | (10.5)   | 26.0   
|Earnings (loss) before taxes         | 89.7      | (2.3)    | 5.4        | (232.9)         | (25.0)    | (26.5)   | (191.6)
|Income tax recovery (expense)        | (36.2)    | (22.9)   | (4.2)      | 46.9            | 11.6      | 5.2      | 0.4    
|Net earnings (loss)                  | 53.5      | (25.2)   | 1.2        | (186.0)         | (13.4)    | (21.3)   | (191.2)



| | 1. | Other
                                         includes balances relating to the development and exploration properties that have no
                                         revenues or operating costs.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Segmented
                                         revenue reported above represents revenue generated from external customers. There were
                                         no inter-segment sales in the period.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(b)
Segmented assets and liabilities

The
following table present the segmented assets and liabilities as at December 31:

|                                     | Total
    assets | Total
    liabilities | Capital
    expenditure(1)
|------------------------------------ | ---------------- | --------------------- | --------------------------
|(in
    millions of U.S. dollars)    | 2014             | 2013                  | 2014                      
|Segmented
    assets and liabilities |                  |                       |                           
|New
    Afton                        | 1,177.1          | 1,161.8               | 133.9                     
|Mesquite                             | 475.8            | 437.9                 | 134.3                     
|Peak
    Mines                       | 300.4            | 310.1                 | 88.9                      
|Cerro
    San Pedro                  | 145.1            | 178.5                 | 57.8                      
|Rainy
    River                      | 507.5            | 453.7                 | 76.1                      
|Blackwater                           | 542.9            | 886.7                 | 53.7                      
|El
    Morro (2)                     | 438.7            | 433.1                 | 247.4                     
|Other(3)                             | 294.3            | 340.5                 | 818.5                     
|Total
    assets and liabilities     | 3,881.8          | 4,202.3               | 1,610.6                   
|                                     |                  |                       |                           

| | 1. | Capital
                                         expenditure per consolidated statement of cash flows.
| | -- | ------------------------------------------------------------------------------------------------------

| | 2. | Capital
                                         expenditure at El Morro is funded by the El Morro funding loan.
| | -- | ----------------------------------------------------------------------------------------------------------------

| | 3. | Other
                                         includes corporate balances and exploration properties.
| | -- | ------------------------------------------------------------------------------------------------------



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c)
Geographical information

The
Company operates in five principal geographical areas - Canada (country of domicile), Mexico, the United States, Australia and
Chile. The Company's revenue by location of operations and information about the Company’s non-current assets by location
of assets are detailed below for the year ended December 31.

|Revenue(1)                                     | Non-current
    assets(2)
|---------------------------------------------- | -------------------------
|(in
    millions of U.S. dollars)              | 2014                     
|Revenue
    and non-current assets by location |                          
|Canada                                         | 350.2                    
|United
    States                              | 102.4                    
|Australia                                      | 168.3                    
|Mexico                                         | 105.1                    
|Chile                                          | -                        
|Other                                          | -                        
|Total                                          | 726.0                    

| | 1. | Presented
                                         based on the location in which the sale originated.
| | -- | ------------------------------------------------------------------------------------------------------

| | 2. | Non-current
                                         assets exclude financial instruments (investments, reclamation deposits and other) and
                                         deferred tax assets.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(d)
Information about major customers

The
following table presents sales to individual customers exceeding 10% of annual sales for the following periods. The following
five customers represent 78% (2013 – 81%) of the Company’s concentrate and doré sales revenue for the year
ended December 31.

|                                                           |                        |       | Year
    ended December 31
|---------------------------------------------------------- | ---------------------- | ----- | --------------------------
|(in
    millions of U.S. dollars)                          |                        |       | 2014                      
|Customer                                                   | Reporting
    segment  |       |                           
|1                                                          | Mesquite(1)            |       |                           
|                                                           | Cerro
    San Pedro(1) |       |                           
|2                                                          | New
    Afton          |       |                           
|3                                                          | New
    Afton          |       |                           
|4                                                          | Peak
    Mines         |       |                           
|5                                                          | Peak
    Mines         |       |                           
|Total
    sales to customers exceeding 10% of annual sales | 569.1                  | 633.7
|                                                           |                        |       |                           

| | 1. | Mesquite
                                         and Cerro San Pedro both sell to the same customer.
| | -- | -----------------------------------------------------------------------------------------------------



The
Company is not economically dependent on a limited number of customers for the sale of its product because gold can be sold through
numerous commodity market traders worldwide. Refer to Note 20(a) for further discussion on the Company’s exposure to Credit
Risk.

19.
Capital risk management

The
Company manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to stakeholders
through the optimization of the debt and equity balance.

In
the management of capital, the Company includes the components of equity, long-term debt, net of cash and cash equivalents, and
investments.

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|                                                        | Year
    ended December 31
|------------------------------------------------------- | --------------------------
|(in
    millions of U.S. dollars)                       |                           
|Capital
    (as defined above) is summarized as follows |                           
|Equity                                                  |                           
|Long-term
    debt                                      |                           
|                                                        |                           
|Cash
    and cash equivalents                           |                           
|Investments                                             |                           
|Total                                                   |                           



The
Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics
of the underlying assets. To maintain or adjust the capital structure, the Company may issue new shares, restructure or issue
new debt, acquire or dispose of assets or sell its investments.

In
order to facilitate the management of its capital requirements, the Company prepares annual budgets that are updated as necessary
depending on various factors, including successful capital deployment and general industry conditions. The annual budget is approved
by the Board of Directors. The Company’s investment policy is to invest its surplus funds in permitted investments consisting
of treasury bills, bonds, notes and other evidences of indebtedness of Canada, the United States or any of the Canadian provinces
with a minimum credit rating of R-1 mid from the Dominion Bond Rating Service (“DBRS”) or an equivalent rating from
Standard & Poor’s and Moody’s and with maturities of 12 months or less at the original date of acquisition. In
addition, the Company is permitted to invest in bankers’ acceptances and other evidences of indebtedness of certain financial
institutions. At all times, more than 25% of the aggregate amount of permitted investments must be invested in U.S. treasury bills,
bonds, notes or indebtedness of Canada or the Canadian provinces with a minimum credit rating of R-1 mid from DBRS. All investments
must have a maximum term to maturity of 12 months and the average term will generally range from seven days to 90 days. Under
the policy, the Company is not permitted to make investments in asset-backed commercial paper.

20.
Financial risk management

The
Company examines the various financial instrument risks to which it is exposed and assesses the impact and likelihood of those
risks. These risks may include credit risk, liquidity risk, market risk and other price risks. Where material, these risks are
reviewed and monitored by the Board of Directors.

(a)
Credit risk

Credit
risk is the risk of an unexpected loss if a party to the Company’s financial instruments fails to meet its contractual obligations.
The Company’s financial assets are primarily composed of cash and cash equivalents, investments and trade and other receivables.
Credit risk is primarily associated with trade and other receivables and investments; however, it also arises on cash and cash
equivalents. To mitigate exposure to credit risk, the Company has established policies to limit the concentration of credit risk,
to ensure counterparties demonstrate minimum acceptable credit worthiness, and to ensure liquidity of available funds.

The
Company closely monitors its financial assets and does not have any significant concentration of credit risk. The Company sells
its gold exclusively to large international organizations with strong credit ratings. The historical level of customer defaults
is minimal and, as a result, the credit risk associated with gold and copper concentrate trade receivables at December 31, 2014
is not considered to be high.

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The
Company’s maximum exposure to credit risk is as follows:

|                                                       | Year
    ended December 31
|------------------------------------------------------ | --------------------------
|(in
    millions of U.S. dollars)                      |                           
|Credit
    risk exposure                               |                           
|Cash
    and cash equivalents                          |                           
|Trade
    receivables                                  |                           
|Total
    financial instrument exposure to credit risk |                           



A
significant portion of the Company’s cash and cash equivalents is held in large Canadian financial institutions. Short-term
investments (including those presented as part of cash and cash equivalents) are composed of financial instruments issued by Canadian
banks with high investment-grade ratings and the governments of Canada and the U.S.

The
Company employs a restrictive investment policy as detailed in the capital risk management section, which is described in Note
19.

The
aging of trade and other receivables is as follows:

|                                      |                |                 |                 | As
    at December 31
|------------------------------------- | -------------- | --------------- | --------------- | ---------------------
|(in
    millions of U.S. dollars)     | 0-30

    days | 31-60

    days | 61-90

    days | 91-120
    
days     
|Aging trade and other receivables     |                |                 |                 |                      
|New
    Afton                         | 1.7            | -               | 2.1             | -                    
|Mesquite                              | 1.1            | -               | -               | -                    
|Peak
    Mines                        | 2.9            | -               | -               | -                    
|Cerro
    San Pedro                   | 2.5            | 1.6             | 2.1             | 1.1                  
|Rainy
    River                       | 1.7            | -               | -               | -                    
|Blackwater                            | 0.2            | -               | -               | -                    
|Corporate                             | 0.1            | -               | -               | -                    
|Total
    trade and other receivables | 10.2           | 1.6             | 4.2             | 1.1                  
|                                      |                |                 |                 |                      

A
significant portion of the accounts receivable balance at Cerro San Pedro aged over 120 days was received in January 2015.



The
Company sells its gold and copper concentrate production from New Afton to four different customers under off-take contracts.
The Company sells its gold and copper concentrate production from Peak Mines to one customer under an off-take contract. While
there are alternative customers in the market, loss of this customer or unexpected termination of the off-take contract could
have a material adverse effect on the Company’s results of operations, financial condition and cash flows.

The
Company is not economically dependent on a limited number of customers for the sale of its gold because gold can be sold through
numerous commodity market traders worldwide.

(b)
Liquidity risk

Liquidity
risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity
risk through the management of its capital structure and financial leverage, as outlined in Note 19.

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The
following table shows the contractual maturities of debt commitments. The amounts presented represent the future undiscounted
principal and interest cash flows, and therefore, do not equate to the carrying amounts on the consolidated statements of financial
position.

|                                                                |              |               | As
    at December 31
|--------------------------------------------------------------- | ------------ | ------------- | ---------------------
|(in
    millions of U.S. dollars)                               | <
    1 year | 2-3
    years | 4-5
    years        
|Debt
    commitments                                            |              |               |                      
|Trade
    and other payables                                    | 96.2         | 0.8           | -                    
|Long-term
    debt(1)                                           | -            | -             | -                    
|Interest
    payable on long-term debt                          | 52.2         | 104.5         | 104.5                
|Provisionally
    priced contracts net of copper swap contracts | (0.4)        | -             | -                    
|Total
    debt commitments                                      | 148.0        | 105.3         | 104.5                
|                                                                |              |               |                      

| | 1. | Long-term
                                         debt includes El Morro funding loan and the Senior Unsecured Notes.
| | -- | ----------------------------------------------------------------------------------------------------------------------



The
Company’s future operating cash flow and cash position are highly dependent on metal prices, including gold, silver and
copper, as well as other factors. Taking into consideration the Company’s current cash position, volatile equity markets,
global uncertainty in the capital markets and increasing cost pressures, the Company is continually reviewing expenditures and
assessing business opportunities to enhance liquidity in order to ensure adequate liquidity and flexibility to support its growth
strategy, including the development of its projects, while continuing production at its current operations. A period of continuous
low gold and copper prices may necessitate the deferral of capital expenditures which may impact the timing of development work
and project completion, as well as production from mining operations. In addition, in such a price environment, the Company may
be required to adopt one or more alternatives to increase liquidity.

(c)
Currency Risk

The
Company operates in Canada, the United States, Australia, Mexico and Chile. As a result, the Company has foreign currency exposure
with respect to items not denominated in U.S. dollars. The three main types of foreign exchange risk for the Company can be categorized
as follows:

(i)
Transaction exposure

The
Company’s operations sell commodities and incur costs in different currencies. This creates exposure at the operational
level, which may affect the Company’s profitability as exchange rates fluctuate. The Company has not hedged its exposure
to currency fluctuations.

(ii)
Exposure to currency risk

The
Company is exposed to currency risk through the following assets and liabilities denominated in currencies other than the U.S.
dollar: cash and cash equivalents, investments; accounts receivable, accounts payable and accruals, reclamation and closure cost
obligations and long-term debt.

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The
currencies of the Company’s financial instruments and other foreign currency denominated liabilities, based on notional
amounts, were as follows:

|                                             |  | As
    at December 31, 2014
|-------------------------------------------- |  | ---------------------------
|(in
    millions of U.S. dollars)            |  |                            
|Exposure
    to currency risk                |  |                            
|Cash
    and cash equivalents                |  |                            
|Trade
    and other receivables              |  |                            
|Income
    tax (payable) receivable          |  |                            
|Deferred
    tax asset                       |  |                            
|Trade
    and other payables                 |  |                            
|Deferred
    tax liability                   |  |                            
|Reclamation
    and closure cost obligations |  |                            
|Warrants                                     |  |                            
|Employee
    benefits                        |  |                            
|Restricted
    share units                   |  |                            
|Total
    exposure to currency risk          |  |                            
|                                             |  |                            



|                                             |  | As
    at December 31, 2013
|-------------------------------------------- |  | ---------------------------
|(in
    millions of U.S. dollars)            |  |                            
|Exposure
    to currency risk                |  |                            
|Cash
    and cash equivalents                |  |                            
|Trade
    and other receivables              |  |                            
|Income
    tax receivable                    |  |                            
|Deferred
    tax asset                       |  |                            
|Trade
    and other payables                 |  |                            
|Deferred
    tax liability                   |  |                            
|Reclamation
    and closure cost obligations |  |                            
|Warrants                                     |  |                            
|Employee
    benefits                        |  |                            
|Restricted
    share units                   |  |                            
|Total
    exposure to currency risk          |  |                            
|                                             |  |                            



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(iii)
Translation exposure

The
Company’s functional and reporting currency is U.S. dollars. The Company’s operations translate their operating results
from the host currency to U.S. dollars. Therefore, exchange rate movements in the Canadian dollar, Australian dollar, Mexican
peso and Chilean peso can have a significant impact on the Company’s consolidated operating results. A 10% strengthening
(weakening) of the U.S. dollar against the following currencies would have decreased (increased) the Company’s net loss
from the financial instruments presented by the amounts shown below.

|                                                   | Year
    ended December 31
|-------------------------------------------------- | --------------------------
|(in
    millions of U.S. dollars)                  |                           
|Impact
    of 10% change in foreign exchange rates |                           
|Canadian
    dollar                                |                           
|Australian
    dollar                              |                           
|Mexican
    peso                                   |                           



(d)
Interest Rate Risk

Interest
rate risk is the risk that the fair value or the future cash flows of a financial instrument will fluctuate because of changes
in market interest rates. All of the Company’s outstanding debt obligations are fixed and are therefore not exposed to changes
in market interest rates. The Facility interest is variable; however, the Facility was undrawn as at December 31, 2014.

The
Company is exposed to interest rate risk on its short-term investments which are included in cash and cash equivalents. The short-term
investment interest earned is based on prevailing money market and bank account interest rates which may fluctuate. A 1.0% change
in the interest rate would result in an annual difference of approximately $4.0 million in interest earned by the Company. The
Company has not entered into any derivative contracts to manage this risk.

(e)
Price Risk

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

| | • | the
                                         strength of the U.S. economy and the economies of other industrialized and developing
                                         nations;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | • | the
                                         relative strength of the U.S. 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; and
| | - | ----------------------------------------------------------------------------------

| | • | investment
                                         activity, including speculation, in gold as a commodity.
| | - | ------------------------------------------------------------------------------------------------------------

For
theyear ended December 31, 2014, the Company’s revenues
and cash flows were impacted by gold prices in the range of $1,142 to $1,385 per ounce, and by copper prices in the range of $2.97
to $3.24 per pound. Metal price decline could cause continued development of, and commercial production from, the Company’s
properties to be uneconomic. 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. As at December 31, 2014, working
capital includes unpriced gold and copper concentrate receivables totalling 30,000 ounces
of gold and 2.8 million pounds of copper not offset by copper swap contracts. A $100
change in the gold price per ounce would have an impact of $3.0 million on the Company’s
working capital. A $0.10 change in the copper price per pound would have an impact of $0.3 million
on the Company’s working capital position.

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The
Company is also subject to price risk for fluctuations in the cost of energy, principally electricity and purchased petroleum
products. 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 our control. Increases in the price for materials consumed
in the Company’s mining and production activities could materially adversely affect its results of operations and financial
condition. The Company has no fuel hedge contracts at this time.

The
Company is also subject to price risk for changes in the Company’s common stock price per share. The Company has granted,
under its long-term incentive plan, a restricted share unit plan that the Company is required to satisfy in cash upon vesting.
The amount of cash the Company will be required to expend is dependent upon the price per common share at the time of vesting.
The Company considers this plan a financial liability and is required to fair value the outstanding liability with the resulting
changes included in compensation expense each period.

An
increase in gold, copper and silver prices would decrease the Company’s net loss whereas an increase in fuel or restricted
share unit vested prices would increase the Company’s net loss. A 10% change in commodity prices would impact the Company’s
net loss before taxes and other comprehensive income before taxes as follows:

|                                             | Year
    ended December 31, 2014 | Year
    ended December 31, 2013
|-------------------------------------------- | -------------------------------- | --------------------------------
|(in
    millions of U.S. dollars)            | Net
        Loss                 | Other
    Comprehensive Income  
|Impact
    of 10% change in commodity prices |                                  |                                 
|Gold
    price                               | 47.8                             | -                               
|Copper
    price                             | 30.7                             | -                               
|Silver
    price                             | 2.0                              | -                               
|Fuel
    price                               | 7.0                              | -                               
|Warrants                                     | 1.7                              | -                               
|Restricted
    share units                   | 0.3                              | -                               
|                                             |                                  |                                 



21.
Fair value measurment

Fair
value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. In assessing the fair value of a particular contract, the market participant would consider
the credit risk of the counterparty to the contract. Consequently, when it is appropriate to do so, the Company adjusts the valuation
models to incorporate a measure of credit risk. Fair value represents management's estimates of the current market value at a
given point in time.

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The
Company’s financial assets and liabilities are classified and measured as follows:

|As at December 31, 2014           
|----------------------------------
|(in
    millions of U.S. dollars) 
|FINANCIAL
    ASSETS              
|Cash
    and cash equivalents     
|Trade
    and other receivables   
|Provisionally
    prices contracts
|Copper
    swap contracts         
|Investments                       
|FINANCIAL
    LIABILITIES         
|Trade
    and other payables(1)   
|Long-term
    debt                
|Warrants                          
|Restricted
    share units        
|                                  

| | 1. | Trade
                                         and other payables exclude the short term portion of reclamation and closure cost obligations.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------



|As at December 31, 2013           
|----------------------------------
|(in
    millions of U.S. dollars) 
|FINANCIAL
    ASSETS              
|Cash
    and cash equivalents     
|Trade
    and other receivables   
|Provisionally
    prices contracts
|Copper
    swap contracts         
|Investments                       
|FINANCIAL
    LIABILITIES         
|Trade
    and other payables(1)   
|Long-term
    debt                
|Warrants                          
|Performance
    share units       
|Restricted
    share units        
|                                  

| | 1. | Trade
                                         and other payables exclude the short term portion of reclamation and closure cost obligations.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------



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The
carrying values and fair values of the Company’s financial instruments are as follows:

|As
    at December 31, 2014       | As
    at December 31, 2013
|--------------------------------- | ---------------------------
|(in
    millions of U.S. dollars) | Carrying
    value         
|FINANCIAL
    ASSETS              |                            
|Cash
    and cash equivalents     | 370.5                      
|Trade
    and other receivables   | 34.8                       
|Investments                       | 0.4                        
|FINANCIAL
    LIABILITIES         |                            
|Trade
    and other payables(1)   | 95.3                       
|Long-term
    debt                | 874.3                      
|Warrants                          | 16.9                       
|Performance
    share units       | -                          
|Restricted
    share units        | 1.5                        

| | 1. | Trade
                                         and other payables exclude the short term portion of reclamation and closure cost obligations.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | The
                                         Company has not offset financial assets with financial liabilities.
| | -- | ----------------------------------------------------------------------------------------------------------------



The
Company has certain financial assets and liabilities that are held at fair value. The investments, warrants and restricted share
units are presented at fair value at each reporting date using appropriate valuation methodology. The fair value hierarchy establishes
three levels to classify the inputs to valuation techniques used to measure fair value. Level 1 inputs are quoted prices (unadjusted)
in active markets for identical assets or liabilities. Level 2 inputs are quoted prices in markets that are not active, quoted
prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset
or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used
to value currency and commodity contracts), or inputs that are derived principally from or corroborated by observable market data
or other means. Level 3 inputs are unobservable (supported by little or no market activity). The fair value hierarchy gives the
highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.

The
following table summarizes information about financial assets and liabilities measured at fair value on a recurring basis in the
statement of financial position and categorized by level of significance of the inputs used in making the measurements:

|                                             | As
    at December 31, 2014
|-------------------------------------------- | ---------------------------
|(in
    millions of U.S. dollars)            |                            
|ASSET
    (LIABILITy) measured at fair value |                            
|Investments                                  |                            
|Provisionally
    priced contracts           |                            
|Copper
    swap contracts                    |                            
|Warrants                                     |                            
|Restricted
    share units                   |                            



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|                                             | As
    at December 31, 2013
|-------------------------------------------- | ---------------------------
|(in
    millions of U.S. dollars)            |                            
|ASSET
    (LIABILITy) measured at fair value |                            
|Investments                                  |                            
|Provisionally
    priced contracts           |                            
|Copper
    swap contracts                    |                            
|Warrants                                     |                            
|Performance
    share units                  |                            
|Restricted
    share units                   |                            



There
were no transfers among Levels 1, 2 and 3 during the year ended December 31, 2014 or the year ended December 31, 2013. The Company’s
policy is to recognize transfers into and transfers out of fair value hierarchy levels as of the date of the event or change in
circumstances that caused the transfer.

Valuation
methodologies for Level 2 financial assets and liabilities:

Provisionally
priced contracts and copper swap contracts

The
fair value of the provisionally priced contracts and the copper swap contracts is calculated using the mark-to-market forward
prices of London Metals Exchange gold and copper based on the applicable settlement dates of the outstanding provisionally priced
contracts and copper swap contracts.

22.
Provisions

In
addition to the environmental rehabilitation provision in Note 16, the following table presents changes in provisions:

|                                                        |                            
|------------------------------------------------------- | ---------------------------
|(in
    millions of U.S. dollars)                       | Performance
    share units
|As
    at December 31, 2012                             | -                          
|Additional
    provisions recognized                    | 0.8                        
|Used
    during the year                                | -                          
|Foreign
    exchange                                    | -                          
|As
    at December 31, 2013                             | 0.8                        
|Less:
    current portion                               | -                          
|Non-current
    portion of provisions                   | 0.8                        
|Additional
    provisions recognized                    | 0.6                        
|Used
    during the year                                | -                          
|Reclassified
    as equity settled share-based payments | (1.4)                      
|Foreign
    exchange                                    | -                          
|As
    at December 31, 2014                             | -                          
|Less:
    current portion                               | -                          
|Non-current
    portion of provisions                   | -                          



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23.
Operating leases

Non-cancellable
operating lease rentals are payable as follows:

|                                                  | Year
    ended December 31
|------------------------------------------------- | --------------------------
|(in
    millions of U.S. dollars)                 |                           
|Non-cancellable
    operating lease rentals       |                           
|Less
    than 1 year                              |                           
|Between
    1 and 5 years                         |                           
|More
    than 5 years                             |                           
|Total
    non-cancellable operating lease rentals |                           



The
Company leases office space and mobile equipment fleet at Cerro San Pedro. The leases typically run for a period of one to five
years, with an option to review the leases after that date.

For
the year ended December 31, 2014, an amount of $25.0 million was recognized as an expense in profit or loss in respect of operating
leases (2013 - $23.5 million). There was no contingent rent or sublease revenue recognized during the period ended December 31,
2014, or for the comparative period in 2013.

24.
Compensation of directors and other key management personnel

The
remuneration of the Company’s directors and other key management personnel(1) was as follows:

|                                                | Year
    ended December 31
|----------------------------------------------- | --------------------------
|(in
    millions of U.S. dollars)               |                           
|Key
    management personnel remuneration       |                           
|Short-term
    benefits(2)                      |                           
|Post-employment
    benefits                    |                           
|Other
    long-term benefits                    |                           
|Share-based
    payments                        |                           
|Termination
    benefits                        |                           
|Total
    key management personnel remuneration |                           

| | 1. | Key
                                         management personnel are those persons having authority and responsibility for planning,
                                         directing, and controlling the activities of the Company
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Short-term
                                         benefits include salaries, bonuses payable within twelve months of the balance sheet
                                         date and other annual employee benefits.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Key
management personnel are those persons having authority and responsibility for planning, directing, and controlling the activities
of the entity

The
remuneration of key executives is determined by the compensation committee having regard to the performance of individuals and
market trends.

25.
Commitments and contingencies

In
assessing the loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may
result in such proceedings, the Company and its legal counsel evaluate the perceived merits of any legal proceedings or unasserted
claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency
suggests that a loss is probable, and the amount can easily be estimated, then a loss is recorded. When a contingent loss is not
probable but is reasonably possible, or is probable but the amount of the loss cannot be reliably estimated, then details of the
contingent loss are disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees,
in which case the Company discloses the nature of the guarantees. Legal fees incurred in connection with pending legal proceedings
are expensed as incurred. If the Company is unable to resolve these disputes favourably, it may have a material negative impact
on the Company’s financial condition, cash flow and results of operations.

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Contractual
commitments

The
Company has entered into a number of contractual commitments for capital items related to operations and development. At December
31, 2014, these commitments totalled $243.0 million (2013 – $44.5 million, all expected to fall due within 12 months), $141.4
million of which are expected to fall due over the next 12 months. Certain contractual commitments may contain cancellation clauses,
however the Company discloses the commitments based on management’s intent to fulfill the contacts.

Cerro
San Pedro

After
public consultation, on March 2011, the municipality of Cerro de San Pedro approved a new municipal land use plan, which clearly
designates the area of the Cerro San Pedro Mine for mining. New Gold believes this plan resolves any ambiguity regarding the land
use in the area in which Cerro San Pedro is located, and which has had a history of ongoing legal challenges related to the environmental
authorization (“EIS”) for the mine. In April 2011, a request was filed for a new EIS based on the new Municipal Plan
and on August 5, 2011 a new EIS was granted. 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 have durations of one year or one quarter, or other periods that are shorter than the remaining mine
life. While historically these authorizations have been renewed, extended or re-issued without incident, in late 2013 the annual
construction and operations licenses issued by the Municipality of Cerro de San Pedro in San Luis Potosí were subject to
numerous inappropriate conditions. The application of the conditions was suspended by the State Contentious and Administrative
Tribunal and in August 2014 the Tribunal issued a ruling with the effect that that inappropriate conditions were annulled. Cerro
San Pedro subsequently applied for its operation license for 2015 and was advised by the Municipality the license would also be
subject to inappropriate conditions. On February 3, 2015 the State Contentious and Administrative Tribunal granted Cerro San Pedro
an injunction against the Municipality which assures the continued operation of the mine pending the Tribunal’s ruling regarding
the inappropriate conditions. Cerro San Pedro may not ultimately prevail in proceedings regarding the terms and conditions of
the license. This could result in a suspension or termination of operations at the Cerro San Pedro Mine and/or additional costs,
any of which could adversely affect the Company’s production, cash flow and profitability.



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|-- | ----------------------------------------