Exhibit
3

















OPERATING AND FINANCIAL
HIGHLIGHTS

OPERATING
HIGHLIGHTS



All dollar figures are
in United States dollars and tabular dollar amounts are in millions, unless otherwise noted.



New Gold Inc. (“New
Gold” or the “Company”) is an intermediate gold producer with operating mines in Canada, the United States, Australia
and Mexico, development projects in Canada and a stream on gold production from a development property in Chile. For the year ended
December 31, 2016, 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”),
which transitioned from active mining to residual leaching in June 2016, combined to produce 381,663 gold ounces, 102.3 million
pounds of copper and 1.3 million silver ounces. For the three months ended December 31, 2016, the Company’s mine sites produced
95,883 gold ounces, 25.6 million pounds of copper and 0.3 million silver ounces.







New Gold’s production
costs remained very competitive compared to the broader gold mining space as New Gold had operating expenses(1) of $640
per gold ounce sold, total cash costs(2) of $349 per gold ounce sold and all-in sustaining costs(2) of $692
per gold ounce sold in 2016. We believe New Gold continues to establish itself as a low cost producer within the industry.







1







FINANCIAL
HIGHLIGHTS



New Gold has total pro-forma
available liquidity of $429 million, comprised of $186 million in cash and cash equivalents, $178 million available for drawdown
under the Company’s $400 million revolving credit facility, each as at December 31, 2016, and $65 million representing the
proceeds from the sale of the Company’s 4% stream on future gold production from the El Morro property.









|(in millions of U.S. dollars, except where noted)                                      | 2016    | 2015    | 2014   
|-------------------------------------------------------------------------------------- | ------- | ------- | -------
|Operating information                                                                  |         |         |        
|Gold production (ounces)                                                               | 381,663 | 435,718 | 380,136
|Gold sales (ounces)                                                                    | 378,239 | 428,852 | 371,179
|Revenue ($/ounce)(1)                                                                   | 1,219   | 1,120   | 1,223  
|Average realized price ($/ounce)(2)                                                    | 1,255   | 1,149   | 1,256  
|Operating expenses per gold ounce sold ($/ounce)(1)                                    | 640     | 647     | 655    
|Total cash costs per gold ounce sold ($/ounce)(2)                                      | 349     | 443     | 312    
|All-in sustaining costs per gold ounce sold ($/ounce)(2)                               | 692     | 809     | 779    
|Financial Information                                                                  |         |         |        
|Revenue                                                                                | 683.8   | 712.9   | 726.0  
|Net earnings (loss)                                                                    | 2.7     | (201.4) | (477.1)
|Adjusted net earnings (loss)(2)                                                        | 24.3    | (10.9)  | 45.2   
|Cash generated from operations                                                         | 282.2   | 262.6   | 268.8  
|Cash generated from operations before changes in non-cash operating working capital(2) | 301.8   | 276.4   | 319.4  
|Cash and cash equivalents                                                              | 185.9   | 335.5   | 370.5  
|Capital expenditures (sustaining capital)(2)                                           | 87.4    | 121.5   | 129.8  
|Capital expenditures (growth capital)(2)                                               | 479.6   | 268.0   | 149.5  
|Share Data                                                                             |         |         |        
|Earnings (loss) per basic share ($)                                                    | 0.01    | (0.40)  | (0.95) 
|Adjusted net earnings (loss) per basic share(2)($)                                     | 0.05    | (0.02)  | 0.09   

| | 1. | Management has included the discussion of revenue per ounce/pound and operating cost per ounce/pound
sold when discussing 2016 full-year operational results and 2017 guidance. These metrics have been disclosed in addition to average
realized price, total cash costs and all-in sustaining costs. Management believes that the newly included metrics are important
for a comprehensive disclosure of the financial and operating results of the Company. Revenue per ounce/pound is net of treatment
and refining charges whereas average realized price is gross of treatment and refining charges. Operating expenses per ounce/pound
sold apportions the Company’s operating expenses, per its consolidated income statement, to each metal on a percentage of
revenue basis.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | The Company uses certain non-GAAP financial performance measures throughout this Management’s
Discussion and Analysis (“MD&A”). For a detailed description of each of the non-GAAP measures used in this MD&A
and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Of the $400 million credit facility, $122 million is utilized for letters of credit as at December
31, 2016. On October 3, 2016, the Company increased the size of the revolving credit facility by $100 million to $400 million.
Please refer to the “Corporate Developments” section of this MD&A for more information.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The Company entered into a binding agreement to sell the Company’s 4% stream on future gold
production from the El Morro property in February 2017. The sale is expected to close on February 17, 2017
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2







Contents





|OPERATING HIGHLIGHTS                            | 1  
|----------------------------------------------- | ---
|FINANCIAL HIGHLIGHTS                            | 2  
|OUR BUSINESS                                    | 4  
|OPERATING, DEVELOPMENT AND FINANCIAL HIGHLIGHTS | 5  
|CORPORATE DEVELOPMENTS                          | 10 
|CORPORATE SOCIAL RESPONSIBILITY                 | 11 
|NEW GOLD’S INVESTMENT THESIS                    | 13 
|OUTLOOK FOR 2017                                | 14 
|KEY PERFORMANCE DRIVERS                         | 15 
|FINANCIAL RESULTS                               | 19 
|REVIEW OF OPERATING MINES                       | 26 
|DEVELOPMENT AND EXPLORATION REVIEW              | 40 
|MINERAL RESERVES AND RESOURCES UPDATE           | 45 
|FINANCIAL CONDITION REVIEW                      | 47 
|NON-GAAP FINANCIAL PERFORMANCE MEASURES         | 54 
|ENTERPRISE RISK MANAGEMENT AND RISK FACTORS     | 80 
|CRITICAL JUDGMENTS AND ESTIMATION UNCERTAINTIES | 96 
|ACCOUNTING POLICIES                             | 96 
|CONTROLS AND PROCEDURES                         | 97 
|MINERAL RESERVES AND MINERAL RESOURCES          | 98 
|CAUTIONARY NOTES                                | 103



3







MANAGEMENT’S
DISCUSSION AND ANALYSIS



For the three months and year ended December
31, 2016



The following Management’s Discussion
and Analysis (“MD&A”) provides information that management believes is relevant to an assessment and understanding
of the consolidated financial condition and results of operations of New Gold Inc. and its subsidiaries (“New Gold”
or the “Company”). This MD&A should be read in conjunction with New Gold’s audited consolidated financial
statements for the years ended December 31, 2016 and 2015 and related notes which are prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
This MD&A contains forward-looking statements that are subject to risks and uncertainties, as discussed in the cautionary note
contained in this MD&A. The reader is cautioned not to place undue reliance on forward-looking statements. All dollar figures
are in United States dollars and tabular dollar amounts are in millions, unless otherwise noted. This MD&A has been
prepared as at February 15, 2017. Additional information relating to the Company, including the Company’s Annual Information
Form, is available on SEDAR at www.sedar.com.



OUR
BUSINESS



New Gold is an intermediate gold producer
with operating mines in Canada, the United States and Australia, and development projects in Canada. The Company’s operating
properties consist of the New Afton gold-copper mine in Canada (“New Afton”), the Mesquite gold mine in the United
States (“Mesquite”) and the Peak Mines gold-copper mine in Australia (“Peak Mines”). The Company’s
Cerro San Pedro mine in Mexico (“Cerro San Pedro”) transitioned from active mining to residual leaching in 2016. New
Gold’s development projects are its 100%-owned Rainy River (“Rainy River”) and Blackwater (“Blackwater”)
projects, both in Canada. In February 2017, the Company entered into a binding agreement to sell its 4% stream on future gold production
from the El Morro property located in Chile (“El Morro”) to Goldcorp Inc. for $65 million cash. The sale is expected
to close on February 17, 2017. El Morro forms part of Goldcorp Inc. and Teck Resources Limited’s NuevaUnión project
(formerly Project Corridor).



New Gold’s operating portfolio is diverse
both geographically and in the range of commodities it produces. The assets produce gold with copper and silver by-products at
total cash costs and all-in sustaining costs below the industry average. The Company believes it has a solid platform to continue
to execute its growth strategy, both organically and through value-enhancing accretive acquisitions, to further establish itself
as an industry-leading intermediate gold producer.







4







OPERATING,
DEVELOPMENT AND FINANCIAL HIGHLIGHTS

OPERATING
AND DEVELOPMENT HIGHLIGHTS

|Three months ended December 31                                                             | Year ended December 31
|------------------------------------------------------------------------------------------ | ----------------------
|                                                                                           | 2016                  
|Operating information                                                                      |                       
|Gold (ounces):                                                                             |                       
|Produced (1)                                                                               | 95,883                
|Sold (1)                                                                                   | 93,936                
|Copper (millions of pounds):                                                               |                       
|Produced (1)                                                                               | 25.6                  
|Sold (1)                                                                                   | 24.6                  
|Silver (millions of ounces):                                                               |                       
|Produced (1)                                                                               | 0.3                   
|Sold (1)                                                                                   | 0.3                   
|Revenue (1):                                                                               |                       
|Gold ($/ounce)                                                                             | 1,176                 
|Copper ($/pound)                                                                           | 2.22                  
|Silver ($/ounce)                                                                           | 16.19                 
|Average realized price (1) (2):                                                            |                       
|Gold ($/ounce)                                                                             | 1,211                 
|Copper ($/pound)                                                                           | 2.45                  
|Silver ($/ounce)                                                                           | 16.80                 
|Operating expenses per gold ounce sold ($/ounce)(3)                                        | 780                   
|Operating expenses per copper pound sold ($/pound)(3)                                      | 1.58                  
|Operating expenses per silver ounce sold ($/ounce)(3)                                      | 10.82                 
|Total cash costs per gold ounce sold ($/ounce) (2)(4)                                      | 360                   
|All-in sustaining costs per gold ounce sold ($/ounce)
(2)(4)                               | 619                   
|Total cash costs per gold ounce sold on
        a co-product basis ($/ounce)(2)(4)         | 647                   
|All-in sustaining costs per gold ounce sold on
        a co-product basis ($/ounce) (2)(4) | 812                   
|Proven and Probable Reserves as at December 31(5)                                          |                       
|Gold (thousands of ounces)                                                                 | 14,704                
|Copper (millions of pounds)                                                                | 1,113                 
|Silver (millions of ounces)                                                                | 75.5                  
|Measured and Indicated Resources as at December 31(5)                                      |                       
|Gold (thousands of ounces)                                                                 | 6,222                 
|Copper (millions of pounds)                                                                | 1,121                 
|Silver (millions of ounces)                                                                | 21.5                  

| | 1. | Production is shown on a total contained basis while sales are shown on a net payable basis, including
final product inventory and smelter payable adjustments,
where applicable.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | The Company uses certain non-GAAP financial performance measures throughout this MD&A. Average
realized price, total cash costs and all-in sustaining costs per gold ounce sold and total cash costs and all-in sustaining costs
on a co-product basis are non-GAAP financial performance measures with no standard meaning under IFRS. For further information
and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 4. | The calculation of total cash costs and all-in sustaining costs per gold ounce sold is net of
                                                                                                    by-product silver and copper revenue. Total cash costs and all-in sustaining costs on a co-product basis remove the impact of
                                                                                                    other metal sales that are produced as a by-product of the Company’s gold production and apportions the cash costs to
                                                                                                    each metal produced on a percentage of revenue basis. If silver and copper revenue were treated as co-products, co-product
                                                                                                    total cash costs for the year ended December 31, 2016 would be $8.64 per
                                                                                                    silver ounce sold (2015 - $8.84) and $1.26 per copper pound sold (2015 - $1.55) and
                                                                                                    co-product all-in sustaining costs for the year ended December 31, 2016 would be $11.74 per
                                                                                                    silver ounce sold (2015 - $12.12) and $1.66 per copper pound sold (2015 - $2.06).For
                                                                                                    the three months ended December
31,
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



5







2016, co-product total cash costs would be $9.11 per silver ounce sold (2015 – $7.65) and $1.47 per copper pound sold
(2015 - $1.30) and co-product all-in sustaining costs for the three months ended December 31, 2016 would be $11.40 per silver ounce
sold (2015 - $9.72) and $1.80 per copper pound sold (2015 - $1.61).

| | 5. | Measured and Indicated Mineral Resources are exclusive of Mineral Reserves and calculated in accordance
with CIM standards as required under National Instrument 43-101. For a breakdown of Mineral Reserves and Mineral Resources by category
and additional information relating to Mineral Reserves and Mineral Resources and related key assumptions and parameters, refer
to the “Mineral Reserves and Mineral Resources” section of this MD&A. The scientific and technical information
in this MD&A has been reviewed and approved by Mark Petersen, a Qualified Person under National Instrument 43-101 and an officer
of the Company.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Gold
production for the year ended December 31, 2016 was 381,663 ounces, compared to 435,718 ounces in the prior year. The Company’s
2016 gold production achieved the mid-point of its 2016 guidance range of 360,000 to 400,000 ounces. When compared to the
prior year, higher production from Peak Mines was more than offset by lower production from Mesquite, New Afton and Cerro San
Pedro. Cerro San Pedro completed active mining in late June 2016 and has since transitioned to residual leaching, resulting in
a planned decrease in gold ounces produced when compared to the prior year.



Gold production for the three
months ended December 31, 2016 was 95,883 ounces, compared to 131,719 ounces in the prior-year period. The Company experienced
lower gold production at all four operating sites.



Gold
sales were378,239
ounces for the year ended December 31, 2016, compared to 428,852 ounces in the prior year.Timing of sales at the end of
the period resulted in a difference between ounces sold and ounces produced. Gold
sales for the three months ended December 31, 2016 was 93,936 ounces, compared to 133,005 ounces in the prior-year period.



Copper
production for the year ended December 31, 2016 was 102.3 million pounds compared to 100.0 million pounds produced in the prior
year. The Company’s 2016 copper production exceeded the high end of its 2016 guidance range of 81.0 to 93.0 million pounds.For the year ended December 31, 2016, the Company benefitted from higher copper production from both Peak Mines and New
Afton as a result of higher throughput when compared to the prior year.



Copper production for the
three months ended December 31, 2016 was 25.6 million pounds, compared to 28.8 million pounds in the prior-year period. Higher
production at Peak Mines as a result of higher copper grade was offset by lower production at New Afton resulting from a decrease
in copper grade and recovery.



Copper sales
were 99.2 million pounds for the year ended December 31, 2016 compared to 92.9 million pounds in the prior year.Copper
sales volumes were higher than in the prior year as a result of higher production. Copper sales for the three months ended December
31, 2016 were 24.6 million pounds, compared to 25.5 million pounds in the prior-year period.



Silver
production for the year ended December 31, 2016 was 1.3 million ounces, compared to1.9
million ounces in the prior-year period.Silver production for the three months ended December 31, 2016 was 0.3 million ounces, compared to 0.5 million ounces in the prior-year
period.Consolidated full-year silver production was below the Company’s 2016 guidance range of 1.6 to 1.8 million
ounces.



Operating
expenses per gold ounce sold were $640 for the year ended December 31, 2016, compared to $647 in the prior year.Lower operating expenses per gold ounce sold at Peak Mines and Mesquite were only partially offset by higher operating expenses
per gold ounce sold at New Afton and Cerro San Pedro. For the year ended December 31, 2016, operating expenses per gold ounce
sold benefitted from less tonnes mined at Peak Mines as a result of the mine experiencing higher gold gradesand a higher
portion of Mesquite’s mining costs being capitalized to leach pad inventory.



Operating expenses per gold
ounce sold were $780 for the three months ended December 31, 2016, compared to $614 in the prior-year period. For the three months
ended December 31, 2016, operating expenses were negatively impacted by a heap leach silver inventory



6







write-down of $24.0 million at Cerro San Pedro, compared to a heap leach silver inventory write-down of $11.4 million at Cerro
San Pedro in the prior-year period. Additionally, the increase in operating expenses per gold ounce sold was attributable to lower
gold sales volumes.



Total
cash costs per gold ounce sold, net of by-product sales, were $349 for the year ended December 31, 2016 compared to $443 in the
prior year.For the year ended December 31, 2016, the decrease in total cash costs was
primarily driven by lower operating expenses per gold ounce sold as described above and the effect of higher copper sales volumes,
partially offset by the effect of lower copper prices.



Total
cash costs per gold ounce sold, net of by-product sales, were $360 per ounce for the three months ended December 31, 2016 compared
to $389 per ounce in the prior-year period. The
decrease in total cash costs relative to the prior-year period was primarily driven by lower operating expenses net of non-cash
adjustments and the effect of higher copper prices, partially offset by the effect of lower copper sales volumes.



All-in sustaining
costs per gold ounce sold were $692 for the year ended December 31, 2016, compared to $809 in the prior year. The decrease
in all-in sustaining costs relative to the prior year was driven by the decrease in total cash costs noted above and lower sustaining
capital expenditures, partially offset by lower gold sales volumes. All-in sustaining costs per gold ounce sold were $619 per ounce
for the three months ended December 31, 2016, consistent with $613 per ounce in the prior-year period.



For a detailed review of the Company’s
operating mines, refer to the “Review of Operating Mines” sections of this MD&A.



For
the year ended December 31, 2016, capital expenditures on Rainy River totalled $466.4 million, compared to $245.5
million in the prior year. The increased activity during the year resulted in the project team continuing to achieve many
project advancements: notably, completion of the enclosure of the grinding building, completion of concrete placement and steelwork
erection and cladding, completion of powerline construction, reinitiation of water management facility construction, commencement
of construction of the revised tailings dam, and stripping of approximately 24 million tonnes of waste and overburden. For the
three months ended December 31, 2016, capital expenditures on Rainy River totalled $149.5 million, compared to $144.8 million in
the prior-year period. For a detailed project update please refer to the “Development and Exploration Review” section
of this MD&A.



7







FINANCIAL HIGHLIGHTS

|Three months ended December 31                                                          | Year ended December 31
|--------------------------------------------------------------------------------------- | ----------------------
|(in millions of U.S. dollars, except where noted)                                       | 2016                  
|FINANCIAL INFORMATION                                                                   |                       
|Revenue                                                                                 | 170.3                 
|Operating margin (1)                                                                    | 55.6                  
|Revenue less cost of goods sold                                                         | (11.9)                
|Net (loss) earnings                                                                     | (19.9)                
|Adjusted net (loss) earnings(1)                                                         | (2.3)                 
|Cash generated from operations                                                          | 51.7                  
|Cash generated from operations before changes in non-cash operating working capital (1) | 68.5                  
|Capital expenditures (sustaining capital)(1)                                            | 15.7                  
|Capital expenditures (growth capital)(1)                                                | 149.1                 
|Total assets                                                                            | 3,948.0               
|Cash and cash equivalents                                                               | 185.9                 
|Long-term debt                                                                          | 889.5                 
|                                                                                        |                       
|Share Data                                                                              |                       
|(Loss) earnings per share:                                                              |                       
|Basic ($)                                                                               | (0.04)                
|Diluted ($)                                                                             | (0.04)                
|Adjusted net earnings (loss) per basic share ($) (1)                                    | $nil                  
|Share price as at December 31 (TSX – Canadian dollars)                                  | 4.71                  
|Weighted average outstanding shares (basic) (millions)                                  | 513.0                 

| | 1. | The Company uses certain non-GAAP financial performance measures throughout this MD&A. Operating
margin, adjusted net loss, adjusted net loss per basic share, capital expenditures (sustaining and growth) and cash generated from
operations before changes in non-cash operating working capital are non-GAAP financial performance measures with no standard meaning
under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures”
section of this MD&A.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Revenue
was $683.8 million for the year ended December 31, 2016, compared to $712.9 million in the prior year. The benefit from
higher gold and silver prices was more than offset by lower gold and silver sales volumes and lower copper prices. Revenue also
benefitted from higher copper sales volumes when compared to the prior year.



Revenue was $170.3 million for the three
months ended December 31, 2016, compared to $199.0 million in the prior-year period. Similarly, the benefit from higher gold and
silver prices and higher copper sales volumes was more than offset by lower gold and silver sales volumes when compared to the
prior-year period.



Revenue
less cost of goods sold was $62.6 million for the year ended December 31, 2016, compared to $52.6 million in the prior year.
The increase in revenue less cost of goods sold was primarily due to lower operating expenses as a result of the Company’s
business improvement initiatives, the reduction in mining activity at Cerro San Pedro and the combined benefit of the depreciation
of the Canadian dollar and the Mexican peso relative to the U.S. dollar, partially offset by higher depreciation and depletion
as a result of the Company’s lower reserve base for the year ended December 31, 2016 when compared to the prior year.



Revenue
less cost of goods sold was a $11.9 million loss for the three months ended December 31, 2016, compared to $8.5 million of earnings
in the prior-year period. The decrease in revenue less cost of goods sold was primarily due to lower revenue, partially offset
by lower operating expenses.Included in operating expenses for the three months ended



8







December 31, 2016 was a heap leach silver
inventory write-down of $24.0 million at Cerro San Pedro, compared to a heap leach silver inventory write-down of $11.4 million
at Cerro San Pedro in the prior-year periods.



Net earnings
were $2.7 million or $0.01 per basic share for the year ended December 31, 2016, compared to a net loss of $201.4 million or $0.40
per basic share in the prior year. Net earnings were positively impacted by higher income from operations when compared
to the prior-year period. Net earnings for the year ended December 31, 2016 included a foreign exchange gain of $11.7 million,
compared to a foreign exchange loss of $98.2 million in the prior year. Additionally, net loss in the prior year included a loss
on disposal of El Morro of $98.8 million ($180.3 million included in other gains and losses less associated tax recovery of $81.5
million).



Net loss was $19.9 million for the three months
ended December 31, 2016, compared to $9.5 million in the prior-year period. The net loss was negatively impacted by lower revenue
less cost of goods sold when compared to the prior-year period. Additionally, the Company recognized an income tax expense
of $3.0 million for the three months ended December 31, 2016, compared to an income tax recovery of $30.8 million in the prior-year
period.



Adjusted net
earnings for the year ended December 31, 2016 was $24.3 million or $0.05 per basic share, compared to an adjusted net loss of $10.9
million or $0.02 per basic share in the prior year.For the year ended December 31, 2016, adjusted net earnings was impacted
by reduced operating expenses and reduced finance costs as the Company has capitalized more interest to its qualifying development
property than in the prior year. Adjusted net loss for the three months ended December 31, 2016 was $2.3 million or $nil per basic
share, compared to adjusted net earnings of $2.6 million or $0.01 per basic share in the prior-year period. For the three months
ended December 31, 2016, the decrease in adjusted net earnings was primarily due to the decrease in revenue described above, partially
offset by reduced finance costs as described above.



For further information on the Company’s
financial results, please refer to the “Financial Results” section of this MD&A.



Cash generated
from operations for the year ended December 31, 2016 was $282.2 million, compared to $262.6 million in the prior year. Cash
generated from operations for the three months ended December 31, 2016 was $51.7 million, compared to $84.9 million in the prior-year
period. For the year ended December 31, 2016, the increase in cash generated from operations was primarily due to lower operating
expenses, higher gold and silver prices and higher copper sales volumes. At December 31, 2016, the Company held an outstanding
concentrate receivable of $21.2 million at New Afton which was collected in January 2017. As a result, for the three months ended
December 31, 2016, the Company realized less favourable changes in non-cash working capital when compared to the prior-year period.



Cash
and cash equivalents were $185.9 million as at December 31, 2016, compared to $151.2 million as at September 30, 2016 and $335.5
million as at December 31, 2015.For the year and three months
ended December 31, 2016, cash generated from operations was more than offset by cash used in investing activities due to growth
capital expenditures on Rainy River. As a result, the Company drew down $100.0 million from the Company’s revolving credit
facility in November 2016. For the year and three months ended December 31, 2016, the Company also benefitted from thereceipt
of Royal Gold’s final payment under the stream agreement of $75.0 million.



For further information on the Company’s
liquidity and cash flow position, please refer to the “Liquidity and Cash Flow” section of this MD&A.



9







CORPORATE
DEVELOPMENTS

New Gold’s strategy involves strong
operational execution at its current assets and disciplined growth both through organic initiatives and value-enhancing mergers
and acquisitions. Since the middle of 2009, New Gold has focused on enhancing the value of its portfolio of assets, while also
continually looking for compelling external growth opportunities. New Gold’s objective is to pursue corporate development
initiatives that will maximize long-term shareholder value.



On October 4, 2016, New Gold announced that
the Company further enhanced its liquidity by increasing the size of the Company’s revolving credit facility by $100 million
to $400 million and extending the increase in the facility’s associated net debt to earnings before interest, taxes, depreciation,
amortization, exploration, impairment and other non-cash adjustments (“Adjusted EBITDA”) covenant to the end of 2017.
New Gold also entered into gold price option contracts covering 120,000 ounces of New Gold’s first half 2017 gold production.
New Gold purchased put options with a strike price of $1,300 per ounce covering 120,000 ounces of gold and simultaneously sold
call options with a strike price of $1,400 per ounce covering an equivalent 120,000 ounces. The contracts will cover 20,000 ounces
of gold per month for six months beginning in January 2017. The net cost of entering into the option contracts was $1.0 million.
In aggregate, the option contracts provide the Company a guaranteed floor price of $1,300 per ounce while also providing exposure
to further increases in the gold price up to $1,400 per ounce. New Gold entered into the contracts in order to further increase
cash flow certainty as the Company invests in the continued construction of its Rainy River project.



On October 27, 2016, New Gold announced that
the Company entered into an Earn-in Agreement (the “Agreement”) with Rimfire Pacific Mining NL (“Rimfire”).
The Agreement relates to Rimfire’s Fifield Project (“Fifield”), located in central New South Wales, Australia.
Pursuant to the Agreement, New Gold will have the option to earn up to a 70% interest in Fifield by incurring a total of A$12 million
of exploration expenditures on Fifield over a five-year period.



On November 14, 2016, New Gold fixed the price
for 31.7 million pounds (14,400 tonnes) of the Company’s first half 2017 copper production at $2.52 per pound ($5,552 per
tonne) using swaps settling against the monthly London Metals Exchange (“LME”) average price. The swaps cover 5.3 million
pounds of copper (2,400 tonnes) per month from January through June 2017.



On January 30, 2017, New Gold announced changes
to its management and Board of Directors.

| | · | Randall Oliphant to step down as Executive Chairman, continuing as a member of the Board.
| | - | -----------------------------------------------------------------------------------------

| | · | Ian Pearce, a member of the Board, to become non-executive Chair of the Board.
| | - | ------------------------------------------------------------------------------

| | · | Hannes Portmann to become President and Chief Executive Officer.
| | - | ----------------------------------------------------------------



In February 2017, New Gold
announced that the Company entered into a binding agreement with Goldcorp Inc. to sell the Company’s 4% stream on future
gold production from El Morro for $65 million cash. This transaction will provide the Company with additional liquidity as the
Company advances the construction of Rainy River. This transaction is expected to close on February 17, 2017.



10







CORPORATE
SOCIAL RESPONSIBILITY



| | CORPORATE
        SOCIAL RESPONSIBILITY HIGHlights for 2016
        ·     The
        Independent Tailings Review Board conducted reviews at Blackwater, New Afton and Rainy River. Recommendations have been implemented.
        ·     A
        five-year Environment and Social Responsibility Strategic Plan was developed through collaboration with all New Gold operations.
        ·     Cerro
        San Pedro continues to work with nearby communities as it moves toward closure by improving local infrastructure, supporting a
        grassroots entrepreneurial development program and a skills training program for the local communities.
        ·     Rainy
        River continues to work toward final approvals of amendments to its existing permits. The team also continues to work with local
        regulators, communities, and Aboriginal groups during the project’s construction phase.
        ·     Cerro
        San Pedro received the Casco de Plata National Safety Award for fourth consecutive year.
        ·     Rainy
        River achieved four million man hours without a Lost Time Injury (LTI).
        ·     NewAfton achieved two years without a LTI.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | CORPORATE
        SOCIAL RESPONSIBILITY Targets for 2017
        ·     Develop
        the New Gold Indigenous Strategy to facilitate the efficient implementation of our commitments to Indigenous people through continued
        dialog and coordination of activities and providing guidance for site personnel in areas such as employment, business opportunities
        and cultural awareness programs.
        ·     Reduce
        significant incidents by an additional 5% across the Company.
        ·     Reduce
        Lost Time Injury Frequency Rate (LTIFR) and Total Reportable Injury Frequency Rate (TRIFR)
        ·     Establish
        guidance for workforce with regard to high risk activities such as working at heights, confined space, lock-out/tag-out and hazardous
        substances.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



New Gold is committed to excellence in corporate
social responsibility. The Company considers its ability to make a lasting and positive contribution toward sustainable development
a key driver to achieving a productive and profitable business. New Gold aims to achieve this objective through the protection
of the health and well-being of its people and host communities as well as employing industry-leading practices in the areas of
environmental stewardship and community engagement and development.



As a participant of the United Nations Global
Compact, New Gold’s policies and practices are guided by its principles with regard to human rights, labour, environmental
stewardship and anti-corruption. As a member of the Mining Association of Canada (“MAC”), New Gold’s operations
adopt the MAC’s Towards Sustainable Mining protocols.



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



11







The Company is committed to preserving the
long-term health and viability of the natural environments that host its operations. Wherever New Gold operates – in all
stages of mining activity, from early exploration and planning, to commercial mining operations through to eventual closure –
the Company is committed to excellence in environmental management. From the earliest site investigations, New Gold carries out
comprehensive environmental studies to establish baseline measurements for flora, fauna, earth, air and water. During operations,
the Company promotes the efficient use of raw materials and resources and works to minimize environmental impacts and maintain
robust monitoring programs. After mining activities are complete, New Gold’s objective is to restore the land to a sustainable
end land use.



New Gold is committed to establishing relationships
based on mutual benefit and active participation with its host communities to contribute to healthy and sustainable communities.
Wherever the Company’s operations interact with Indigenous peoples, New Gold promotes understanding of and respect for traditional
values, customs and culture and takes meaningful action to consider their interests through collaborative agreements aimed at creating
jobs, training and other lasting socio-economic benefits. New Gold aims to foster open communication with local residents and community
leaders and strives to partner in the long-term sustainability of those communities. The Company believes that by thoroughly understanding
the people, their histories, and their needs and aspirations, we can engage in a meaningful and sustainable development process.



12







NEW
GOLD’S INVESTMENT THESIS

Our primary focus is the exploration, development
and operation of our portfolio of gold producing assets. We currently have an established foundation, with our four producing assets
providing us with the cash flow that should position us to grow the business as we further explore and develop our exciting development
projects. As we deliver on what we believe is an industry-leading organic growth profile, we intend to remain focused on the following
key strengths that have helped New Gold become a leading intermediate producer.



|PORTFOLIO OFASSETS INTOP-RATEDJURISDICTIONS             |  | New Gold has a diverse portfolio of assets. Operating assets consist of New Afton in Canada, Mesquite in the United States, Peak Mines in Australia and Cerro San Pedro in Mexico, which transitioned into residual leaching in the second half of 2016. Significant development projects include Rainy River and Blackwater in Canada. All assets are located in jurisdictions that have been ranked in the top five mining jurisdictions based on the Behre Dolbear Report “2015 Ranking of Countries for Mining Investment”. In 2016, 42% of our revenue was generated from Canada, 23% from Australia, 21% from the United States and 14% from Mexico, and over 90% of our gold reserves are located in Canada.
|------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|INVESTED AND EXPERIENCED TEAM                           |  | New Gold has an invested and experienced executive management team and Board of Directors with extensive mining sector knowledge, a successful track record of identifying and developing mines and significant experience in leading successful mining companies.  Our Board of Directors provides valuable stewardship and includes individuals with a breadth of knowledge across the mining sector that the Company believes provides New Gold with a distinct competitive advantage.                                                                                                                                                                                                                          
|                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|AMONG LOWEST-COST PRODUCERSWITH ESTABLISHEDTRACK RECORD |  | New Gold has a portfolio of mines that have a history of delivering on consolidated Company guidance. In 2016, New Gold achieved its production guidance at low costs which enable us to generate robust margins. New Gold produced 381,663 gold ounces at operating expenses per gold ounce sold of $640 and all-in sustaining costs of $692 per gold ounce sold net of by-product sales. New Gold’s costs continue to be well below the industry average.                                                                                                                                                                                                                                                        
|                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|PEER-LEADINGGROWTH PIPELINE                             |  | In addition to our operating mines, we have development potential that significantly enhances our production base and growth profile. As at December 31, 2016, the Rainy River project contains Proven and Probable Mineral Reserves of 3.9 million gold ounces and 10 million silver ounces and the Blackwater project contains Proven and Probable Mineral Reserves of 8.2 million gold ounces and 61 million silver ounces. Please refer to the “Mineral Reserves and Mineral Resources” section of this MD&A for further details                                                                                                                                                                               
|                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|A HISTORY OFVALUE CREATION                              |  | Since the middle of 2008, New Gold has grown through the acquisition of largely single asset companies which has further strengthened the Company. The experience of our management team and Board of Directors has allowed the Company to be opportunistic in its corporate development initiatives. In addition, New Gold continues to look for opportunities to organically increase the value of each of its operations.                                                                                                                                                                                                                                                                                       



13







OUTLOOK
FOR 2017

Going forward, New Gold’s asset by asset
cost guidance will include operating expense per gold ounce sold, operating expense per copper pound sold and all-in sustaining
costs per gold ounce sold. Operating expense per unit of metal sold apportions the Company’s operating expenses, as shown
on New Gold’s consolidated income statement, to each metal on a percentage of revenue basis. New Gold will continue to provide
total cash cost guidance on a consolidated basis, but not at the asset level.



|               
|---------------
|               
|               
|Rainy River(2) 
|New Afton      
|Mesquite       
|Peak Mines     
|Cerro San Pedro
|Total          

| | 1. | Note: consolidated silver production is estimated to be approximately 1.1 million ounces in 2017.
| | -- | -------------------------------------------------------------------------------------------------

| | 2. | Rainy River gold production guidance includes pre-commercial production of approximately 15,000
ounces. Rainy River operating expense per gold ounce sold and all-in sustaining costs per gold ounce sold are calculated based
on commercial production ounces.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 4. | Net of by-product silver and copper revenues.
| | -- | ---------------------------------------------

| | 5. | For details on the key assumptions, which apply to all 2016 and 2017 production and cost guidance
contained in this MD&A, refer to “Total Operating Expense and All-in Sustaining Costs per Gold Ounce Sold” below.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Production

New Gold’s 2017 consolidated gold production
is expected to increase relative to the prior year due to the planned September start-up of Rainy River. Consolidated gold production
from New Afton, Mesquite and the Peak Mines should remain in line with 2016 production levels, however, production at Cerro San
Pedro is scheduled to decrease as the mine enters its first full year of residual leaching. Copper production is expected to increase
slightly at New Afton due to higher copper grades, while copper production from the Peak Mines is expected to be in line with 2016.
Consolidated silver production is scheduled to remain in line with the prior year at approximately 1.1 million ounces.



Consistent with previous years, New Gold’s
2017 full-year gold production is not scheduled to be evenly distributed across the four quarters. Consolidated gold production
is expected to build steadily throughout the year with the fourth quarter benefitting from the start-up of Rainy River.



Total Operating Expense
and All-in Sustaining Costs per Gold Ounce Sold

New Gold’s by-product pricing assumptions
for 2017 are $2.50 per copper pound and $16.00 per silver ounce. The 2017 assumptions for the Canadian dollar, Australian dollar
and Mexican peso exchange rates of $1.30, $1.35 and $20.00 to the U.S. dollar, are in line with spot exchange rates.



The Company’s 2017 operating expense
will increase due to the advancement of Rainy River into production, however, operating expense per gold ounce and operating expense
per copper pound should both remain in line with 2016.



Consolidated total cash costs for the year
are expected to increase by approximately $65 per ounce to $395 to $435 per ounce as a result of higher gross operating costs attributable
to the start-up of Rainy River, partially offset by higher by-product revenues. New Gold’s 2017 all-in sustaining costs are
expected to increase by approximately $150 per ounce when



14







compared to the $692 per ounce delivered
in 2016. 2017 sustaining costs, including sustaining capital, exploration, general and administrative and amortization and reclamation
expenditures, are expected to increase by approximately $35 million relative to the prior year with the increase in sustaining
capital expenditures from the start-up of Rainy River, and increased underground development costs at New Afton and Peak Mines,
partially offset by lower capital expenditures at Mesquite.



KEY
PERFORMANCE DRIVERS

There is a range of key performance drivers
that is critical to the successful implementation of New Gold’s strategy and the achievement of its goals. The key internal
drivers are production volumes and costs. The key external drivers are market prices of gold, copper and silver, as well as foreign
exchange rates.



Production Volumes
and Costs

New Gold’s portfolio of operating mines
produced 381,663 gold ounces for the year ended December 31, 2016 and 95,883 gold ounces for the three months ended December 31,
2016. New Gold’s portfolio of operating mines produced 435,718 gold ounces for the year ended December 31, 2015 and 131,719
gold ounces for the three months ended December 31, 2015.



Operating expenses per gold ounce sold for
the year and three months ended December 31, 2016 were $640 and $780, respectively. Operating expenses per copper pound sold for
the year and three months ended December 31, 2016 were $1.14 and $1.58, respectively. Operating expenses per silver ounce sold
for the year and three months ended December 31, 2016 were $8.75 and $10.82, respectively.



Operating expenses per gold ounce sold for
the year and three months ended December 31, 2015 were $647 and $614, respectively. Operating expenses per copper pound sold for
the year and three months ended December 31, 2015 were $1.36 and $1.21, respectively. Operating expenses per silver ounce sold
for the year and three months ended December 31, 2015 were $8.66 and $8.10, respectively.



Total cash costs and all-in sustaining costs
for the year ended December 31, 2016, net of by-product sales, were $349 and $692 per gold ounce sold, respectively. For the three
months ended December 31, 2016 total cash costs and all-in sustaining costs, net of by-product sales, were $360 and $619 per gold
ounce sold, respectively.



Total cash costs and all-in sustaining costs
for the year ended December 31, 2015, net of by-product sales, were $443 and $809 per gold ounce sold, respectively. For the three
months ended December 31, 2015 total cash costs and all-in sustaining costs, net of by-product sales, were $389 and $613 per gold
ounce sold, respectively.



15







Commodity Prices







Gold prices

The price of gold is the single largest factor
affecting New Gold’s profitability and operating cash flows. As such, the current and future financial performance of the
Company is expected to be closely related to the prevailing price of gold. In the first quarter of 2016, the Company entered into
gold price option contracts related to its remaining 2016 production in order to further increase cash flow certainty and reduce
exposure to fluctuations in the gold price. The Company purchased put options with a strike price of $1,200 per ounce covering
270,000 ounces of gold and simultaneously sold call options with a strike price of $1,400 per ounce covering an equivalent 270,000
ounces. The net cost of entering into these gold price option contracts was $2.1 million. For the year ended December 31, 2016,
the Company recognized $1.5 million in revenue related to these gold price option contracts.



In the third quarter of 2016, the Company
entered into further gold price option contracts related to its production for the first half of 2017. New Gold purchased put options
with a strike price of $1,300 per ounce covering 120,000 ounces of gold and simultaneously sold call options with a strike price
of $1,400 per ounce covering an equivalent 120,000 ounces. The contracts cover 20,000 ounces of gold per month for six months beginning
in January 2017. New Gold entered into the contracts in order to further increase cash flow certainty as the Company invests in
the continued construction of its Rainy River project. The net cost of entering into these gold price option contracts was $1.0
million. With the delay in startup of the Rainy River project until September 2017, the Company may increase its hedging program
to reduce the price risk associated with its operating cash flow prior to commercial production. Please refer to the “Corporate
Developments” section of this MD&A for further information.



For the year ended December 31, 2016, New
Gold’s gold revenue per ounce and average realized gold price per ounce were $1,219 and $1,255, respectively, compared to
the London Bullion Market Association (“LBMA”) p.m. average gold price of $1,251 per ounce. For the three months ended
December 31, 2016, New Gold’s gold revenue per ounce and average realized gold price per ounce were $1,176 and $1,211, respectively,
compared to the LBMA p.m. average gold price of $1,222 per ounce.



The differences between New Gold’s average
realized gold price and the LBMA p.m. average gold price are primarily a result of the mark-to-market of unsettled ounces at the
end of the period and the timing of sales.



Copper prices

In November 2016, the Company entered copper
swap contracts for 5.3 million pounds of copper per month from January through June 2017, at a fixed price of $2.52 per pound settling
against the LME monthly average price. The copper forward



16







contracts are treated as derivative financial instruments and marked
to market at each reporting period on the consolidated statement of financial position with changes in fair value recognized in
other gains and losses. With the delay in startup of the Rainy River project until September 2017, the Company may increase its
hedging program to reduce the price risk associated with its operating cash flow prior to commercial production.



For the year ended December 31, 2016, New
Gold’s copper revenue per pound and average realized copper price per pound were $2.03 and $2.23, respectively, compared
to the average LME copper price of $2.21 per pound. For the three months ended December 31, 2016, New Gold’s copper revenue
per pound and average realized copper price per pound were $2.22 and $2.45, respectively, compared to the average LME copper price
of $2.39 per pound. For the year and three months ended December 31, 2016, New Gold’s average realized copper price per pound
was consistent with the average LME copper price.



Silver prices

For the year ended December 31, 2016, New
Gold’s silver revenue per ounce and average realized silver price per ounce were $16.68 and $17.15, respectively, consistent
with the LBMA p.m. average silver price of $17.14 per ounce. For the three months ended December 31, 2016, New Gold’s silver
revenue per ounce and average realized silver price per ounce were $16.19 and $16.80, respectively, compared to the LBMA p.m. average
silver price of $17.19 per ounce. The average realized silver price was lower than the market price due to the timing of sales.



Foreign Exchange
Rates

The Company operates in Canada, the United
States, Australia and Mexico, while revenue is generated in U.S. dollars. As a result, the Company has foreign currency exposure
with respect to costs not denominated in U.S. dollars. New Gold’s operating results and cash flows are influenced by changes
in various exchange rates against the U.S. dollar. The Company has exposure to the Canadian dollar through New Afton, Rainy River
and Blackwater, as well as through corporate administration costs. The Company also has exposure to the Australian dollar through
Peak Mines, and to the Mexican peso through Cerro San Pedro.



The Canadian dollar weakened against the U.S.
dollar by approximately 2% from September 30, 2016 to December 31, 2016. The average Canadian dollar against the average U.S. dollar
for the three months ended December 31, 2016 was consistent with the prior-year period. The average Canadian dollar against the
average U.S. dollar for the year ended December 31, 2016 weakened by approximately 4% when compared to the prior year. A weaker
Canadian dollar decreases costs in U.S. dollar terms at the Company’s Canadian operations, as well as capital costs at the
Company’s Canadian development properties as a significant portion of the capital costs are denominated in Canadian dollars.



The Australian dollar weakened against the
U.S. dollar by approximately 6% from September 30, 2016 to December 31, 2016. The average Australian dollar against the average
U.S. dollar for the three months ended December 31, 2016 strengthened by approximately 4% when compared to the prior-year period.
The average Australian dollar against the average U.S. dollar for the year ended December 31, 2016 weakened by approximately 1%
when compared to the prior year. The strengthening or weakening of the Australian dollar impacts costs in U.S. dollar terms at
the Company’s Australian operation, Peak Mines, as a significant portion of operating costs are denominated in Australian
dollars.



The Mexican peso weakened against the
U.S. dollar by approximately 7% from September 30, 2016 to December 31, 2016. The average Mexican peso against the average
U.S. dollar for the three months ended December 31, 2016 weakened by approximately 18% when compared to the prior-year
period. The average Mexican peso against the average U.S. dollar for the year ended December 31, 2016 weakened by
approximately 18% when compared to the prior year. The strengthening or weakening of the Mexican peso impacts costs in U.S.
dollar terms at the Company’s Mexican operation, Cerro San Pedro, as a portion of operating costs are denominated in
Mexican pesos.



17











For an analysis of the impact of foreign exchange
fluctuations on operating costs for the year and three months ended December 31, 2016 relative to prior-year periods, refer to
the “Review of Operating Mines” sections for New Afton, Peak Mines and Cerro San Pedro.



Economic Outlook

The LBMA p.m. gold price at the end of the
year decreased by 13% since the end of the third quarter and increased by 8% since the start of 2016. Gold experienced considerable
volatility during the year, initially performing well as expectations for interest rate hikes were lowered, and then declining
as prospects for the US economy improved. The transition of the presidency in the United States has brought considerable uncertainty
and unpredictability, which suggests a constructive environment for gold. Although U.S. economic data continues to demonstrate
progress, this comes hand in hand with enhanced inflation expectations, particularly if the infrastructure program being contemplated
by the new administration comes to fruition, all of which would provide scope for increased investment demand for gold.



Furthermore, prospects for gold are encouraged
by several structural factors. Mine supply has been plateauing as high quality deposits become more difficult to find and more
expensive to develop and mine. Exploration budgets have been cut in recent years, increasing the likelihood that supply will remain
muted, even in the face of increasing gold prices. Gold held in exchange-traded products is down more than 30% from the peak in
2012, suggesting that the broad investment community has capacity to add length to positions as sentiment improves. As a low all-in
sustaining cost producer with a pipeline of development projects, New Gold believes it is particularly well positioned both to
operate in a lower gold price environment and to take advantage of higher prices in the gold market.



Economic events can have significant effects
on the price of gold, through currency rate fluctuations, the relative strength of the U.S. dollar, gold supply and demand, and
macroeconomic factors such as interest rates and inflation expectations. Management anticipates that the long-term economic environment
should provide support for precious metals and for gold in particular, and believes the prospects for the business are favourable.
New Gold’s growth plan is focused on organic and acquisition-led growth, and the Company plans to remain flexible in the
current environment to be able to respond to opportunities as they arise.



18







FINANCIAL
RESULTS

Summary of Quarterly
and Year-to-Date Financial Results

|Three months ended December 31                                  | Year ended December 31
|--------------------------------------------------------------- | ----------------------
|(in millions of U.S. dollars, except where noted)               | 2016                  
|FINANCIAL RESULTS                                               |                       
|Revenue                                                         | 170.3                 
|Operating expenses                                              | 114.7                 
|Depreciation and depletion                                      | 67.5                  
|Revenue less cost of goods sold                                 | (11.9)                
|                                                                |                       
|Corporate administration                                        | 6.4                   
|Provision for office consolidation                              | -                     
|Share-based payment expenses                                    | 0.5                   
|Asset Impairment                                                | 6.4                   
|Exploration and business development                            | 3.9                   
|(Loss) earnings from operations                                 | (29.1)                
|                                                                |                       
|Finance income                                                  | 0.7                   
|Finance costs                                                   | (1.5)                 
|Other losses                                                    |                       
|Unrealized gains on share purchase warrants                     | 1.5                   
|(Loss) gain on foreign exchange                                 | (7.0)                 
|Gain (loss) on disposal of El Morro                             | -                     
|Other loss on disposal of assets                                | (0.4)                 
|Financial instrument transaction costs                          | -                     
|Unrealized gain (loss) on revaluation of gold stream obligation | 3.3                   
|Gain on revaluation of gold price option contracts              | 15.7                  
|(Loss) gain on revaluation of available-for-sale securities     | (0.2)                 
|Other                                                           | 0.1                   
|(Loss) earnings before taxes                                    | (16.9)                
|Income tax (expense) recovery                                   | (3.0)                 
|Net (loss) earnings                                             | (19.9)                
|Adjusted net (loss) earnings(1)                                 | (2.3)                 

| | 1. | The Company uses certain non-GAAP financial performance measures throughout this Management’s
Discussion and Analysis (“MD&A”). For a detailed description of each of the non-GAAP measures used in this MD&A
and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revenue

For the year ended December
31, 2016, the decrease in revenue was primarily due to a $66.8 million decrease from lower gold and silver sales volumes and a
$19.8 million decrease driven by lower copper prices, partially offset by a $42.3 million increase driven by higher gold and silver
prices and a $15.2 million increase due to higher copper sales volumes. For the three months ended December 31, 2016, the decrease
in revenue was primarily due to lower metal sales volumes, partially offset by higher gold, copper and silver prices.



A detailed discussion of production is included
in the “Review of Operating Mines” section of this MD&A.



19







Operating expenses

For the year and three months ended December
31, 2016, the decrease in operating expenses reflects the reduction in mining activity at Cerro San Pedro and the Company’s
business improvement initiatives. For the year ended December 31, 2016, operating expenses also benefitted from the depreciation
of the Canadian dollar relative to the U.S. dollar. Included in operating expenses for the year and three months ended December
31, 2016 was a heap leach silver inventory write-down of $24.0 million at Cerro San Pedro, compared to a heap leach silver inventory
write-down of $11.4 million at Cerro San Pedro in the prior-year periods.



Depreciation
and depletion

For the year ended December 31, 2016, the
increase in depreciation and depletion is primarily a result of higher production at Peak Mines and the lower reserve base for
Peak Mines when compared to the prior year. Higher depreciation and depletion at Peak Mines was only partially offset by lower
depreciation and depletion at New Afton and Mesquite. For the three months ended December 31, 2016, the decrease in depreciation
and depletion was primarily a result of lower quarterly production across all operating sites.



Revenue less
cost of goods sold

For the year ended December 31, 2016, revenue
less cost of goods sold increased as the benefit from higher gold and silver prices and reduced operating expenses offset
lower gold and silver sales volumes and the increase in depreciation and depletion. For the three months ended December 31, 2016,
revenue less cost of goods sold decreased as the
benefit from higher gold and silver prices was offset by lower gold and silver sales volumes.



Corporate administration
and share-based payment expenses

For the year ended December 31, 2016, corporate
administration costs were consistent with the prior year. For the three months ended December 31, 2016, the increase in corporate
administration costs were as a result of severance expenses in the period. For the year and three months ended December 31, 2016,
share-based payment expenses were consistent with the prior-year periods.



Asset Impairment

In accordance with the Company’s accounting
policies, the recoverable amount of an asset is estimated when an indication of impairment exists. Indicators of impairment existed
for the Company’s 3% net sales revenue (“NSR”) royalty on the production of the Rio Figueroa property (“Rio
Figueroa NSR”) which is classified as an exploration and evaluation asset. The Company acquired this asset in 2014 in exchange
for its 30% holding of the property. During the fourth quarter of 2016 and as part of its Life of Mine (“LOM”) update
process the Company considered the status of the project. There has been a lack of activity at the project since its acquisition
and the project is not currently included in the growth pipeline of its operator. This is in contrast with the Company’s
other royalty and stream assets where the projects have continued to advance. The Company has identified this as an indicator of
impairment for the Rio Figueroa NSR asset. For the year ended December 31, 2016, the Company recorded an impairment charge of $6.4
million within income from operations. For further details on the methodology and key assumptions of this impairment charge, please
refer to the Company’s audited consolidated financial statements for the year ended December 31, 2016. For the year and three
months ended December 31, 2015, an impairment loss of $20.1 million was recorded at Peak Mines resulting from the fair value of
the Peak Mines CGU being impacted by the decreased production profile.



Exploration and
business development

Expensed exploration in the current year was
primarily incurred at Peak Mines and New Afton. The prior year included expensed exploration costs primarily incurred at Peak Mines
and Blackwater. The current year included a refunded tax credit of $0.9 million at Blackwater related to the British Colombia Mining
Exploration Tax Credit, compared to a refunded



20







tax credit of $1.4 million in the
prior year. Exploration costs at Rainy River were capitalized to mineral interest in both the current and prior years.



Capitalized exploration costs were $4.4 million
for the year ended December 31, 2016 compared to $5.1 million in the prior year. Capitalized exploration in the current period
was primarily incurred at the New Afton C-zone and Rainy River. The prior year included capitalized exploration primarily incurred
at the Peak Mines and Rainy River. Please refer to the “Development and Exploration review” section of this MD&A
for further details on the Company’s exploration and business development activities.



Other losses

The following other losses are added back
for the purposes of adjusted net earnings:



Share purchase warrants

For the year and three months ended December
31, 2016, the Company recorded a gain on share purchase warrants, consistent with the prior-year periods. As the traded value of
the New Gold share purchase warrants increases or decreases, a related loss or gain on the mark-to-market of the liability is reflected
in earnings.



Gold stream obligation

For the year ended December 31, 2016, the
unrealized loss on revaluation of the gold stream obligation derivative instrument was related to the change in the risk-free rate
used to value this obligation and the increase in gold prices. The gain or loss on the revaluation of the gold stream obligation
as a result of the change in the Company’s own credit risk is recorded in other comprehensive income.



Gold price option contracts

During the current year, the Company entered
into gold price option contracts whereby it sold a series of call option contracts and purchased a series of put option contracts.
Derivative instruments are fair valued at the end of each reporting period. For the year and three months ended December 31, 2016,
the Company recognized a gain on the revaluation of gold price option contracts due primarily to the decrease in gold prices. Please
refer to the “Corporate Developments” section of this MD&A for more information on the Company’s gold price
option contracts.



Foreign exchange

Movements in foreign exchange are due to the
revaluation of the non-monetary assets and liabilities at the balance sheet date and the appreciation or depreciation of the Canadian
and Australian dollars compared to the U.S. dollar in the current period.



Income tax

Income tax recovery for the year ended December
31, 2016 was $0.7 million on income before taxes of $2.0 million compared to $106.9 million in the prior-year period on a loss
before taxes of $308.3 million, reflecting an effective tax rate of (35%) in 2016 compared to 35% in 2015. The current year unadjusted
tax rate is impacted by foreign exchange movements on the deferred tax related to non-monetary assets and liabilities on translation.
For the year ended December 31, 2016, the Company recorded a foreign exchange gain of $13.8 million on non-monetary assets and
liabilities compared to a foreign exchange gain of $24.2 million in the prior year with no associated tax impact. For the year
ended December 31, 2015 the unadjusted tax rate was impacted due to lower Chilean income taxes applicable on the sale of the Company’s
30% interest in El Morro completed in the prior year.



The Company had unrecognized deferred tax
assets in Mexico of $18.4 million for the year ended December 31, 2016 compared to $19.8 million in the prior year. Additionally,
the Company had $1.2 million of unrecognized deferred tax



21







assets in the U.S. relating to an alternative
minimum tax credit for the year ended December 31, 2016, compared to $3.5 million in the prior year. The deferred tax assets were
not recognized as the Company did not meet more likely than not criteria for recognizing these assets.



During the year the Company paid income taxes
of $6.9 million compared to $19.4 million in the prior year. The decrease is primarily due to the refunds received in the U.S.
and in Mexico. The Company also received $0.9 million of refundable tax credits provided by the province of British Columbia as
an incentive for exploration compared to the receipt of $1.4 million in the prior year.



On an adjusted net earnings basis, the adjusted
tax expense for the year ended December 31, 2016 was $15.2 million, compared to $3.2 million in the prior year. The adjusted tax
recovery excludes the impact of foreign exchange, the loss on revaluation of the gold stream obligation and the gain on revaluation
of the gold price option contracts. The higher adjusted tax reflects the greater impact of a permanent difference over adjusted
earnings compared to an adjusted net loss in the prior period. Please refer to the “Non-GAAP Financial Performance Measures”
section of this MD&A.



Net earnings
(loss)

For the year ended December 31, 2016, net
earnings were positively impacted by higher revenue less cost of goods sold. Net earnings further benefitted from a lower impairment
loss than in the prior year, as described above. Additionally, net loss in the prior year included a loss on disposal of El Morro
of $98.8 million ($180.3 million included in other gains and losses less associated tax recovery of $81.5 million). For the three
months ended December 31, 2016, the increase in net loss was primarily driven by the income tax expense recognized in the current
period, when compared to the income tax recovery recognized in the prior-year period.



RECONCILIATION
OF NET EARNINGS (LOSS) – 2015 TO 2016

(in millions of U.S. dollars)







22







RECONCILIATION
OF NET EARNINGS (LOSS) – Q4 2015 TO Q4 2016

(in millions of U.S. dollars)







Adjusted net earnings
(loss)

Please see below for a reconciliation of adjusted
net earnings for the year and three months ended December 31, 2016 from the prior-year periods.



RECONCILIATION
OF ADJUSTED NET EARNINGS (LOSS) – 2015 TO 2016

(in millions of U.S. dollars)







23







RECONCILIATION
OF ADJUSTED NET (LOSS) EARNINGS – Q4 2015 TO Q4 2016

(in millions of U.S. dollars)







The net earnings have been adjusted, including
the associated tax impact, for inventory write-downs, asset impairments and costs in “Other losses” on the audited
consolidated income statement, excluding the Company’s share of the net loss of El Morro. Key entries in this grouping are:
the fair value changes for the gold stream obligation; share purchase warrants and the fair value changes for gold option contracts;
foreign exchange gain or loss; and loss on disposal of assets. The adjusted entries are also impacted for tax to the extent that
the underlying entries are impacted for tax in the unadjusted net earnings. Please refer to the “Non-GAAP Financial Performance
Measures” section of this MD&A.



24







Key Quarterly Operating
and Financial Information

Selected financial and operating information
for the current and previous quarters is as follows:





|                                                 
|-------------------------------------------------
|(in millions of U.S. dollars,
except where noted)
|Operating information                            
|Gold production (ounces)                         
|Gold sales (ounces)                              
|                                                 
|Revenue                                          
|                                                 
|Net earnings (loss)                              
|per share:                                       
|Basic ($)                                        
|Diluted ($)                                      
|                                                 
|Adjusted net earnings (loss) per share:          
|Basic ($)                                        
|Diluted ($)                                      



A detailed discussion of production is included
in the “Operating Highlights” section of this MD&A.



25







REVIEW
OF OPERATING MINES New Afton Mine, British
Columbia, Canada The New Afton Mine is located near Kamloops,
British Columbia, Canada. The mine is a large underground block cave copper and gold mine. At December 31, 2016, the mine had 1.2
million ounces of Proven and Probable gold Mineral Reserves and 1.0 billion pounds of Proven and Probable copper Mineral Reserves,
with 1.2 million ounces of Measured and Indicated gold Mineral Resources, exclusive of Mineral Reserves, and 950 million pounds
of Measured and Indicated copper Mineral Resources, exclusive of Mineral Reserves. A summary of New Afton’s operating results
is provided below.


AT-A-GLANCE
        2017
        GUIDANCE:
        Gold:70,000 - 80,000 ounces
        copper:85 - 95 million pounds
        OPERATING
        EXPENSE/gold OZ:$405 -$445
        ALL-IN
        SUSTAINING COSTS/OZ:($280) - ($240)
        2016
        Production:
        Gold:98,098 Ounces
        copper:87.3 million pounds
        OPERATING
        EXPENSE/gold OZ:$415
        ALL-IN
        SUSTAINING COSTS/OZ:($218)






|Three months ended December 31                    | Year ended December 31
|------------------------------------------------- | ----------------------
|(in millions of U.S. dollars, except where noted) | 2016                  
|Operating information                             |                       
|Ore mined (thousands of tonnes)                   | 1,628                 
|Ore processed (thousands of tonnes)               | 1,522                 
|Average grade:                                    |                       
|Gold (grams/tonne)                                | 0.60                  
|Copper (%)                                        | 0.78                  
|Recovery rate (%):                                |                       
|Gold                                              | 80.9                  
|Copper                                            | 81.5                  
|Gold (ounces):                                    |                       
|Produced (1)                                      | 23,879                
|Sold (1)                                          | 24,171                
|Copper (millions of pounds):                      |                       
|Produced (1)                                      | 21.4                  
|Sold (1)                                          | 21.1                  
|Silver (millions of ounces):                      |                       
|Produced (1)                                      | 0.1                   
|Sold (1)                                          | 0.1                   
|Revenue                                           |                       
|Gold ($/ounce)                                    | 1,102                 
|Copper ($/pound)                                  | 2.24                  
|Silver ($/ounce)                                  | 14.97                 
|Average realized price(1)(2):                     |                       
|Gold ($/ounce)                                    | 1,212                 
|Copper ($/pound)                                  | 2.47                  
|Silver ($/ounce)                                  | 16.47                 



26







|Three months ended December 31                               | Year ended December 31
|------------------------------------------------------------ | ----------------------
|(in millions of U.S. dollars, except where noted)            | 2016                  
|Operating information                                        |                       
|Operating expenses per gold ounce sold ($/ounce)(4)          | 415                   
|Operating expenses per copper pound sold ($/pound)(4)        | 0.84                  
|Total cash costs per gold ounce sold ($/ounce) (2)(3)        | (720)                 
|All-in sustaining costs per gold ounce sold ($/ounce) (2)(3) | (253)                 
|Total cash costs on a co-product basis (2)(3)                |                       
|Gold ($/ounce)                                               | 525                   
|Copper ($/pound)                                             | 1.07                  
|All-in sustaining costs on a co-product basis (2)(3)         |                       
|Gold ($/ounce)                                               | 691                   
|Copper ($/pound)                                             | 1.41                  



|Three months ended December 31                    | Year ended December 31
|------------------------------------------------- | ----------------------
|(in millions of U.S. dollars, except where noted) | 2016                  
|Financial Information:                            |                       
|Revenue                                           | 74.9                  
|Operating margin(2)                               | 46.6                  
|Revenue less cost of goods sold                   | 11.5                  
|Capital expenditures (sustaining capital) (2)     | 10.2                  
|Capital expenditures (growth capital)(2)          | 0.2                   

| | 1. | Production is shown on a total contained basis while sales are shown on a net payable basis, including
final product inventory and smelter payable adjustments, where applicable.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | We use certain non-GAAP financial performance measures throughout our MD&A. Total cash costs
and all-in sustaining costs per gold ounce sold, total cash costs and all-in sustaining costs on a co-product basis, average realized
price, operating margin, and capital expenditures (sustaining capital and growth capital) are non-GAAP financial performance measures
with no standard meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP
Financial Performance Measures” section of this MD&A.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | The calculation of total cash costs per gold ounce is net of by-product revenue while total cash
costs and all-in sustaining costs on a co-product basis removes the impact of other metal sales that are produced as a by-product
of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------



Operating results

Production

For the year ended December 31, 2016, gold
production decreased relative to the prior year as a planned increase in mill throughput was more than offset by an expected decrease
in gold grade. Gold recovery remained in line with the prior year despite the lower gold grade and increase in throughput as a
result of the Company’s successful completion of the mill expansion project in 2015. New Afton’s full-year gold production
achieved the high end of its guidance range of 90,000 to 100,000 ounces.



For the three months ended December 31, 2016,
the decrease in gold production was attributable to an expected decrease in gold grade and gold recovery, partially offset by an
increase in mill throughput. New Afton’s average mill throughput during the quarter was over 17,000 tonnes per day.



For the year ended December 31, 2016, copper
production was consistent with the prior year as higher mill throughput offset a decrease in copper grade, while copper recovery
remained consistent with the prior year. New Afton’s full-year copper production exceeded the high end of its guidance range
of 75 to 85 million pounds. For the three months ended December 31, 2016, the decrease in copper production was due to a decrease
in copper grade and recovery.



27







Revenue

For the year ended December 31, 2016, revenue
was consistent with the prior year. The impact of a $10.4 million increase in metal sales volumes was only partially offset by
a $7.8 million decrease driven by lower metal prices. For the three months ended December 31, 2016, the impact of higher metal
prices was partially offset by lower metal sales volumes.



At the end of the period, New Afton’s
exposure to the impact of movements in market metal prices for provisionally priced contracts was 24,100 ounces of gold and 48.3
million pounds of copper. Exposure to these movements in market metal prices is reduced by 22,100 ounces of gold swaps and 45.9
million pounds of copper swaps outstanding as at December 31, 2016, with settlement periods ranging from February 2017 to April
2017.



Revenue less cost of
goods sold

For the year ended December 31, 2016, revenue
less cost of goods sold was consistent with the prior year. For the three months ended December 31, 2016, the increase in
revenue less cost of goods sold was primarily
due to lower depreciation and depletion. Depreciation and depletion was lower than in the prior-year period as a result of lower
production.



Operating expenses,
total cash costs and all-in sustaining costs per gold ounce sold

For the year ended December 31, 2016, the
increase in operating expenses per gold ounce sold was due to higher operating expenses and lower gold sales volumes. Operating
expenses were higher than in the prior year due to high costs associated with mining and processing additional ore as a result
of New Afton experiencing lower gold and copper grades. For the three months ended December 31, 2016, the increase in operating
expenses per gold ounce sold was due to lower gold sales volumes.



For the year ended December 31, 2016, the
increase in total cash costs was primarily driven by a decrease in by-product revenues and an increase in operating expenses as
described above. For the three months ended December 31, 2016, the decrease in total cash costs was driven by an increase in by-product
revenues as a result of higher copper prices.



For the year ended December 31, 2016, the
increase in all-in sustaining costs was due to higher total cash costs, partially offset by lower sustaining capital expenditures.
For the three months ended December 31, 2016, the increase in all-in sustaining costs was due primarily to higher sustaining capital
expenditures.



New Afton’s 2016 full-year costs were
approximately $330 per ounce below the guidance ranges set in early 2016, of $95 to $135 per ounce for all-in sustaining costs
and ($335) to ($295) per ounce for total cash costs. The $330 per ounce decrease in costs relative to guidance was due to the combined
benefit of copper production being above the high end of the guidance range and the realized copper price being above the guidance
assumption, which was only partially offset by the appreciation of the Canadian dollar relative to the assumption used when setting
guidance.



Capital expenditures

In both the current year and the prior year,
sustaining capital expenditures were primarily related to mine development costs and the tailings dam raise projects. For the year
ended December 31, 2016, the decrease in growth capital expenditures was as a result of the completion of the mill expansion in
the second quarter of 2015.



Impact of foreign exchange
on operations

New Afton’s operations continue
to be impacted by fluctuations in the valuation of the U.S. dollar against the Canadian dollar. For the year ended December
31, 2016, the value of the U.S. dollar averaged $1.32 against the Canadian dollar compared to $1.28 in the prior year,
resulting in a positive impact on total cash costs of $50 per gold ounce sold. For the three months ended December 31, 2016,
the value of the U.S. dollar averaged $1.33 against the Canadian dollar, consistent with the prior-year period.



28







Exploration activities

During 2016, fourteen core holes totalling
8,537 metres were completed to test the potential to expand the C-zone block cave mineral reserve beyond its currently defined
limits. During the fourth quarter of 2016, results of this work were incorporated into the Company’s updated Mineral Resource
and Reserve estimates for year-end 2016. During 2016, the Company also conducted first pass drill testing of several near-surface
targets identified within the New Afton mine lease, completing a total of 9,700 metres in 22 diamond drill core holes during the
year. The results of this work have been incorporated into plans for the 2017 New Afton exploration program.



Outlook for 2017

Gold production at New Afton should decrease
relative to 2016 due to an expected decrease in gold grade and recovery. The mine is expected to operate at similar throughput
levels to 2016. Copper production should remain in line with 2016.



New Afton’s 2017 operating expenses
should remain in line with 2016, while all-in sustaining costs are targeted to remain among the lowest in the industry. The decrease
in all-in sustaining costs is due to an increase in by-product revenues of approximately $35 million, or $460 per ounce, resulting
from the 2017 copper price assumption being higher than the 2016 realized price. This is partially offset by an increase in sustaining
costs of approximately $17 million, or $225 per ounce, mainly attributable to increased mine development of the B3 zone.





|Year ended December 31                                             
|-------------------------------------------------------------------
|                                                                   
|2016 Actuals and 2017 guidance                                     
|Gold (ounces)                                                      
|Copper (millions of pounds)                                        
|Operating expenses per gold ounce sold ($/ounce)                   
|Operating expenses per copper pound sold ($/pound)                 
|All-in sustaining costs ($/ounce)                                  
|Capital expenditures (sustaining capital) (millions of U.S dollars)
|Capital expenditures (growth capital) (millions of U.S dollars)    



Please refer to the “Outlook for 2017”
section of this MD&A for details of the relevant key assumptions.





29









Mesquite Mine, California,
USA The Company’s Mesquite Mine is located
in Imperial County, California, approximately 70 kilometres northwest of Yuma, Arizona and 230 kilometres east of San Diego, California.
It is an open pit, run-of-mine heap leach gold mining operation. The mine was operated between 1985 and 2001 by Goldfields Mining
Corporation, subsequently Santa Fe Minerals Corporation, and finally Newmont Mining Corporation with Western Goldfields Inc. acquiring
the mine in 2003. The mine resumed production in 2008. New Gold acquired Mesquite as part of the business combination with Western
Goldfields in mid-2009. At December 31, 2016, the mine had 1.2 million ounces of Proven and Probable gold Mineral Reserves and
1.0 million ounces of Measured and Indicated gold Mineral Resources, exclusive of Mineral Reserves. A summary of Mesquite’s
operating results is provided below.


AT-A-GLANCE
        2017
        GUIDANCE:
        Gold:140,000 - 150,000 ounces
        OPERATING
        EXPENSES/oz:$675 - $715
        ALL-IN
        SUSTAINING COSTS/OZ:$805 - $845
        


        2016
        production:
        Gold:
        111,123 ounces
        OPERATING
        EXPENSES/oz:$628
        ALL-IN
        SUSTAINING COSTS/OZ:$979






|Three months ended December 31                            | Year ended December 31
|--------------------------------------------------------- | ----------------------
|(in millions of U.S. dollars, except where noted)         | 2016                  
|Operating information                                     |                       
|Ore mined and placed on leach pad (thousands of tonnes)   | 5,762                 
|Waste mined (thousands of tonnes)                         | 5,021                 
|Ratio of waste to ore                                     | 0.87                  
|Average grade:                                            |                       
|Gold (grams/tonne)                                        | 0.31                  
|Gold (ounces):                                            |                       
|Produced (1)(2)                                           | 39,353                
|Sold (1)                                                  | 38,366                
|Revenue                                                   |                       
|Gold ($/ounce)                                            | 1,217                 
|Average realized price (3):                               |                       
|Gold ($/ounce)                                            | 1,217                 
|Operating expenses per gold ounce sold ($/ounce) (4)      | 660                   
|Total cash costs per gold ounce sold ($/ounce) (3)        | 670                   
|All-in sustaining costs per gold ounce sold ($/ounce) (3) | 771                   
|                                                          |                       
|FINANCIAL INFORMATION                                     |                       
|Revenue                                                   | 46.7                  
|Operating margin(3)                                       | 21.4                  
|Revenue less cost of goods sold                           | 7.9                   
|Capital expenditures (sustaining capital)(3)              | 1.9                   

| | 1. | Production is shown on a total contained basis while sales are shown on a net payable basis, including
final product inventory, where applicable.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Tonnes of ore processed each period does not necessarily correspond to ounces produced during the
period, as there is a time delay between placing tonnes on the leach pad and pouring gold ounces.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | We use certain non-GAAP financial performance measures throughout our MD&A. Total cash costs
and all-in sustaining costs per gold ounce sold, average realized price, operating margin and capital expenditures (sustaining
capital) are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed
reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------



30







Operating results

Production

For the year ended December 31, 2016,
the decrease in gold production was primarily due to lower recoveries associated with the transitional material which was only
partially offset by higher gold grades mined. Mesquite’s full-year production came in below the low end of its guidance range
of 130,000 to 140,000 ounces.



For the three months ended December 31,
2016, the decrease in production was due to lower gold grade, partially offset by higher tonnes placed on the leach pad when compared
to the prior-year period. Despite this, Mesquite’s fourth quarter was the mine’s strongest quarter of the year.



Revenue

For the year ended December 31, 2016,
the decrease in revenue was attributed to the impact of a $22.6 million decrease driven by lower gold sales volumes, partially
offset by a $11.4 million increase due to higher gold prices. For the three months ended December 31, 2016, revenue was consistent
with the prior-year period, as the impact of lower gold sales volumes was offset by higher gold prices.



Revenue less cost of goods
sold

For the year ended December 31, 2016,
the increase in revenue less cost of goods sold is attributable
to lower operating expenses and lower depreciation and depletion, partially offset by lower revenue. Operating expenses were lower
than in the prior year as a result of lower production, lower diesel prices and a higher portion of Mesquite’s mining costs
being capitalized to leach pad inventory. For the three months ended December 31, 2016, revenue
less cost of goods sold was consistent with the prior-year period.



Operating expenses, total
cash costs and all-in sustaining costs per gold ounce sold

For the year ended December 31, 2016,
the decrease in operating expenses and total cash costs per gold ounce sold was primarily attributable to lower operating expenses,
as described above. For the three months ended December 31, 2016, the increase in operating expenses and total cash costs per gold
ounce was primarily due to lower gold sales volumes when compared to the prior-year period.



For the year and three months ended December
31, 2016, the decrease in all-in sustaining costs per gold ounce sold was primarily attributable to lower sustaining capital expenditures.
For the year ended December 31, 2016, all-in sustaining costs per gold ounce sold also benefitted from lower operating expenses
per gold ounce sold when compared to the prior year.



Capital expenditures

For the year and three months ended December
31, 2016, the decrease in capital expenditures was a result of lower capitalized waste stripping expenditures as the focus in the
first half of 2015 was on waste stripping and additional spending in the prior year on the leach pad expansion.



Outlook for 2017

As planned, production at Mesquite is
expected to increase relative to 2016 with gold grade increasing towards reserve grade and recoveries improving as mining has moved
away from the transition zones encountered in 2016.



2017 operating expenses are expected to
increase relative to 2016 due to the combination of higher tonnes processed and no waste stripping being capitalized. Mesquite’s
2017 all-in sustaining costs are targeted to decrease due to a planned $16 million, or $110 per ounce, decrease in sustaining costs
related to lower waste stripping being capitalized as well as higher gold sales volumes.



31







|                                                                    | Year ended December 31
|------------------------------------------------------------------- | ----------------------
|                                                                    | 2016 Actuals          
|2016 Actuals and 2017 guidance                                      |                       
|Gold (ounces)                                                       | 111,123               
|Operating expenses per gold ounce sold ($/ounce)                    | 628                   
|All-in sustaining costs ($/ounce)                                   | 979                   
|Capital expenditures (sustaining capital) (millions of U.S dollars) | 35.6                  



Please refer to the “Outlook for
2017” section of this MD&A for details of the relevant key assumptions.



32







Peak Mines, New South
Wales, Australia The Company’s Peak Mines gold-copper
mining operation is an underground mine/mill operation located in the Cobar Mineral Field near Cobar, New South Wales, Australia.
Peak Mines was originally built by Rio Tinto Plc and commenced production in 1992. At December 31, 2016, the mine had 251,000 ounces
of Proven and Probable gold Mineral Reserves and 80 million pounds of Proven and Probable copper Mineral Reserves, with 378,000
ounces of Measured and Indicated gold Mineral Resources, exclusive of Mineral Reserves, and 171 million pounds of Measured and
Indicated copper Mineral Resources, exclusive of Mineral Reserves. A summary of Peak Mines’ operating results is provided
below:


AT-A-GLANCE
        2017
        GUIDANCE:
        Gold:85,000 - 95,000 ounces
        COPPER:~15 million pounds
        OPERATING
        EXPENSES/gold oz:$780 - $820
        ALL-IN
        SUSTAINING COSTS/OZ:$1,060 - $1,100
        


        2016
        Production
        Gold:
        107,449 ounces
        copper:15.0 MILLION pounds
        operating
        expenses/gold oz:$695
        ALL-IN SUSTAINING
        COSTS/OZ:$736






|Three months ended December 31                         | Year ended December 31
|------------------------------------------------------ | ----------------------
|(in millions of U.S. dollars, except where noted)      | 2016                  
|Operating information                                  |                       
|Ore mined (thousands of tonnes)                        | 219                   
|Ore processed (thousands of tonnes)                    | 191                   
|Average grade:                                         |                       
|Gold (grams/tonne)                                     | 3.16                  
|Copper (%)                                             | 1.10                  
|Recovery rate (%):                                     |                       
|Gold                                                   | 91.9                  
|Copper                                                 | 90.8                  
|Gold (ounces):                                         |                       
|Produced (1)                                           | 18,587                
|Sold (1)                                               | 18,049                
|Copper (millions of pounds):                           |                       
|Produced (1)                                           | 4.2                   
|Sold (1)                                               | 3.5                   
|Revenue                                                |                       
|Gold ($/ounce)                                         | 1,157                 
|Copper ($/pound)                                       | 2.09                  
|Average realized price (2):                            |                       
|Gold ($/ounce)                                         | 1,191                 
|Copper ($/pound)                                       | 2.36                  
|Operating expenses per gold ounce sold ($/ounce) (4)   | 815                   
|Operating expenses per copper pound sold ($/pound) (4) | 1.62                  
|Total cash costs per gold ounce sold (2)(3)            | 662                   
|All-in sustaining costs per gold ounce sold (2)(3)     | 742                   
|Total cash costs on a co-product basis (2)(3)          |                       
|Gold ($/ounce)                                         | 816                   
|Copper ($/pound)                                       | 1.82                  
|All-in sustaining costs on a co-product basis (2)(3)   |                       
|Gold ($/ounce)                                         | 872                   
|Copper ($/pound)                                       | 1.93                  



33







|Three months ended December 31                    | Year ended December 31
|------------------------------------------------- | ----------------------
|(in millions of U.S. dollars, except where noted) | 2016                  
|FINANCIAL INFORMATION                             |                       
|Revenue                                           | 29.6                  
|Operating margin (2)                              | 9.1                   
|Revenue less cost of goods sold                   | (5.4)                 
|Capital expenditures (sustaining capital) (2)     | 3.1                   

| | 1. | Production is shown on a total contained basis while sales are shown on a net payable basis, including
final product inventory and smelter payable adjustments, where applicable.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | We use certain non-GAAP financial performance measures throughout our MD&A. Total cash costs
and all-in sustaining costs per gold ounce sold, total cash costs and all-in sustaining costs on a co-product basis, average realized
price, operating margin and capital expenditures (sustaining capital) are non-GAAP financial performance measures with no standard
meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance
Measures” section of this MD&A.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | The calculation of total cash costs per gold ounce is net of by-product copper revenue. Total cash
costs and all-in sustaining costs on a co-product basis removes the impact of other metal sales that are produced as a by-product
of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------



Operating results

Production

For the year ended December 31, 2016,
the increase in gold production was attributable to higher gold grade and increased productivity realized through business improvement
initiatives which led to higher throughput. Gold production in the prior year was below average due to the impact of geotechnical
challenges in the most gold-rich ore body, Perseverance, which limited the amount of ore that was mined and processed from this
area. 2016 full-year gold production was higher than both 2015 and the high end of its guidance range of 80,000 to 90,000 ounces.



For the year ended December 31, 2016,
the increase in copper production was attributable to the combined impacts of higher throughput, copper grade and recovery. 2016
copper production was almost double the 2016 guidance range of 6 to 8 million pounds.



For the three months ended December 31,
2016, the decrease in gold production was mainly attributable to lower gold grade material processed, however, this is as a result
of the prior-year period realizing gold grade almost double the mine’s current reserve grade due to the focus on processing
material from the Chronos ore body in the prior-year period. For the three months ended December 31, 2016, the increase in copper
production was primarily attributable to higher copper grade.



Revenue

For the year ended December 31, 2016,
the increase in revenue was attributable to the combined impact of a $19.4 million increase as a result of increased metals sales
volumes and a $11.6 million increase driven by higher metal prices. For the three months ended December 31, 2016, the decrease
in revenue was attributable to decreased metal sales volumes, partially offset by higher metal prices.



At the end of the year, Peak Mines’
exposure to the impact of movements in market metal prices for provisionally priced contracts was 2,000 ounces of gold and 1.0
million pounds of copper. Exposure to these movements in market metal prices was reduced by 0.4 million pounds of copper swaps
outstanding at the end of the period, with settlement periods ranging from January 2017 to March 2017.



Revenue less cost of goods
sold

For the year ended December 31, 2016,
the increase in revenue less cost of goods sold was primarily
attributable to higher revenue, partially offset by higher depreciation and depletion. Depreciation and depletion were higher
than in the prior



34







year due to higher gold and copper production
and a lower reserve base. Despite significantly higher production, operating expenses remained consistent with prior year due
primarily to the Company’s business improvement initiatives. For the three months ended December 31, 2016, the decrease
in revenue less cost of goods sold was primarily attributable
to lower revenue.



Operating expenses, total
cash costs and all-in sustaining costs

For the year ended December 31, 2016,
the decrease in operating expenses and total cash costs per gold ounce sold was attributable to the increase in gold sales volumes
and a decrease in mining costs due to higher than normal waste mining stemming from the seismic challenges encountered at deeper
levels of the Perseverance ore body in the prior year. For the three months ended December 31, 2016, the increase in operating
expenses and total cash costs per gold ounce sold was primarily attributable to the decrease in gold sales volumes. For the year
and three months ended December 31, 2016, by-product revenue was consistent with the prior-year periods.



For the year ended December 31, 2016,
the decrease in all-in sustaining costs per gold ounce sold was a result of the decrease in total cash costs per gold ounce sold
described above and the decrease in sustaining capital expenditures. For the three months ended December 31, 2016, the increase
in all-in sustaining costs per gold ounce sold was primarily attributable to the increase in operating expenses per gold ounce
sold described above.



Capital expenditures

For the year ended December 31, 2016,
the decrease in capital expenditures was a result of reductions in capital development as a result of mine sequencing and a lower
portion of Peak Mines mining costs being capitalized and reductions in capitalized exploration. For the three months ended December
31, 2016, capital expenditures were consistent with the prior-year period. Capital development is related to mine and infrastructure
development.



Impact of Foreign Exchange
on Operations

Peak Mines’ operations continue
to be impacted by fluctuations in the valuation of the U.S. dollar against the Australian dollar. For the year ended December 31,
2016, the value of the U.S. dollar averaged $1.34 against the Australian dollar compared to $1.33 in the prior year, resulting
in a positive impact on total cash costs of $9 per gold ounce sold. For the three months ended December 31, the value of the U.S.
dollar averaged $1.33 against the Australian dollar compared to $1.39 in the prior-year period, resulting in a negative impact
on total cash costs of $46 per gold ounce sold.



Exploration Activities

During the fourth quarter of 2016, surface
and underground exploration drilling at the Peak Mines operation concluded for the year. A total of 42,832 metres in 119 diamond
drill core holes was completed during 2016 to delineate additional mineral resources and to test the potential of newly identified
targets along the nine kilometre mine corridor.



Key highlight’s stemming from this
year’s exploration and resource delineation drilling work include the conversion of the high grade gold resources in the
Chronos ore body to reserve status and the addition of new copper-gold resources at the Great Cobar - Anjea zone to Peak’s
Inferred mineral resource inventory. Results for all drilling completed during the past year have been incorporated into the Company’s
updated Mineral Resource and Reserve estimates for year-end 2016.



Outlook for 2017

Gold production at the Peak Mines should
decrease and remain closer to historical levels due to lower throughput and gold grades. Copper production is expected to remain
in line with 2016.



2017 operating expenses are expected
to increase as a result of higher tonnes mined. All-in sustaining costs are targeted to increase relative to 2016 due to higher
sustaining costs, related to increased underground development, and lower gold



35







sales volumes, partially offset by higher by-product revenues
resulting from the 2017 copper price assumption being higher than the 2016 realized price. Approximately $10 million in growth
capital has been budgeted for underground infrastructure related to the future development of Great Cobar.



|                                                                    | Year ended December 31
|------------------------------------------------------------------- | ----------------------
|                                                                    | 2016 Actuals          
|2016 Actuals and 2017 guidance                                      |                       
|Gold (ounces)                                                       | 107,449               
|Copper (millions of pounds)                                         | 15.0                  
|Operating expenses per gold ounce sold ($/ounce)                    | 695                   
|Operating expenses per copper pound sold ($/pound)                  | 1.20                  
|All-in sustaining costs ($/ounce)                                   | 736                   
|Capital expenditures (sustaining capital) (millions of U.S dollars) | 11.1                  
|Capital expenditures (growth capital) (millions of U.S dollars)     | -                     



Please refer to the “Outlook for
2017” section of this MD&A for details of the relevant key assumptions.



36







Cerro San Pedro Mine,
San Luis Potosí, Mexico The Cerro San Pedro Mine is located in
the state of San Luis Potosí in central Mexico, approximately 20 kilometres east of the city of San Luis Potosí.
The mine is a gold-silver, open pit, run-of-mine heap leach operation. Cerro San Pedro finished active mining late in the second
quarter of 2016 and has now transitioned into residual leaching. A summary of Cerro San Pedro’s operating results is provided
below:


AT-A-GLANCE
        2017
        GUIDANCE:
        Gold:35,000 - 45,000 ounces
        OPERATING
        EXPENSES/GOLd oz:$1,080 - $1,120
        ALL-IN
        SUSTAINING COSTS/OZ:$1,090 - $1,130
        
        2016
        PRoduction
        Gold:
        64,993 ounces
        SILVER:0.9 MILLION OUNCES
        operating
        expenses/gold oz:$1,311
        ALL-IN SUSTAINING
        COSTS/OZ:$959






|Three months ended December 31                               | Year ended December 31
|------------------------------------------------------------ | ----------------------
|(in millions of U.S. dollars, except where noted)            | 2016                  
|Operating information                                        |                       
|Ore mined and placed on leach pad (thousands of tonnes)      | -                     
|Waste mined (thousands of tonnes)                            | -                     
|Ratio of waste to ore                                        | -                     
|Average grade:                                               |                       
|Gold (grams/tonne)                                           | -                     
|Silver (grams/tonne)                                         | -                     
|Gold (ounces)                                                |                       
|Produced (1)(2)                                              | 14,064                
|Sold (1)                                                     | 13,351                
|Silver (millions of ounces)                                  |                       
|Produced (1)(2)                                              | 0.2                   
|Sold (1)                                                     | 0.2                   
|Revenue                                                      |                       
|Gold ($/ounce)                                               | 1,219                 
|Silver ($/ounce)                                             | 16.91                 
|Average realized price (3):                                  |                       
|Gold ($/ounce)                                               | 1,219                 
|Silver ($/ounce)                                             | 16.91                 
|Operating expenses per gold ounce sold ($/ounce) (5)         | 2,586                 
|Operating expenses per silver ounce sold ($/ounce) (5)       | 35.87                 
|Total cash costs per gold ounce sold ($/ounce) (3)(4)        | 1,014                 
|All-in sustaining costs per gold ounce sold ($/ounce) (3)(4) | 1,045                 
|Total cash costs on a co-product basis (2)(3)                |                       
|Gold ($/ounce)                                               | 1,045                 
|Silver ($/ounce)                                             | 14.49                 
|All-in sustaining costs on a co-product basis (2)(3)         |                       
|Gold ($/ounce)                                               | 1,071                 
|Silver ($/ounce)                                             | 14.86                 
|                                                             |                       
|FINANCIAL INFORMATION                                        |                       
|Revenue                                                      | 19.1                  
|Operating margin (3)                                         | (21.5)                
|Revenue less cost of goods sold                              | (25.8)                
|Capital expenditures (sustaining capital)(3)                 | 0.2                   
|Capital expenditures (growth capital)(3)                     | -                     

| | 1. | Production is shown on a total contained basis while sales are shown on a net payable basis, including
final product inventory adjustments, where applicable.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Tonnes of ore processed each period does not necessarily correspond to ounces produced during the
period, as there is a time delay between placing tonnes on the leach pad and pouring gold ounces.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



37







| | 3. | We use certain non-GAAP financial performance measures throughout our MD&A. Total cash costs
and all-in sustaining costs per gold ounce sold, total cash costs and all-in sustaining costs on a co-product basis, average realized
price, operating margin and capital expenditures (sustaining and growth) are non-GAAP financial performance measures with no standard
meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Performance Measures”
section of this MD&A.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The calculation of total cash costs per gold ounce sold and all-in sustaining costs per gold ounce
sold is net of by-product silver revenue. Total cash costs and all-in sustaining costs on a co-product basis removes the impact
of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced
on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis. Please
refer to the “Non-GAAP Financial Performance Measures” section of this MD&A
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Operating results

Production

For the year and three months ended December
31, 2016, the planned decrease in gold and silver production was primarily attributable to a decrease in ore tonnes mined and placed
on the leach pad as Cerro San Pedro finished active mining late in the second quarter of 2016 and has now transitioned into residual
leaching. No ore tonnes were mined or placed on the leach pad in the current quarter.



Revenue

For the year ended December 31, 2016,
the decrease in revenue was attributable to the impact of a $58.3 million decrease in metal sales volumes as Cerro San Pedro has
entered into the residual leach period, which was partially offset by a $6.8 million increase driven by higher metal prices. For
the three months ended December 31, 2016, the decrease in revenues was similarly attributable to the impact of the decrease in
metals sales volumes, partially offset by higher metal prices.



Revenue less cost of goods
sold

For the year and three months ended December
31 2016, the decrease in revenue less cost of goods sold was
primarily attributable to lower revenues when compared to the prior-year periods. Operating expenses were lower than in the prior-year
periods due to lower mining activity.



Operating expenses, total
cash costs and all-in sustaining costs

For the year and three months ended December
31, 2016, the increase in operating expenses per gold ounce sold was primarily driven by a heap leach silver inventory write-down
of $24.0 million, compared to a heap leach silver inventory write-down of $11.4 million in the prior-year period. For the three
months ended December 31, 2016, the heap leach silver inventory write-down increased operating expenses per gold ounce sold by
$1,528, when compared to the prior-year period where the heap leach silver inventory write-down increased operating expenses per
gold ounce sold by $378. The increase in operating expenses per gold ounce sold was also attributable to higher cost inventory
coming off the leach pad as well as lower gold sales volumes. For the year and three months ended December 31, 2016, the increase
in total cash costs and all-in sustaining costs per gold ounce sold was attributable to lower gold sales and the increase in operating
expenses per gold ounce sold described above, excluding the effect of any silver inventory write-downs.



Impact of Foreign
Exchange on Operations

Cerro San Pedro was impacted by changes
in the value of the Mexican peso against the U.S. dollar. For the year ended December 31, 2016, the value of the Mexican peso averaged
MXN18.7 against the U.S. dollar compared to MXN15.9 in the prior year. This had a positive impact on total cash costs of $121 per
gold ounce sold. For the three months ended December 31, 2016, the value of the Mexican peso averaged MXN19.8 against the U.S.
dollar compared to MXN16.8 in the prior-year period. This had a positive impact on total cash costs of $133 per gold ounce sold.



Outlook for 2017

As Cerro San Pedro enters its first full
year of residual leaching in 2017, gold and silver production is expected to decline and all-in sustaining costs are expected to
increase as a result of the lower gold sales volumes.





38







|                                                                    | Year ended December 31
|------------------------------------------------------------------- | ----------------------
|                                                                    | 2016 Actuals          
|2016 Actuals and 2017 guidance                                      |                       
|Gold (ounces)                                                       | 64,993                
|Operating expenses per gold ounce sold ($/ounce)                    | 1,311                 
|All-in sustaining costs ($/ounce)                                   | 959                   
|Capital expenditures (sustaining capital) (millions of U.S dollars) | 1.0                   



Please refer to the “Outlook for
2017” section of this MD&A for details of the relevant key assumptions.



39







DEVELOPMENT
AND EXPLORATION REVIEW

Rainy River Project,
Ontario, Canada Rainy River is a gold project located
approximately 50 kilometres northwest of Fort Frances, a town of approximately 8,000 people, in northwestern Ontario, Canada. The
project property is located near infrastructure and is comprised of approximately 192 square kilometres of freehold and leasehold
patented surface rights and mining rights, properties and unpatented mining claims.  Rainy River enhances New Gold’s
growth pipeline through its significant production scale at below current industry average costs and exciting longer-term exploration
potential in a great mining jurisdiction. Rainy River alone is expected to produce an average of 325,000 ounces of gold annually,
which will more than offset the decrease in production and cash flow arising from the transition of Cerro San Pedro to residual
leaching. The Company looks forward to the commencement of commercial production at Rainy River which is expected to be in the
fourth quarter of 2017.


AT-A-GLANCE
        AS
        AT DECEMBER 31, 2016
        2017
        GUIDANCE:
        Gold:50,000 - 60,000 ounces
        OPERATING
        EXPENSES/oz:$905 - $945
        ALL-IN
        SUSTAINING COSTS/OZ:$1,200 - $1,240
        
        PROVEN
        AND PROBABLE RESERVES
        GOLD:3.9 MILLION OUNCES
        SILVER:10.0 MILLION OUNCES






Project advancement

The focus of
the 2016 development activities was on the construction of the processing facilities and supporting infrastructure as well as the
initial stripping of the open pit.



| |  |                                                                                                                                                          
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Rainy River – 2016 KEY PROJECT UPDATES                                                                                                                   
| |  | ·Plant Site concrete placement complete.                                                                                                                 
| |  | ·Steelwork erection and cladding complete.                                                                                                               
| |  | ·Power line completed and main substation has been energized.                                                                                            
| |  | ·Ball and SAG mill shells in place.                                                                                                                      
| |  | ·Installation of mechanical, piping, electrical and instrumentation in processing facilities was over 65% complete through mid-February 2017.            
| |  | ·Regulatory approval received for revised tailings dam design received from Ontario Ministry of Natural Resources and Forestry ("MNRF") in November 2016.
| |  |                                                                                                                                                          



All of the key structural components of
the process facilities have been completed and the setting of mechanical equipment and installation of piping, electrical and instrumentation
services is well advanced. New Gold plans to complete the testing of the various components of the process facility using a staged
approach, after which the Company will complete dry and wet commissioning of the full process circuit.



The primary crusher and conveyor system
are 80% complete and commissioning of the crusher is scheduled to commence in March of 2017. Thereafter, the commissioning of the
ball and SAG mills should start during the second quarter. Finally, the refining portion of the circuit should be completed and
ready to begin commissioning early in the third quarter. Dry and wet commissioning of the full process circuit is scheduled to
take place in August, which should leave approximately one month before targeted first production for any required adjustments
to the circuit.



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





40







The team completed a thorough review of
the project’s mining and construction plans in January 2017 and expects to have all construction activities required for
start-up completed in September. The targeted September completion is approximately three months behind the Company’s original
target. The delay is primarily a result of the impact of the slower than planned ramp-up of the mining rate which has extended
the time required for construction materials, in the form of waste rock and clay, to be delivered from the mine to the construction
team.



Mining activities at Rainy River have
progressed well to start 2017. From the beginning of 2017 through to mid-February 2017, the Company mined over 4 million tonnes
of overburden and waste from the pit which was slightly ahead of the tonnage targeted in New Gold’s updated plan announced
on January 30, 2017. At the same time, approximately 350,000 m3 of construction material have been placed at the starter
tailings cell which is also slightly ahead of plan. The September start-up is based on an expectation that the mining rate will
continue to increase to an average of approximately 120,000 tonnes per day over the next six months, which includes both planned
productivity gains and the impact of changing weather conditions through the spring. New Gold will supplement its own fleet with
contractors who will mine discrete areas where mining can be performed more efficiently using smaller equipment. The contractor
that will mine the peat and basal till layers within the pit using smaller equipment has been mobilized and is scheduled to begin
work in the pit in mid-February 2017, which should result in increased daily mining rates by New Gold’s team in the coming
weeks.



Personnel Changes

As a result of the development challenges
encountered at Rainy River last year, the Company has made several personnel changes to further strengthen the team as the project
advances through the final stages of development and transitions into operation later this year.



In addition to Ray Threlkeld’s active
involvement in the project as Interim Chief Operating Officer, New Gold has moved Greg Bowkett, who was previously the General
Manager at the Peak Mines, into the General Manager role at Rainy River. Mr. Bowkett has been with New Gold since 2012. Under his
leadership, the Peak Mines delivered progressively stronger operating results, culminating in 2016 when the mine had its best operating
year in over ten years. Also, New Gold has engaged Pierre Légaré as the Project Director for the balance of construction
at Rainy River. Mr. Légaré has over 30 years of experience in project development, including over 20 years in increasingly
senior roles at SNC-Lavalin Inc., culminating in his role as Vice President, Projects, Mining and Metallurgy from 2011 to 2013.
Since 2013, he has continued to provide project management services to mining and other large scale construction projects through
his consulting company. Peter Marshall, Vice President of Projects for New Gold, will be leaving his position at the end of February,
though he will remain with New Gold as a consultant on a part-time basis through a transition period. New Gold expects to permanently
fill Mr. Marshall’s role in the coming months.



Permitting activities

Key construction-related permits have
been issued by the Ontario Ministry of Environment and Climate Change as well as the MNRF. Receipt of additional provincial construction
and operations phase permits is progressing in line with the project development schedule. After receiving approval to commence
construction of the redesigned tailings management facility from the MNRF in mid-November 2016, the Company has remained in regular
communication with the MNRF as it relates to their review of other operational permits and permit amendments appropriate for the
project’s current stage of activity.



The Company also continues to work closely
with Environment and Climate Change Canada towards obtaining an amendment to Schedule 2 of the Metal Mining Effluent Regulations,
required to close two small creeks and deposit tailings, which is targeted to be received in the third quarter of 2017. However,
as previously disclosed, New Gold’s redesign of the tailings management facility incorporated a starter tailings cell within
the broader facility that does not require a Schedule 2 amendment from the Federal government. The inclusion of a starter cell
is an approach that has been used at other Canadian mining operations. Based on its location and scale, the starter cell would
provide capacity for approximately six





41







months of tailings. Once the Schedule 2 amendment is received, New Gold would need approximately
three months, in good construction weather, to complete construction of the tailings dam. In the event the Schedule 2 amendment
is not received on a sufficiently timely basis to allow for the completion of the construction of the broader tailings facility
before the starter cell is full, the Company would have to consider other alternatives, which may include a slow down or temporary
suspension of operations.



Exploration

During the fourth quarter of 2016, exploration
efforts at Rainy River were directed toward the continued identification and prioritization of areas of prospective gold mineralization
within several kilometres of the central mine development area. Additionally, the Company drilled 38 core holes (5,944 meters)
within the ODM open pit area to further confirm and upgrade the Resource and Reserve classification to Measured / Proven status
for the first twelve months of planned production.



Environmental and community
activities

New Gold has entered into Participation
Agreements or Impact Benefit Agreements with the Naicatchewenin and Rainy River First Nations, Big Grassy First Nation, four of
the communities of the Fort Frances Chiefs Secretariat and the Métís Nation of Ontario. The Participation Agreements
and Impact Benefit Agreements provide for how the First Nation and Métis communities will benefit from the development of
Rainy River and throughout the life of the mine. New Gold continues to meet with local Indigenous communities. New Gold also sends
out regular newsletters on Rainy River to all communities in the Rainy River District and parts of the Kenora District. Other engagement
activities include community visits, site tours, communication with local neighbours and regular communication with the local municipality.



Project costs and
outlook

For the year ended December 31, 2016,
capital expenditures at Rainy River totalled $466.4 million, which includes $465.4 million for development capital costs with the
remainder primarily for exploration. This compares to $245.5 million in the prior year. For the three months ended December 31,
2016, capital expenditures at Rainy River totalled $145.9 million for development capital costs. This compares to $144.8 million
in the prior-year period.



Based on a C$1.30/US$ exchange rate, the
remaining capital cost from the beginning of 2017 to the targeted November commercial production is estimated to be approximately
$515 million, inclusive of $40 million of contingency. Consistent with the project’s historical month-end accounts payable
balances, it is expected that approximately $50 to $75 million of the $515 million will be payable after commercial production
is achieved.



Based on the Company’s targeted
September production start, New Gold expects total 2017 production at Rainy River to be 50,000 to 60,000 ounces. Approximately
15,000 ounces are planned for the pre-commercial production period with revenue for this production being credited against the
development capital estimate.



Over Rainy River’s targeted
two months of commercial production in 2017, the operating expense per gold ounce sold is expected to be $905 to $945 with
all-in sustaining costs expected to be $1,200 to $1,240 per gold ounce sold. Both the operating expense and all-in sustaining
costs are well above the levels targeted once Rainy River reaches full capacity. The 2017 costs are negatively impacted by
lower gold sales resulting from the combination of throughput being lower than design during commissioning and ramp-up and
planned lower grade to be processed during the commissioning phase. In addition, there is approximately $12 million, or $305
per ounce, of sustaining costs budgeted during the commercial production period.





42







Blackwater Project, British
Columbia, Canada Blackwater is a bulk-tonnage gold-silver
project located approximately 160 kilometres southwest of Prince George, a city of approximately 80,000 people, in central British
Columbia, Canada. The project property position covers over 1,000 square kilometres and is located near infrastructure.  Exploration During 2016, exploration activity at the
Blackwater remained suspended while the Company continued its development focus at Rainy River. Other activities at Blackwater
included reclamation of exploration trails and drill pads from prior years.


AT-A-GLANCE
        AS
        AT DECEMBER 31, 2016
        PROVEN
        AND PROBABLE RESERVES
        GOLD:8.2 MILLION OUNCES
        SILVER:60.8 MILLION OUNCES
        
        MEASURED
        AND INDICATED RESOURCES
        (Exclusive of Reserves)
        Gold:1.3 MILLION OUNCES
        SILVER:8.2 MILLION OUNCES






Environmental and permitting
activities

The following environmental and permitting
related activities occurred at Blackwater during the year ended December 31, 2016:

| | · | The Provincial and Federal environmental assessment technical review stage commenced in January
2016, with approvals anticipated in 2017.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

| | · | A joint Provincial and Federal environmental assessment public comment period was held, including
community open houses.
| | - | ------------------------------------------------------------------------------------------------------------------------

| | · | Continued key engineering studies for advancement of post-environmental assessment approval permits.
| | - | ----------------------------------------------------------------------------------------------------

| | · | Continued discussions with key First Nations on Participation Agreements.
| | - | -------------------------------------------------------------------------



Project costs and
outlook

For the year ended December 31, 2016,
capital expenditures totalled $10.0 million compared to $7.1 million in the prior-year period. For the three months ended December
31, 2016, capital expenditures totalled $2.1 million compared to $2.7 million in the prior-year period. Expenditures in the current
period related to the continued advancement of the environmental assessment process and related environmental and engineering studies
and discussions with First Nations on Participation Agreements.



Blackwater’s
2017 non-sustaining capital expenditures are expected to be approximately $10 million related to the continued advancement of
the Environmental Assessment process.



New Afton C-zone, British
Columbia, Canada The C-zone is the down plunge extension
of the B-zone block cave currently being mined at New Afton.  In the first quarter of 2016, New Gold
completed a feasibility study which confirmed the viability and positive economics for the C-zone deposit. The feasibility study
relates to the C-zone mineral reserves which have demonstrated economic viability at the New Afton property and is not part of,
and should be distinguished from, the current mining of the B-zone reserves. Work completed in 2016 includes additional exploration
drilling, mine optimizations and planning reviews, and development of a Project Implementation Plan. The detailed results from
the feasibility study can be found in the Company’s Management’s Discussion and Analysis for the year ended December
31, 2015.


AT-A-GLANCE
        AS
        AT DECEMBER 31, 2016
        MEASURED
        AND INDICATED RESOURCES
        (Included in New
        Afton Measured and Indicated Resources)
        Gold:483,000 OUnces
        copper:385 million pounds






43







Project update
and costs

During the fourth quarter of 2016, work
on the C-zone included baseline environmental work, completion of a project implementation workshop and additional studies to review
project opportunities and optimizations in the area of tailings management. An updated block model for the resource was received
in the third quarter based on the drilling results and work was completed to evaluate changes to the mining plan based on the new
information. Information from the Project Implementation Plan has been compiled in a report and a schedule has been developed that
will be used to compose the final Project Implementation Plan. For the three months ended December 31, 2016, project capital expenditures
totalled $0.3 million, which includes exploration drilling expenditures of $0.1 million and project development expenditures of
$0.2 million. Year-to-date project capital expenditures totalled $3.0 million.



44







MINERAL
RESERVES AND RESOURCES UPDATE (1)

New Gold’s production profile is
underpinned by the Company’s Mineral Reserve and Resource base combined with its strong record of organic growth through
focused exploration at its existing portfolio of mines and development projects and accretive growth through strategic acquisitions.
Total Proven and Probable gold Reserves as of December 31, 2016 decreased to 14.7 million ounces from 15.0 million ounces at year-end
2015. This slight decrease is largely attributable to mine depletion of 0.5 million ounces which was partially offset by incremental
additions to reserves totalling 0.2 million ounces from Peak and Rainy River.



| |  | 2016
        YEAR-END MINERAL reserves and resources highlights
        
        New
        Afton: Probable Mineral Reserves decreased by 68,000 ounces of gold and 79 million pounds of copper compared to the
        prior year primarily due to 2016 mine depletion which was partially offset by the incremental conversion of Measured and Indicated
        resources to Reserves with the updated block cave mine plan. As a result of this conversion, Measured and Indicated Resources decreased
        by 17,000 ounces of gold and 20 million pounds of copper. These changes include updates to the C-zone block cave Reserve and Mineral
        Resource following the 2016 drilling campaign.
        
        Mesquite:
        Proven and Probable Mineral Reserves decreased by 313,000 ounces of gold due to a combination of 2016 mine depletion and an updated
        open pit plan that incorporates lowered metallurgical recoveries for partially oxidized transitional material in the life-of-mine
        plan. Measured and Indicated Resources increased by 209,000 ounces of gold as a result of the revised open pit design. Inferred
        Mineral Resources remain materially unchanged compared to year-end 2015.
        
        Peak
        Mines: Proven and Probable Mineral Reserves decreased by 16,000 ounces of gold and 2 million pounds of copper due to
        a combination of 2016 mine depletion which was largely offset by the conversion of 79,000 ounces of gold from the recently discovered
        Chronos Resource to Reserves. Measured and Indicated Resources have in turn decreased by 68,000 ounces of gold, primarily due to
        the conversion of Chronos to Reserves. Additionally, Peak’s Inferred Mineral Resources have increased with the addition of
        107 million pounds of copper primarily as a result of the past year’s drilling success at the recently discovered Anjea lens
        at Great Cobar.
        
        Cerro
        San Pedro: Proven and Probable Mineral Reserves have been expended and mining operations have ceased. Residual leaching
        of stacked ore is scheduled to continue until 2019.
        
        Rainy
        River: Proven and Probable Mineral Reserves for direct processing material decreased
        by 61,000 ounces of gold and increased by 527,000 ounces of silver while lower grade stockpile material increased by 190,000 ounces
        of gold and 43,000 ounces of silver. These changes are due primarily to an update to the geologic model and mineral Resource estimate
        in combination with updated open pit and underground mine plans. Measured and Indicated Resources decreased by 291,000 ounces of
        gold and 910,000 ounces of silver largely as a consequence of the removal of marginal Mineral Resources located west of the planned
        open pit. Inferred Resources increased by 132,000 ounces of gold and decreased by 176,000 ounces of silver.
        
        Blackwater:Proven and Probable Mineral Reserves remain unchanged compared to year-end 2015. Measured and Indicated Resources increased
        by 31,000 ounces of gold and 348,000 ounces of silver as a result of incrementally higher metal pricing assumptions.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



45











| | 1. | For a breakdown of Mineral Reserves and Mineral Resources by category
and additional information relating to Mineral Reserves and Mineral Resources and related key assumptions and parameters, please
refer to the “Mineral Reserves and Mineral Resources” section of this MD&A.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | As at December 31, 2014, the Company’s 30% share of reserves and resources at El Morro included
2.7 million ounces of Proven and Probable gold Mineral Reserves, 0.4 million ounces of Measured and Indicated gold Mineral Resources
(exclusive of Mineral Reserves) and 1.9 million ounces of Inferred gold Mineral Resources. The Company’s 30% interest in
El Morro was sold in the fourth quarter of 2015.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



46







FINANCIAL
CONDITION REVIEW

Balance Sheet Review





|As at December 31                                | As at December 31
|------------------------------------------------ | -----------------
|(in millions of U.S. dollars)                    | 2016             
|balance sheet information                        |                  
|Cash and cash equivalents                        | 185.9            
|Other current assets                             | 223.7            
|Non-current assets                               | 3,538.4          
|Total assets                                     | 3,948.0          
|                                                 |                  
|Current liabilities                              | 175.4            
|Non-current liabilities excluding long-term debt | 800.2            
|Long-term debt                                   | 889.5            
|Total liabilities                                | 1,865.1          
|Total equity                                     | 2,082.9          
|Total liabilities and equity                     | 3,948.0          



Assets

The increase in total assets is primarily
attributable to growth capital expenditures at Rainy River.



Cash and cash equivalents

The change in cash and cash equivalents
was primarily driven by growth capital expenditures at Rainy River as $466.4 million was spent in 2016. This was partially offset
by operating cash flows generated during the current year, the receipt of Royal Gold’s final payment under the stream agreement
of $75.0 million in November 2016 and the drawdown of $100.0 million from the Company’s revolving credit facility in November
2016. Please refer to the “Liquidity and Cash Flow” section of this MD&A for further information.



Other current assets

Other current assets primarily consist
of trade and other receivables, inventories and prepaid expenses. The decrease in other current assets is primarily attributable
to the receipt of Royal Gold’s final payment under the stream agreement of $75.0 million.



Non-current assets

Non-current assets primarily consist of
mining interests which include the Company’s mining properties, development projects and property, plant and equipment. The
increase in non-current assets is primarily attributable to the Company’s investments in its mining interests less depreciation
and depletion. For the year and three months ended December 31, 2016, the Company spent $567.0 million and $164.8 million, respectively,
primarily focused on continued project advancement at Rainy River, and sustaining capital expenditures at the Company’s operating
sites.



Liabilities

Current
liabilities

The increase in liabilities is primarily
attributable to the increase in trade and other payables at Rainy River where development activity on the project has increased.



47







Non-current liabilities
excluding long-term debt

Non-current liabilities consist primarily
of reclamation and closure cost obligations, the gold stream obligation, long-term debt and deferred tax liabilities. The increase
in non-current liabilities is primarily attributable to the increase in the fair value of the gold stream obligation.



The Company’s asset retirement obligations
consist of reclamation and closure costs for New Afton, Mesquite, Peak Mines, Cerro San Pedro, Blackwater and Rainy River. Significant
reclamation and closure activities include land rehabilitation, demolition of buildings and mine facilities, ongoing monitoring
and other costs.



The long-term discounted portion of the
liability as at December 31, 2016 was $81.0 million compared to $67.5 million as at December 31, 2015. The increase was primarily
due to an increase in estimated rehabilitation costs at Rainy River, an increase in estimated rehabilitation costs at Cerro San
Pedro and the decrease in the discount rates. The Company intends to spend $0.9 million in the next twelve months on reclamation
activities, and the remainder in future periods.



The net deferred income tax liability
decreased from $275.5 million at December 31, 2015 to $235.6 million at December 31, 2016. The decrease is mainly driven by the
impact of foreign exchange movements on the deferred tax related to non-monetary assets and liabilities. For the year ended December
31, 2016, the Company recorded a foreign exchange gain of $13.8 million on non-monetary assets and liabilities. This was primarily
due to the deferred tax liabilities being denominated in currencies other than the U.S. dollar and has no tax impact.



Long-term debt and other
financial liabilities containing financial covenants

The majority of the Company’s contractual
obligations consist of long-term debt and interest payable. Long-term debt as at December 31, 2016 includes senior unsecured notes
and the amounts drawn on the Company’s revolving credit facility.



On July 20, 2015 the Company entered into
a $175 million streaming transaction with RGLD Gold AG, a wholly-owned subsidiary of Royal Gold Inc. (“Royal Gold”).
The gold stream obligation is accounted for as a financial liability under the scope of IFRS 9.
Accordingly, the Company values the liability at the present value of its expected future cash flows at the end of each reporting
period, with the changes in fair value related to the change in the risk-free discount rate and changes in gold prices reflected
in the consolidated income statements and the changes in fair value related to the Company’s own credit risk reflected in
the consolidated statements of comprehensive income. The gold stream obligation contains a maximum leverage ratio covenant (net
debt to Adjusted EBITDA) of 3.5 : 1.0, with the exception that the net leverage covenant limit may increase to 4.0 : 1.0 for two
consecutive quarters, provided that it thereafter returns to a maximum of 3.5 : 1.0. However, in order to provide additional flexibility,
Royal Gold has agreed to adjust this leverage ratio to match the revised maximum leverage ratio under the revolving credit facility
for the five consecutive quarters ending December 31, 2017.



On April 5, 2012, the Company issued $300.0
million of senior unsecured notes (“2020 Unsecured Notes”). As at December 31, 2016 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 of each
year.



On November 15, 2012, the Company issued
$500.0 million of senior unsecured notes (“2022 Unsecured Notes”). As at December 31, 2016 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 of each year.



48







The 2020 and 2022 Unsecured Notes are
subject to a minimum interest coverage incurrence covenant (earnings before interest taxes depreciation, amortization, impairment
and other non-cash adjustments to interest) of 2.0 : 1.0. 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. There
are no maintenance covenants with respect to the Company’s 2020 and 2022 Unsecured Notes.



On October 3, 2016, the Company amended
its revolving credit facility (the “Credit Facility”) to increase the capacity from $300.0 million to $400.0 million.
The Credit Facility expires on August 14, 2019. The Credit Facility previously provided the Company with the option to draw an
additional $50.0 million above and beyond the base facility, subject to lender participation, which is not part of the current
amended Credit Facility.



The Credit Facility contains various covenants
customary for a loan facility of this nature, including limits on indebtedness, asset sales and liens. Net debt is used to calculate
leverage for the purpose of covenant tests and pricing levels. The Credit Facility contains two covenant tests, the minimum interest
coverage ratio (Adjusted EBITDA to interest) and the maximum leverage ratio (net debt to Adjusted EBITDA), both of which are measured
on a rolling four-quarter basis at the end of every quarter.



The Company regularly reviews its expected
financial commitments and financial resources to evaluate covenant compliance. In order to provide additional flexibility, during
February 2016 and October 2016 the Company amended the Credit Facility to vary the maximum leverage ratio from 3.5 : 1.0. Specifically,
the quarter ending December 31, 2016 and the subsequent two quarters, the maximum leverage ratio will be 4.5 : 1.0. For the following
two quarters, ending September 30, 2017 and December 31, 2017, the maximum leverage ratio will be 4.0 : 1.0. Following that period,
the maximum leverage ratio will return to 3.5 : 1.0.



Significant financial covenants applicable
as at December 31, 2016 and December 31, 2015 are as follows:



|                                                              |          | Twelve months ended December 31
|------------------------------------------------------------- | -------- | -------------------------------
|Applicable financial covenant                                 |          | 2016                           
|Financial covenants                                           |          |                                
|Minimum interest coverage ratio (Adjusted EBITDA to interest) | >3.0 : 1 |                                
|Maximum leverage ratio (net debt to Adjusted EBITDA)          | <4.5 : 1 |                                



|                                                              |          | Twelve months ended December 31
|------------------------------------------------------------- | -------- | -------------------------------
|Applicable financial covenant                                 |          | 2015                           
|Financial covenants                                           |          |                                
|Minimum interest coverage ratio (Adjusted EBITDA to interest) | >3.0 : 1 |                                
|Maximum leverage ratio (net debt to Adjusted EBITDA)          | <3.5 : 1 |                                



The interest margin on drawings under
the Credit Facility ranges from 1.00% to 3.25% over LIBOR, the Prime Rate or the Base Rate, based on the Company’s net debt
to Adjusted EBITDA ratio and the currency and type of credit selected by the Company. Based on the Company’s net debt to
Adjusted EBITDA ratio, the rate is 3.25% over LIBOR as at December 31, 2016. The standby fees on undrawn amounts under the Credit
Facility range from 0.45% to 0.73%, depending on the Company’s net debt to Adjusted EBITDA ratio. Based on the Company’s
net debt to Adjusted EBITDA ratio, the rate is 0.73% as at December 31, 2016 (December 31, 2015 – 0.62%).



As at December 31, 2016, the Company has
drawn $100.0 million under the Credit Facility and the Credit Facility has been used to issue letters of credit of $122.1 million
as at December 31, 2016 (at December 31, 2015 - $115.9 million). Letters



49







of credit relate to reclamation
bonds, worker’s compensation security and other financial assurances required with various government agencies. As at December
31, 2016, $177.9 million remains undrawn from the Credit Facility.



Liquidity and Cash
Flow

As at December 31, 2016, the Company had
cash and cash equivalents of $185.9 million compared to $335.5 million at December 31, 2015. 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 U.S. or any of the Canadian provinces with a minimum credit rating of R-1 mid from the DBRS or an equivalent rating
from Standard & Poor’s or 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. Surplus corporate funds are only invested with approved government or bank counterparties.



The Company’s liquidity is impacted
by several factors which include, but are not limited to, gold and copper market prices, capital expenditures particularly associated
with the Rainy River Development project, operating costs, interest rates and foreign exchange rates.  These factors are monitored
by the Company on a regular basis and will continue to be reviewed.



The Company’s cash flows from operating,
investing and financing activities, as presented in the audited consolidated statements of cash flows, are summarized in the following
table for the three months and year ended December 31, 2016 and 2015:



|Three months ended December 31                                                                                      | Year ended December 31
|------------------------------------------------------------------------------------------------------------------- | ----------------------
|(in millions of U.S. dollars, except where noted)                                                                   | 2016                  
|cash flow information                                                                                               |                       
|Cash generated from operations                                                                                      | 51.7                  
|Cash used by investing activities (sustaining capital expenditure and other) (1)                                    | (15.7)                
|Cash generated from investing activities relating to the sale of the Company’s 30% interest in the El Morro project | -                     
|Cash used in investing activities (growth capital expenditure) (1)                                                  | (149.1)               
|Cash generated from (used in) financing activities                                                                  | 148.5                 
|Effect of exchange rate changes on cash and cash equivalents                                                        | (0.7)                 
|Change in cash and cash equivalents                                                                                 | 34.7                  

| | 1. | We use certain non-GAAP financial performance measures throughout our MD&A. For further information
and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Operations

For the year ended December 31, 2016,
the increase in cash generated from operations was primarily due to higher gold and silver metal prices and lower operating expenses
as a result of the reduction in mining activity at Cerro San Pedro and the Company’s business improvement initiatives. For
the three months ended December 31, 2016, cash generated from operations were negatively impacted by lower metal sales volumes
when compared to the prior-year period, partially offset by lower operating expenses. Cash generated from operations in the current
year were also impacted by less favourable changes in non-cash working capital when compared to the prior year as a result of the
Company holding an outstanding receivable of $21.2 million at New Afton relating to concentrate sales which was collected in January
2017.



50







Investing Activities

Cash used in investing activities is primarily
for the continued capital investment in the Company’s operating mines and development projects. Spending was higher than
in the prior year, with the Company spending $567.0 million in 2016 compared to $389.5 million in the prior year. Investing activities
during the period primarily focused on continued project advancement at Rainy River. Investing activities in the prior year focused
on project advancement at Rainy River, the mill expansion at New Afton and the leach pad expansion and stripping projects at Mesquite.



The following table summarizes the capital
expenditures (mining interests per the audited consolidated statements of cash flows) for the three months and year ended December
31, 2016 and 2015:



|Three months ended December 31 | Year ended December 31
|------------------------------ | ----------------------
|(in millions of U.S. dollars)  | 2016                  
|CAPital EXpenditures by site   |                       
|New Afton                      | 10.4                  
|Mesquite                       | 1.9                   
|Peak Mines                     | 3.1                   
|Cerro San Pedro                | 0.2                   
|Rainy River                    | 145.9                 
|Blackwater                     | 3.0                   
|Corporate                      | 0.3                   
|Total Capital Expenditures     | 164.8                 



Financing Activities

Cash generated from financing activities
was primarily related to the receipt of Royal Gold’s final payment under the stream agreement of $75 million in November
2016, the drawdown of $100.0 million from the Company’s revolving credit facility in November 2016 and cash proceeds from
stock options exercised, partially offset by interest paid.



The Company’s December 31, 2016
cash balance of $185.9 million, together with the $177.9 million available for drawdown under the Credit Facility at December 31,
2016 and the $65.0 million that the Company expects to receive for the sale of its 4% stream on future gold production from El
Morro in February 2017, provide the Company with approximately $429 million of pro-forma liquidity, in addition to the net cash
the Company’s operating mines are expected to generate, which will be used to fund the Rainy River capital expenditures.
As discussed under the heading “Balance Sheet Review”, the Company has increased the maximum leverage ratio in its
Credit Facility to provide additional flexibility during the Rainy River construction period.



The net cash generated by operations is
highly dependent on metal prices, including gold and copper, as well as other factors, including the Canadian/U.S. dollar exchange
rate. To mitigate a portion of this risk, in particular during the Rainy River construction period, New Gold entered into gold
price option contracts covering 120,000 ounces of New Gold’s first half of 2017 production. Specifically, New Gold purchased
put options with a strike price of $1,300 per ounce covering 120,000 ounces of gold and simultaneously sold call options with a
strike price of $1,400 per ounce covering an equivalent 120,000 ounces. In aggregate, the option contracts provide the Company
with a guaranteed floor price of $1,300 per ounce while also providing exposure to further increases in the gold price up to $1,400
per ounce. The contracts cover 20,000 ounces of gold per month for six months beginning in January 2017. In November 2016, the
Company entered copper swap contracts for 5.3 million pounds of copper per month from January through June 2017, at a fixed price
of $2.52 per pound settling against the LME monthly average price. A decrease in gold or copper prices or depreciation of the U.S.
dollar relative to the Canadian dollar, or, to a lesser extent, the Australian dollar or Mexican peso, could negatively impact
the Company’s liquidity.



51







The Company’s most significant capital
expenditures for 2017 will be at the Rainy River project, where capital costs from January 1, 2017 to the date of commercial production
are expected to be $515 million. The sale of the 4% stream on future gold production from El Morro provides additional liquidity,
however, to ensure adequate funding to complete the construction of Rainy River and increase the Company’s financial flexibility,
depending on market conditions, the Company intends to implement one or more financing alternatives, which could include the sale
of non-core assets, the sale of a stream on production from the Company’s operations or projects, subordinated debt or equity
financing or other similar measures. A period of continuous low gold and copper prices may necessitate the deferral of capital
expenditures which may impact production from mining operations and the timing for completion of the Rainy River project.



The Company has outstanding notes in the
principal amount of $300 million maturing in 2020 and $500 million maturing in 2022. The Company also has $100 million outstanding
under the credit facility, excluding letters of credit. Management may decide to refinance or restructure the outstanding debt
in keeping with the Company’s projected liquidity profile. Assuming the continuation of prevailing commodity prices and exchange
rates, operations performing in accordance with mine plans, and successful construction of Rainy River on schedule, the Company
will be able to repay indebtedness from internally generated cash flow during the projected life of the operating mines.



Commitments

The Company has entered into a number
of contractual commitments for capital items relating to operations and development. At December 31, 2016, these commitments totalled
$130.2 million, $103.2 million of which are expected to fall due over the next 12 months. This compares to commitments of $262.2
million as at December 31, 2015, $184.4 million of which were expected to fall due in 2016. The decrease is due to Rainy River
having lower capital purchase commitments at the end of the current year as a result of project advancement when compared to the
end of the prior year. Certain contractual commitments may contain cancellation clauses; however, the Company discloses its commitments
based on management’s intent to fulfill the contracts.



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 adverse impact on our financial condition, cash
flow and results of operations.



52







Contractual Obligations

The following is a summary of the Company’s
payments due under contractual obligations:





|                                         | As at
        December 31 | As at
 December 31
|---------------------------------------- | ------------------------- | ------------------
|                                         | < 1 year                  | 1-3 Years         
|CONTRACTUAL OBLIGATIONS(1)               |                           |                   
|Long-term debt                           | -                         | 100.0             
|Interest payable on long-term debt       | 43.7                      | 104.5             
|Operating lease commitments              | 1.9                       | 0.7               
|Capital expenditure commitments          | 103.2                     | 27.0              
|Reclamation and closure cost obligations | 0.9                       | 4.7               
|Gold stream obligation                   | 1.9                       | 68.2              
|Total contractual obligations            | 151.6                     | 305.1             

| | 1. | The majority of the Company’s contractual obligations consist of long-term debt and interest
payable. Long-term debt obligations are comprised of senior unsecured notes issued on April 5, 2012 and November 15, 2012. Refer
to the section “Financial Condition Review – Balance Sheet Review – Long-term debt” for further details.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Related Party Transactions

The Company did not enter into any related
party transactions during the year and three months ended December 31, 2016.



Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.



Outstanding Shares

As at February 15, 2017, there were 513,724,132
common shares of the Company outstanding. The Company had 14,529,677 stock options outstanding under its share option plan, exercisable
for up to 14,529,677 common shares. In addition, there are warrants outstanding exercisable for up to 27,849,865 common shares.



53







non-gaap
FINANCIAL PERFORMANCE MEASURES

Total Cash Costs per
Gold Ounce

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



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



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



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



Total cash costs are intended to provide
additional information only and do not have any standardized meaning under IFRS and may not be comparable to similar measures presented
by other mining companies. They should not be considered in isolation or as a substitute for measures of performance prepared in
accordance with IFRS. The measure is not necessarily indicative of cash flow from operations under IFRS or operating costs presented
under IFRS.



All-in Sustaining Costs
per Gold Ounce

“All-in sustaining costs per gold
ounce” is a non-GAAP measure based on guidance announced by the World Gold Council (“WGC”) in June 2013. The
WGC is a non-profit association of the world’s leading gold mining companies established in 1987 to promote the use of gold
to industry, consumers and investors. The WGC is not a regulatory body and does not have the authority to develop accounting standards
or disclosure requirements. The WGC has worked with its member companies, including New Gold, to develop a measure that expands
on IFRS measures such as operating expenses and non-GAAP measures to provide visibility into the economics of a gold mining company.
Current IFRS measures used in the gold industry, such as operating expenses, do not capture all of the expenditures incurred to
discover, develop and sustain



54







gold production. New Gold believes
the all-in sustaining costs measure provides further transparency into costs associated with producing gold and will assist analysts,
investors and other stakeholders of the Company in assessing its operating performance, its ability to generate free cash flow
from current operations and its overall value.



All-in sustaining costs per gold ounce
is intended to provide additional information only and does not have any standardized meaning under IFRS and may not be comparable
to similar measures presented by other mining companies. It should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with IFRS. The measure is not necessarily indicative of cash flow from operations under IFRS
or operating costs presented under IFRS.



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



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



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



55







Cash Costs and All-in
Sustaining Costs (“AISC”) per Ounce Reconciliation Tables

The following tables reconcile these non-GAAP
measures to the most directly comparable IFRS measure on an aggregate and mine-by-mine basis.



|Three months ended December 31 2016                                
|-------------------------------------------------------------------
|(in millions of U.S. dollars, except where noted)                  
|COnsolidated Opex, Cash cost and aisc reconciliation               
|Operating expenses(1)                                              
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Operating expenses per unit of metal sold ($/ounce or pound)       
|Operating expenses(1)                                              
|Treatment and refining charges on concentrate sales                
|Adjustments(2)                                                     
|Total cash costs                                                   
|By-product silver and copper sales                                 
|Total cash costs net of by-product revenue                         
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Total cash costs on a co-product basis(3) ($/ounce or pound)       
|Total cash costs per gold ounce sold ($/ounce)                     
|Total co-product cash costs                                        
|Total cash costs net of by-product revenue                         
|Sustaining capital expenditures(4)                                 
|Sustaining exploration - expensed                                  
|Corporate G&A including share-based compensation(5)                
|Reclamation expenses                                               
|Total co-product all-in sustaining costs                           
|Total all-in sustaining costs net of by-product revenue            
|All-in sustaining costs on a co-product basis(3) ($/ounce or pound)
|All-in sustaining costs per gold ounce sold ($/ounce)              

| | 1. | Operating expenses (“Opex”) are apportioned to each metal produced on a percentage
of revenue basis.
| | -- | ----------------------------------------------------------------------------------------------------

| | 2. | Adjustments include non-cash items related to inventory write-downs, the amortization of Mesquite’s
Purchase Price Allocation (“PPA”) associated with royalties and social closure costs incurred at Cerro San Pedro that
are included in operating expenses.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Amounts presented on a co-product basis remove the impact of other metal sales that are produced
as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | See “Total Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining
capital expenditures to mining interests per the statement of cash flows. For the three months ended December 31, 2016, sustaining
capital expenditures are net of $0.4M in proceeds from disposal of assets realized at Peak Mines.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | Includes the sum of corporate administration costs and share-based payment expense per the income
statement, net of any non-cash depreciation within those figures.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



56







|Year ended December 31 2016                                        
|-------------------------------------------------------------------
|(in millions of U.S. dollars, except where noted)                  
|COnsolidated Opex, Cash cost and aisc reconciliation               
|Operating expenses(1)                                              
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Operating expenses per unit of metal sold ($/ounce or pound)       
|Operating expenses(1)                                              
|Treatment and refining charges on concentrate sales                
|Adjustments(2)                                                     
|Total cash costs                                                   
|By-product silver and copper sales                                 
|Total cash costs net of by-product revenue                         
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Total cash costs on a co-product basis(3) ($/ounce or pound)       
|Total cash costs per gold ounce sold ($/ounce)                     
|Total co-product cash costs                                        
|Total cash costs net of by-product revenue                         
|Sustaining capital expenditures(4)                                 
|Sustaining exploration - expensed                                  
|Corporate G&A including share-based compensation(5)                
|Reclamation expenses                                               
|Total co-product all-in sustaining costs                           
|Total all-in sustaining costs net of by-product revenue            
|All-in sustaining costs on a co-product basis(3) ($/ounce or pound)
|All-in sustaining costs per gold ounce sold ($/ounce)              

| | 1. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 2. | Adjustments include non-cash items related to inventory write-downs, the amortization of Mesquite’s
Purchase Price Allocation (“PPA”) associated with royalties and social closure costs incurred at Cerro San Pedro that
are included in operating expenses.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Amounts presented on a co-product basis remove the impact of other metal sales that are produced
as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | See “Total Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining
capital expenditures to mining interests per the statement of cash flows. For the year ended December 31, 2016, sustaining capital
expenditures are net of $0.7M in proceeds from disposal of assets realized at Peak Mines and $0.7M in proceeds from disposal of
assets realized at New Afton.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | Includes the sum of corporate administration costs and share-based payment expense per the income
statement, net of any non-cash depreciation within those figures.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



57







|Three months ended December 31 2015                                
|-------------------------------------------------------------------
|(in millions of U.S. dollars, except where noted)                  
|COnsolidated Opex, Cash cost and aisc reconciliation               
|Operating expenses(1)                                              
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Operating expenses per unit of metal sold ($/ounce or pound)       
|Operating expenses(1)                                              
|Treatment and refining charges on concentrate sales                
|Adjustments(2)                                                     
|Total cash costs                                                   
|By-product silver and copper sales                                 
|Total cash costs net of by-product revenue                         
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Total cash costs on a co-product basis(3) ($/ounce or pound)       
|Total cash costs per gold ounce sold ($/ounce)                     
|Total co-product cash costs                                        
|Total cash costs net of by-product revenue                         
|Sustaining capital expenditures(4)                                 
|Sustaining exploration - expensed                                  
|Corporate G&A including share-based compensation(5)                
|Reclamation expenses                                               
|Total co-product all-in sustaining costs                           
|Total all-in sustaining costs net of by-product revenue            
|All-in sustaining costs on a co-product basis(3) ($/ounce or pound)
|All-in sustaining costs per gold ounce sold ($/ounce)              

| | 1. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 2. | Adjustments include non-cash items related to inventory write-downs, the amortization of Mesquite’s
Purchase Price Allocation (“PPA”) associated with royalties and social closure costs incurred at Cerro San Pedro that
are included in operating expenses.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Amounts presented on a co-product basis remove the impact of other metal sales that are produced
as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | See “Total Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining
capital expenditures to mining interests per the statement of cash flows.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | Includes the sum of corporate administration costs and share-based payment expense per the income
statement, net of any non-cash depreciation within those figures.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



58







|Year ended December 31 2015                                        
|-------------------------------------------------------------------
|(in millions of U.S. dollars, except where noted)                  
|COnsolidated Opex, Cash cost and aisc reconciliation               
|Operating expenses(1)                                              
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Operating expenses per unit of metal sold ($/ounce or pound)       
|Operating expenses(1)                                              
|Treatment and refining charges on concentrate sales                
|Adjustments(2)                                                     
|Total cash costs                                                   
|By-product silver and copper sales                                 
|Total cash costs net of by-product revenue                         
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Total cash costs on a co-product basis(3) ($/ounce or pound)       
|Total cash costs per gold ounce sold ($/ounce)                     
|Total co-product cash costs                                        
|Total cash costs net of by-product revenue                         
|Sustaining capital expenditures(4)                                 
|Sustaining exploration - expensed                                  
|Corporate G&A including share-based compensation(5)                
|Reclamation expenses                                               
|Total co-product all-in sustaining costs                           
|Total all-in sustaining costs net of by-product revenue            
|All-in sustaining costs on a co-product basis(3) ($/ounce or pound)
|All-in sustaining costs per gold ounce sold ($/ounce)              

| | 1. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 2. | Adjustments include non-cash items related to inventory write-downs, the amortization of Mesquite’s
Purchase Price Allocation (“PPA”) associated with royalties and social closure costs incurred at Cerro San Pedro that
are included in operating expenses.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Amounts presented on a co-product basis remove the impact of other metal sales that are produced
as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | See “Total Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining
capital expenditures to mining interests per the statement of cash flows.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | Includes the sum of corporate administration costs and share-based payment expense per the income
statement, net of any non-cash depreciation within those figures.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



59









|Year ended December 31 2014                                        
|-------------------------------------------------------------------
|(in millions of U.S. dollars, except where noted)                  
|COnsolidated Opex, Cash cost and aisc reconciliation               
|Operating expenses(1)                                              
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Operating expenses per unit of metal sold ($/ounce or pound)       
|Operating expenses(1)                                              
|Treatment and refining charges on concentrate sales                
|Adjustments(2)                                                     
|Total cash costs                                                   
|By-product silver and copper sales                                 
|Total cash costs net of by-product revenue                         
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Total cash costs on a co-product basis(3) ($/ounce or pound)       
|Total cash costs per gold ounce sold ($/ounce)                     
|Total co-product cash costs                                        
|Total cash costs net of by-product revenue                         
|Sustaining capital expenditures(4)                                 
|Sustaining exploration - expensed                                  
|Corporate G&A including share-based compensation(5)                
|Reclamation expenses                                               
|Total co-product all-in sustaining costs                           
|Total all-in sustaining costs net of by-product revenue            
|All-in sustaining costs on a co-product basis(3) ($/ounce or pound)
|All-in sustaining costs per gold ounce sold ($/ounce)              





| | 1. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 2. | Adjustments include non-cash items related to inventory write-downs, the amortization of Mesquite’s
Purchase Price Allocation (“PPA”) associated with royalties.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Amounts presented on a co-product basis remove the impact of other metal sales that are produced
as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | See “Total Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining
capital expenditures to mining interests per the statement of cash flows.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | Includes the sum of corporate administration costs and share-based payment expense per the income
statement, net of any non-cash depreciation within those figures.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



60







|Three months ended December 31 2016                                
|-------------------------------------------------------------------
|(in millions of U.S. dollars, except where noted)                  
|NEW AFTON OPEX, cash costs and AISC reconciliation                 
|Operating expenses(1)                                              
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Operating expenses per unit of metal sold ($/ounce or pound)       
|Operating expenses                                                 
|Treatment and refining charges on concentrate sales                
|Total cash costs                                                   
|By-product silver and copper sales                                 
|Total cash costs net of by-product revenue                         
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Total cash costs on a co-product basis(2) ($/ounce or pound)       
|Total cash costs per gold ounce sold ($/ounce)                     
|Total co-product cash costs                                        
|Total cash costs net of by-product revenue                         
|Sustaining capital expenditures(3)                                 
|Sustaining exploration - expensed                                  
|Reclamation expenses                                               
|Total co-product all-in sustaining costs                           
|Total all-in sustaining costs net of by-product revenue            
|All-in sustaining costs on a co-product basis(2) ($/ounce or pound)
|All-in sustaining costs per gold ounce sold ($/ounce)              

| | 1. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 2. | Amounts presented on a co-product basis remove the impact of other metal sales that are produced
as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | See “New Afton Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining
capital expenditures to mining interests per the statement of cash flows.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



61







|Year ended December 31 2016                                        
|-------------------------------------------------------------------
|(in millions of U.S. dollars, except where noted)                  
|NEW AFTON OPEX, cash costs and AISC reconciliation                 
|Operating expenses(1)                                              
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Operating expenses per unit of metal sold ($/ounce or pound)       
|Operating expenses                                                 
|Treatment and refining charges on concentrate sales                
|Total cash costs                                                   
|By-product silver and copper sales                                 
|Total cash costs net of by-product revenue                         
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Total cash costs on a co-product basis(2) ($/ounce or pound)       
|Total cash costs per gold ounce sold ($/ounce)                     
|Total co-product cash costs                                        
|Total cash costs net of by-product revenue                         
|Sustaining capital expenditures(3)                                 
|Sustaining exploration - expensed                                  
|Reclamation expenses                                               
|Total co-product all-in sustaining costs                           
|Total all-in sustaining costs net of by-product revenue            
|All-in sustaining costs on a co-product basis(2) ($/ounce or pound)
|All-in sustaining costs per gold ounce sold ($/ounce)              

| | 1. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 2. | Amounts presented on a co-product basis remove the impact of other metal sales that are produced
as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | See “New Afton Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining
capital expenditures to mining interests per the statement of cash flows. For the year ended December 31, 2016, sustaining capital
expenditures are net of $0.7M in proceeds from disposal of assets realized at New Afton.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



62









|Three months ended December 31 2015                                
|-------------------------------------------------------------------
|(in millions of U.S. dollars, except where noted)                  
|NEW AFTON OPEX, cash costs and AISC reconciliation                 
|Operating expenses(1)                                              
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Operating expenses per unit of metal sold ($/ounce or pound)       
|Operating expenses                                                 
|Treatment and refining charges on concentrate sales                
|Adjustments(2)                                                     
|Total cash costs                                                   
|By-product silver and copper sales                                 
|Total cash costs net of by-product revenue                         
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Total cash costs on a co-product basis(3) ($/ounce or pound)       
|Total cash costs per gold ounce sold ($/ounce)                     
|Total co-product cash costs                                        
|Total cash costs net of by-product revenue                         
|Sustaining capital expenditures(4)                                 
|Reclamation expenses                                               
|Total co-product all-in sustaining costs                           
|Total all-in sustaining costs net of by-product revenue            
|All-in sustaining costs on a co-product basis(3) ($/ounce or pound)
|All-in sustaining costs per gold ounce sold ($/ounce)              

| | 1. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 2. | Adjustments include non-cash items related to supplies inventory write-downs.
| | -- | -----------------------------------------------------------------------------

| | 3. | Amounts presented on a co-product basis remove the impact of other metal sales that are produced
as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | See “New Afton Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining
capital expenditures to mining interests per the statement of cash flows.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



63







|Year ended December 31 2015                                        
|-------------------------------------------------------------------
|(in millions of U.S. dollars, except where noted)                  
|NEW AFTON OPEX, cash costs and AISC reconciliation                 
|Operating expenses(1)                                              
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Operating expenses per unit of metal sold ($/ounce or pound)       
|Operating expenses                                                 
|Treatment and refining charges on concentrate sales                
|Adjustments(2)                                                     
|Total cash costs                                                   
|By-product silver and copper sales                                 
|Total cash costs net of by-product revenue                         
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Total cash costs on a co-product basis(3) ($/ounce or pound)       
|Total cash costs per gold ounce sold ($/ounce)                     
|Total co-product cash costs                                        
|Total cash costs net of by-product revenue                         
|Sustaining capital expenditures(4)                                 
|Reclamation expenses                                               
|Total co-product all-in sustaining costs                           
|Total all-in sustaining costs net of by-product revenue            
|All-in sustaining costs on a co-product basis(3) ($/ounce or pound)
|All-in sustaining costs per gold ounce sold ($/ounce)              

| | 1. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 2. | Adjustments include non-cash items related to supplies inventory write-downs.
| | -- | -----------------------------------------------------------------------------

| | 3. | Amounts presented on a co-product basis remove the impact of other metal sales that are produced
as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | See “New Afton Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining
capital expenditures to mining interests per the statement of cash flows.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



64







|Year ended December 31 2014                                        
|-------------------------------------------------------------------
|(in millions of U.S. dollars, except where noted)                  
|NEW AFTON OPEX, cash costs and AISC reconciliation                 
|Operating expenses(1)                                              
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Operating expenses per unit of metal sold ($/ounce or pound)       
|Operating expenses                                                 
|Treatment and refining charges on concentrate sales                
|Adjustments(2)                                                     
|Total cash costs                                                   
|By-product silver and copper sales                                 
|Total cash costs net of by-product revenue                         
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Total cash costs on a co-product basis(3) ($/ounce or pound)       
|Total cash costs per gold ounce sold ($/ounce)                     
|Total co-product cash costs                                        
|Total cash costs net of by-product revenue                         
|Sustaining capital expenditures(4)                                 
|Reclamation expenses                                               
|Total co-product all-in sustaining costs                           
|Total all-in sustaining costs net of by-product revenue            
|All-in sustaining costs on a co-product basis(3) ($/ounce or pound)
|All-in sustaining costs per gold ounce sold ($/ounce)              

| | 1. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 2. | Adjustments include non-cash items related to supplies inventory write-downs.
| | -- | -----------------------------------------------------------------------------

| | 3. | Amounts presented on a co-product basis remove the impact of other metal sales that are produced
as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | See “New Afton Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining
capital expenditures to mining interests per the statement of cash flows.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



65









|Three months ended December 31                        | Year ended December 31
|----------------------------------------------------- | ----------------------
|(in millions of U.S. dollars, except where noted)     | 2016                  
|MESQUITE OPEX, cash costs and AISC reconciliation     |                       
|Operating expenses                                    | 25.3                  
|Gold ounces sold                                      | 38,366                
|Operating expenses per gold ounce sold                | 660                   
|Operating expenses                                    | 25.3                  
|Adjustments(1)                                        | 0.4                   
|Total cash costs                                      | 25.7                  
|Gold ounces sold                                      | 38,366                
|Total cash costs per gold ounce sold ($/ounce)        | 670                   
|Total cash costs                                      | 25.7                  
|Sustaining capital expenditures(2)                    | 1.9                   
|Sustaining exploration - expensed                     | 1.5                   
|Reclamation expenses                                  | 0.5                   
|Total all-in sustaining costs                         | 29.6                  
|All-in sustaining costs per gold ounce sold ($/ounce) | 771                   

| | 1. | Adjustments include the amortization of Mesquite’s Purchase Price Allocation (“PPA”)
associated with royalties.
| | -- | ---------------------------------------------------------------------------------------------------------------

| | 2. | See “Total Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining
capital expenditures to mining interests per the statement of cash flows.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



66







|Three months ended December 31 2016                                
|-------------------------------------------------------------------
|(in millions of U.S. dollars, except where noted)                  
|peak mines OPEX, cash costs and AISC reconciliation                
|Operating expenses(1)                                              
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Operating expenses per unit of metal sold ($/ounce or pound)       
|Operating expenses                                                 
|Treatment and refining charges on concentrate sales                
|Adjustments(2)                                                     
|Total cash costs                                                   
|By-product silver and copper sales                                 
|Total cash costs net of by-product revenue                         
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Total cash costs on a co-product basis(3) ($/ounce or pound)       
|Total cash costs per gold ounce sold ($/ounce)                     
|Total co-product cash costs                                        
|Total cash costs net of by-product revenue                         
|Sustaining capital expenditures(4)                                 
|Sustaining exploration - expensed                                  
|Reclamation expenses                                               
|Total co-product all-in sustaining costs                           
|Total all-in sustaining costs net of by-product revenue            
|All-in sustaining costs on a co-product basis(3) ($/ounce or pound)
|All-in sustaining costs per gold ounce sold ($/ounce)              

| | 1. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 2. | Adjustments include non-cash items related to inventory write-downs.
| | -- | --------------------------------------------------------------------

| | 3. | Amounts presented on a co-product basis remove the impact of other metal sales that are produced
as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | See “Total Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining
capital expenditures to mining interests per the statement of cash flows. For the three months ended December 31, 2016, sustaining
capital expenditures are net of $0.4M in proceeds from disposal of assets realized at Peak Mines.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



67









|Year ended December 31 2016                                        
|-------------------------------------------------------------------
|(in millions of U.S. dollars, except where noted)                  
|peak mines OPEX, cash costs and AISC reconciliation                
|Operating expenses(1)                                              
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Operating expenses per unit of metal sold ($/ounce or pound)       
|Operating expenses                                                 
|Treatment and refining charges on concentrate sales                
|Adjustments(2)                                                     
|Total cash costs                                                   
|By-product silver and copper sales                                 
|Total cash costs net of by-product revenue                         
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Total cash costs on a co-product basis(3) ($/ounce or pound)       
|Total cash costs per gold ounce sold ($/ounce)                     
|Total co-product cash costs                                        
|Total cash costs net of by-product revenue                         
|Sustaining capital expenditures(4)                                 
|Sustaining exploration - expensed                                  
|Reclamation expenses                                               
|Total co-product all-in sustaining costs                           
|Total all-in sustaining costs net of by-product revenue            
|All-in sustaining costs on a co-product basis(3) ($/ounce or pound)
|All-in sustaining costs per gold ounce sold ($/ounce)              

| | 1. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 2. | Adjustments include non-cash items related to inventory write-downs.
| | -- | --------------------------------------------------------------------

| | 3. | Amounts presented on a co-product basis remove the impact of other metal sales that are produced
as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | See “Total Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining
capital expenditures to mining interests per the statement of cash flows. For the year ended December 31, 2016, sustaining capital
expenditures are net of $0.7M in proceeds from disposal of assets realized at Peak Mines.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



68









|Three months ended December 31 2015                                
|-------------------------------------------------------------------
|(in millions of U.S. dollars, except where noted)                  
|peak mines OPEX, cash costs and AISC reconciliation                
|Operating expenses(1)                                              
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Operating expenses per unit of metal sold ($/ounce or pound)       
|Operating expenses                                                 
|Treatment and refining charges on concentrate sales                
|Adjustments(2)                                                     
|Total cash costs                                                   
|By-product silver and copper sales                                 
|Total cash costs net of by-product revenue                         
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Total cash costs on a co-product basis(3) ($/ounce or pound)       
|Total cash costs per gold ounce sold ($/ounce)                     
|Total co-product cash costs                                        
|Total cash costs net of by-product revenue                         
|Sustaining capital expenditures(4)                                 
|Sustaining exploration - expensed                                  
|Reclamation expenses                                               
|Total co-product all-in sustaining costs                           
|Total all-in sustaining costs net of by-product revenue            
|All-in sustaining costs on a co-product basis(3) ($/ounce or pound)
|All-in sustaining costs per gold ounce sold ($/ounce)              

| | 1. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 2. | Adjustments include non-cash items related to inventory write-downs.
| | -- | --------------------------------------------------------------------

| | 3. | Amounts presented on a co-product basis remove the impact of other metal sales that are produced
as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | See “Total Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining
capital expenditures to mining interests per the statement of cash flows.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



69









|Year ended December 31 2015                                        
|-------------------------------------------------------------------
|(in millions of U.S. dollars, except where noted)                  
|peak mines OPEX, cash costs and AISC reconciliation                
|Operating expenses(1)                                              
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Operating expenses per unit of metal sold ($/ounce or pound)       
|Operating expenses                                                 
|Treatment and refining charges on concentrate sales                
|Adjustments(2)                                                     
|Total cash costs                                                   
|By-product silver and copper sales                                 
|Total cash costs net of by-product revenue                         
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Total cash costs on a co-product basis(3) ($/ounce or pound)       
|Total cash costs per gold ounce sold ($/ounce)                     
|Total co-product cash costs                                        
|Total cash costs net of by-product revenue                         
|Sustaining capital expenditures(4)                                 
|Sustaining exploration - expensed                                  
|Reclamation expenses                                               
|Total co-product all-in sustaining costs                           
|Total all-in sustaining costs net of by-product revenue            
|All-in sustaining costs on a co-product basis(3) ($/ounce or pound)
|All-in sustaining costs per gold ounce sold ($/ounce)              

| | 1. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 2. | Adjustments include non-cash items related to inventory write-downs.
| | -- | --------------------------------------------------------------------

| | 3. | Amounts presented on a co-product basis remove the impact of other metal sales that are produced
as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | See “Total Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining
capital expenditures to mining interests per the statement of cash flows.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



70









|Year ended December 31 2014                                        
|-------------------------------------------------------------------
|(in millions of U.S. dollars, except where noted)                  
|peak mines OPEX, cash costs and AISC reconciliation                
|Operating expenses(1)                                              
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Operating expenses per unit of metal sold ($/ounce or pound)       
|Operating expenses                                                 
|Treatment and refining charges on concentrate sales                
|Adjustments(2)                                                     
|Total cash costs                                                   
|By-product silver and copper sales                                 
|Total cash costs net of by-product revenue                         
|Units of metal sold (ounces/millions of pounds/millions of ounces) 
|Total cash costs on a co-product basis(3) ($/ounce or pound)       
|Total cash costs per gold ounce sold ($/ounce)                     
|Total co-product cash costs                                        
|Total cash costs net of by-product revenue                         
|Sustaining capital expenditures(4)                                 
|Sustaining exploration - expensed                                  
|Reclamation expenses                                               
|Total co-product all-in sustaining costs                           
|Total all-in sustaining costs net of by-product revenue            
|All-in sustaining costs on a co-product basis(3) ($/ounce or pound)
|All-in sustaining costs per gold ounce sold ($/ounce)              

| | 1. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 2. | Adjustments include non-cash items related to inventory write-downs.
| | -- | --------------------------------------------------------------------

| | 3. | Amounts presented on a co-product basis remove the impact of other metal sales that are produced
as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | See “Total Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining
capital expenditures to mining interests per the statement of cash flows.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



71









|Three months ended December 31 2016                        | Year ended December 31 2016
|---------------------------------------------------------- | ---------------------------
|(in millions of U.S. dollars, except where noted)          | Gold                       
|CERRO SAN PEDRO OPEX, cash costs and AISC reconciliation   |                            
|Operating expenses(1)                                      | 34.5                       
|Units of metal sold (ounces/millions of ounces)            | 13,351                     
|Operating expenses per unit of metal sold ($/ounce)        | 2,586                      
|Operating expenses(1)                                      | 34.5                       
|Adjustments(2)                                             | (20.6)                     
|Total cash costs                                           | 13.9                       
|By-product silver and copper sales                         |                            
|Total cash costs net of by-product revenue                 |                            
|Units of metal sold (ounces/millions of ounces)            | 13,351                     
|Total cash costs on a co-product basis(3) ($/ounce)        | 1,045                      
|Total cash costs per gold ounce sold ($/ounce)             |                            
|Total co-product cash costs                                | 13.9                       
|Total cash costs net of by-product revenue                 |                            
|Sustaining capital expenditures(4)                         | 0.2                        
|Reclamation expenses                                       | 0.1                        
|Total co-product all-in sustaining costs                   | 14.2                       
|Total all-in sustaining costs net of by-product revenue    |                            
|All-in sustaining costs on a co-product basis(3) ($/ounce) | 1,071                      
|All-in sustaining costs per gold ounce sold ($/ounce)      |                            



| | 1. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 2. | Adjustments include non-cash items related to silver inventory write-down and social closure costs
that are included in operating expenses.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Amounts presented on a co-product basis remove the impact of other metal sales that are produced
as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | See “Cerro San Pedro Sustaining Capital Expenditure Reconciliation” below to reconcile
sustaining capital expenditures to mining interests per the statement of cash flows.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



72











|Three months ended December 31 2015                        | Year ended December 31 2015
|---------------------------------------------------------- | ---------------------------
|(in millions of U.S. dollars, except where noted)          | Gold                       
|CERRO SAN PEDRO OPEX, cash costs and AISC reconciliation   |                            
|Operating expenses(1)                                      | 32.6                       
|Units of metal sold (ounces/millions of ounces)            | 25,368                     
|Operating expenses per unit of metal sold ($/ounce)        | 1,283                      
|Operating expenses(1)                                      | 32.6                       
|Adjustments(2)                                             | (9.6)                      
|Total cash costs                                           | 23.0                       
|By-product silver and copper sales                         |                            
|Total cash costs net of by-product revenue                 |                            
|Units of metal sold (ounces/millions of ounces)            | 25,368                     
|Total cash costs on a co-product basis(3) ($/ounce)        | 906                        
|Total cash costs per gold ounce sold ($/ounce)             |                            
|Total co-product cash costs                                | 23.0                       
|Total cash costs net of by-product revenue                 |                            
|Sustaining capital expenditures(4)                         | 0.3                        
|Reclamation expenses                                       | 0.1                        
|Total co-product all-in sustaining costs                   | 23.4                       
|Total all-in sustaining costs net of by-product revenue    |                            
|All-in sustaining costs on a co-product basis(3) ($/ounce) | 919                        
|All-in sustaining costs per gold ounce sold ($/ounce)      |                            



| | 1. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 2. | Adjustments include non-cash items related to silver inventory write-down and social closure costs
that are included in operating expenses.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Amounts presented on a co-product basis remove the impact of other metal sales that are produced
as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | See “Cerro San Pedro Sustaining Capital Expenditure Reconciliation” below to reconcile
sustaining capital expenditures to mining interests per the statement of cash flows.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



73







|                                                           | Year ended December 31 2014
|---------------------------------------------------------- | ---------------------------
|(in millions of U.S. dollars, except where noted)          | Gold                       
|CERRO SAN PEDRO OPEX, cash costs and AISC reconciliation   |                            
|Operating expenses(1)                                      | 91.3                       
|Units of metal sold (ounces/millions of ounces)            | 67,463                     
|Operating expenses per unit of metal sold ($/ounce)        | 1,354                      
|Operating expenses(1)                                      | 91.3                       
|Adjustments(2)                                             | (6.9)                      
|Total cash costs                                           | 84.4                       
|By-product silver and copper sales                         |                            
|Total cash costs net of by-product revenue                 |                            
|Units of metal sold (ounces/millions of ounces)            | 67,463                     
|Total cash costs on a co-product basis(3) ($/ounce)        | 1,252                      
|Total cash costs per gold ounce sold ($/ounce)             |                            
|Total co-product cash costs                                | 84.4                       
|Total cash costs net of by-product revenue                 |                            
|Sustaining capital expenditures(4)                         | 4.8                        
|Reclamation expenses                                       | 0.8                        
|Total co-product all-in sustaining costs                   | 90.0                       
|Total all-in sustaining costs net of by-product revenue    |                            
|All-in sustaining costs on a co-product basis(3) ($/ounce) | 1,336                      
|All-in sustaining costs per gold ounce sold ($/ounce)      |                            

| | 1. | Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
| | -- | -------------------------------------------------------------------------------------------

| | 2. | Adjustments include non-cash items related to silver inventory write-downs.
| | -- | ---------------------------------------------------------------------------

| | 3. | Amounts presented on a co-product basis remove the impact of other metal sales that are produced
as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | See “Cerro San Pedro Sustaining Capital Expenditure Reconciliation” below to reconcile
sustaining capital expenditures to mining interests per the statement of cash flows.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Sustaining Capital Expenditures
Reconciliation Tables

|Three months ended December 31                    | Year ended December 31
|------------------------------------------------- | ----------------------
|(in millions of U.S. dollars, except where noted) | 2016                  
|Total sustaining capital expenditureS             |                       
|Mining interests per statement of cash flows      | 164.8                 
|New Afton growth capital expenditure(1)           | (0.2)                 
|Cerro San Pedro growth capital expenditure(2)     | -                     
|Rainy River growth capital expenditure            | (145.9)               
|Blackwater growth capital expenditure             | (3.0)                 
|Other non-sustaining capital expenditure(3)       | -                     
|Total sustaining capital expenditures             | 15.7                  

| | 1. | Growth capital expenditures at New Afton in the current year relate to exploration for the C-zone.
Growth capital expenditures at New Afton in the prior-year period relate to the mill expansion and scoping study/preliminary economic
assessment and exploration for the C-zone.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Growth capital expenditures at Cerro San Pedro related to capitalized stripping costs for Phase 5
in the prior year.
| | -- | --------------------------------------------------------------------------------------------------------------------

| | 3. | Other non-sustaining capital expenditure includes transaction costs incurred to replace the Company’s
revolving credit facility in the prior year.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------



74







|Three months ended December 31                    | Year ended December 31
|------------------------------------------------- | ----------------------
|(in millions of U.S. dollars, except where noted) | 2016                  
|New Afton sustaining capital expenditureS         |                       
|Capital expenditure per segmented information     | 10.4                  
|New Afton growth capital expenditure(1)           | (0.2)                 
|New Afton sustaining capital expenditures         | 10.2                  

| | 1. | Growth capital expenditures at New Afton in the current year relate to exploration for the C-zone.
Growth capital expenditures at New Afton in the prior-year period relate to the mill expansion and scoping study/preliminary economic
assessment and exploration for the C-zone.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Three months ended December 31                    | Year ended December 31
|------------------------------------------------- | ----------------------
|(in millions of U.S. dollars, except where noted) | 2016                  
|CERRO SAN PEDRO sustaining capital expenditureS   |                       
|Capital expenditure per segmented information     | 0.2                   
|Cerro San Pedro growth capital expenditure(1)     | -                     
|Cerro San Pedro sustaining capital expenditures   | 0.2                   

| | 1. | Growth capital expenditures at Cerro San Pedro related to capitalized stripping costs for Phase 5
in the prior year.
| | -- | --------------------------------------------------------------------------------------------------------------------



Adjusted Net Earnings and Adjusted
Net Earnings per Share

“Adjusted net earnings” and “adjusted
net earnings per share” are non-GAAP financial measures with no standard meaning under IFRS which exclude the following from
net earnings:



| | · | Impairment losses;
| | - | ------------------



| | · | Inventory write-downs;
| | - | ----------------------



| | · | Items included in “Other gains and losses” as per Note 5 of the Company’s audited
consolidated financial statements, excluding the Company’s share of the net loss of El Morro; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Certain non-recurring items.
| | - | ----------------------------



Net earnings have been adjusted, including the
associated tax impact, for the group of costs in “Other gains and losses” on the audited consolidated income statements.
Key entries in this grouping are: the fair value changes for the gold stream obligation; share purchase warrants and the gold option
contracts; foreign exchange gain or loss; and loss on disposal of assets. Other adjustments to net earnings also include inventory
write downs. The adjusted entries are also impacted for tax to the extent that the underlying entries are impacted for tax in the
unadjusted net earnings.



The Company uses adjusted net earnings for its
own internal purposes. Management’s internal budgets and forecasts and public guidance do not reflect the items which have
been excluded from the determination of adjusted net earnings. Consequently, the presentation of adjusted net earnings enables
shareholders to better understand the underlying operating performance of our core mining business through the eyes of management.
Management periodically evaluates the components of adjusted net earnings based on an internal assessment of performance measures
that are useful for evaluating the operating performance of our business and a review of the non-GAAP measures used by mining industry
analysts and other mining companies.



Adjusted net earnings is intended to provide additional
information only and does not have any standardized meaning under IFRS and may not be comparable to similar measures presented
by other companies. Itshould not be considered in isolation or as a substitute for measures
of performance prepared in accordance with IFRS. The measure is not necessarily indicative of operating profit or cash flows
from operations as determined under IFRS.



75







The following table reconciles this non-GAAP measure
to the most directly comparable IFRS measure.



|Three months ended December 31                         | Year ended December 31
|------------------------------------------------------ | ----------------------
|(in millions of U.S. dollars, except where noted)      | 2016                  
|adjusted net earnings reconciliation                   |                       
|Net (loss) earnings before taxes                       | (16.9)                
|Other (gains) losses (1)                               | (13.0)                
|Provision for office consolidation                     | -                     
|Loss on hedge monetization over original term of hedge | -                     
|Inventory write-down                                   | 27.3                  
|Asset impairment                                       | 6.4                   
|Adjusted net earnings (loss) before taxes              | 3.8                   
|Income tax (expense) recovery                          | (3.0)                 
|Income tax adjustments                                 | (3.1)                 
|Adjusted income tax expense                            | (6.1)                 
|Adjusted net earnings (loss)                           | (2.3)                 
|Adjusted earnings (loss) per share (basic and diluted) | $nil                  
|Adjusted effective tax rate                            | 161%                  

| | 1. | Please refer to Note 5 of the Company’s audited consolidated financial statements for a detailed
breakdown of other gains and losses. For the year and three months ended December 31, 2015, other (gains) losses which are added
back in the calculation of adjusted net earnings excludes $0.8 million of the Company’s share of the net loss of El Morro.
For the year ended December 31, 2014, other (gains) losses which are added back in the calculation of adjusted net earnings excludes
$0.7 million of the Company’s share of the net loss of El Morro.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Cash Generated from Operations,
before Changes in Non-Cash Operating Working Capital

“Cash generated from operations, before changes
in non-cash operating working capital” is a non-GAAP financial measure with no standard meaning under IFRS, which excludes
changes in non-cash operating working capital. Management uses this measure to evaluate the Company’s ability to generate
cash from its operations before temporary working capital changes.



Cash generated from operations, before non-cash
changes in working capital is intended to provide additional information only and does not have any standardized meaning under
IFRS; it should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.
Other companies may calculate this measure differently and this measure is unlikely to be comparable to similar measures presented
by other companies.



|Three months ended December 31                                                      | Year ended December 31
|----------------------------------------------------------------------------------- | ----------------------
|(in millions of U.S. dollars)                                                       | 2016                  
|cash reconciliation                                                                 |                       
|Cash generated from operations                                                      | 51.7                  
|Add back (deduct): Change in non-cash operating working capital(1)                  | 16.8                  
|Cash generated from operations before changes in non-cash operating working capital | 68.5                  

| | 1. | For theyear and three monthsended December
31, 2015, a $11.4 million non-current inventory write-down at Cerro San Pedro has been reclassified from changes in non-cash operating
working capital to a distinct line item within operating activities on the consolidated statement of cash flows as per the audited
consolidated financial statements for the years ended December 31, 2016 and 2015. Similarly, for the year ended December 31, 2014,
a $9.0 million non-current inventory write-down was also reclassified.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



76







Operating Margin

“Operating margin” is a non-GAAP financial
measure with no standard meaning under IFRS, which management uses to evaluate the Company’s aggregated and mine-by-mine
contribution to net earnings before non-cash depreciation and depletion charges. Operating margin is calculated as revenue less
operating expenses and therefore does not include depreciation and depletion.



Operating margin is intended to provide additional
information only and does not have any standardized meaning under IFRS; it should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with IFRS. Other companies may calculate this measure differently and this measure
is unlikely to be comparable to similar measures presented by other companies. The following tables reconcile this non-GAAP measure
to the most directly comparable IFRS measure on an aggregated and mine-by-mine basis.



Operating Margin Reconciliation
Tables

|Three months ended December 31 | Year ended December 31
|------------------------------ | ----------------------
|(in millions of U.S. dollars)  | 2016                  
|TOTAL OPERATING MARGIN         |                       
|Revenue                        | 170.3                 
|Less: Operating expenses       | (114.7)               
|Total operating margin         | 55.6                  



|Three
    months ended December 31 | Year
    ended December 31
|---------------------------------- | --------------------------
|(in millions of U.S. dollars)      | 2016                      
|New Afton OPERATING MARGIN         |                           
|Revenue                            | 74.9                      
|Less: Operating expenses           | (28.3)                    
|New Afton operating margin         | 46.6                      





|Three
    months ended December 31 | Year
    ended December 31
|---------------------------------- | --------------------------
|(in millions of U.S. dollars)      | 2016                      
|Mesquite OPERATING MARGIN          |                           
|Revenue                            | 46.7                      
|Less: Operating expenses           | (25.3)                    
|Mesquite operating margin          | 21.4                      



|Three
    months ended December 31 | Year
    ended December 31
|---------------------------------- | --------------------------
|(in millions of U.S. dollars)      | 2016                      
|Peak Mines OPERATING MARGIN        |                           
|Revenue                            | 29.6                      
|Less: Operating expenses           | (20.5)                    
|Peak Mines operating margin        | 9.1                       



77









|Three months ended December 31   | Year ended December 31
|-------------------------------- | ----------------------
|(in millions of U.S. dollars)    | 2016                  
|CERRO San Pedro OPERATING MARGIN |                       
|Revenue                          | 19.1                  
|Less: Operating expenses         | (40.6)                
|Cerro San Pedro operating margin | (21.5)                



Average Realized Price

“Average realized price per ounce of gold
sold” is a non-GAAP financial measure with no standard meaning under IFRS. Management uses this measure to better understand
the price realized in each reporting period for gold sales.



Average realized price is intended to provide additional
information only and does not have any standardized meaning under IFRS; it should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with IFRS. Other companies may calculate this measure differently and this measure
is unlikely to be comparable to similar measures presented by other companies. The following tables reconcile this non-GAAP measure
to the most directly comparable IFRS measure on an aggregate and mine-by-mine basis.



Average Realized Price Reconciliation
Tables

|Three months ended December 31                             | Year ended December 31
|---------------------------------------------------------- | ----------------------
|(in millions of U.S. dollars, except where noted)          | 2016                  
|Total AVERAGE REALIZED PRICE                               |                       
|Revenue from gold sales                                    | 111.0                 
|Treatment and refining charges on gold concentrate sales   | 2.8                   
|Loss on hedge monetization over original term of hedge     | -                     
|Gross revenue from gold sales                              | 113.8                 
|Gold ounces sold                                           | 93,936                
|Total average realized price per gold ounce sold ($/ounce) | 1,211                 



|Three months ended December 31                                 | Year ended December 31
|-------------------------------------------------------------- | ----------------------
|(in millions of U.S. dollars, except where noted)              | 2016                  
|new afton AVERAGE REALIZED PRICE                               |                       
|Revenue from gold sales                                        | 26.6                  
|Treatment and refining charges on gold concentrate sales       | 2.7                   
|Gross revenue from gold sales                                  | 29.3                  
|Gold ounces sold                                               | 24,171                
|New Afton average realized price per gold ounce sold ($/ounce) | 1,212                 



78









|Three months ended December 31                                | Year ended December 31
|------------------------------------------------------------- | ----------------------
|(in millions of U.S. dollars, except where noted)             | 2016                  
|Mesquite AVERAGE REALIZED PRICE                               |                       
|Revenue from gold sales                                       | 46.7                  
|Loss on hedge monetization over original term of hedge        | -                     
|Gross revenue from gold sales                                 | 46.7                  
|Gold ounces sold                                              | 38,366                
|Mesquite average realized price per gold ounce sold ($/ounce) | 1,217                 



|Three months ended December 31                                  | Year ended December 31
|--------------------------------------------------------------- | ----------------------
|(in millions of U.S. dollars, except where noted)               | 2016                  
|Peak Mines AVERAGE REALIZED PRICE                               |                       
|Revenue from gold sales                                         | 21.4                  
|Treatment and refining charges on gold concentrate sales        | 0.1                   
|Gross revenue from gold sales                                   | 21.5                  
|Gold ounces sold                                                | 18,049                
|Peak Mines average realized price per gold ounce sold ($/ounce) | 1,191                 



|Three months ended December 31                                       | Year ended December 31
|-------------------------------------------------------------------- | ----------------------
|(in millions of U.S. dollars, except where noted)                    | 2016                  
|Cerro San Pedro AVERAGE REALIZED PRICE                               |                       
|Revenue from gold sales                                              | 16.3                  
|Gold ounces sold                                                     | 13,351                
|Cerro San Pedro average realized price per gold ounce sold ($/ounce) | 1,219                 



79









ENTERPRISE
RISK MANAGEMENT AND RISK FACTORS

The Company is subject to various financial and
other risks that could materially adversely affect the Company’s future business, operations and financial condition. The
following is a summary of the key risks facing the Company. For a more comprehensive discussion of these and other risks facing
the Company, please refer to the section entitled “Risk Factors” in the Company’s most recent Annual Information
Form, filed on SEDAR at www.sedar.com.



Financial Risk Management

The Company holds a mixture of financial instruments,
which are classified and measured as follows. For a discussion of the methods used to value financial instruments, as well as any
significant assumptions, refer to Note 2 to our audited consolidated financial statements for the years ended December 31, 2016
and 2015.





|                               | As at December 31, 2016                       | As at December 31, 2015
|------------------------------ | --------------------------------------------- | -----------------------
|(in millions of U.S. dollars)  | Category                                      | Level                  
|FINANCIAL ASSETS               |                                               |                        
|Cash and cash equivalents      | Loans and receivables at amortized cost       |                        
|Trade and other receivables    | Loans and receivables at amortized cost       |                        
|Provisionally priced contracts | Financial instruments at FVTPL                | 2                      
|Gold and copper swap contracts | Financial instruments at FVTPL                | 2                      
|Investments                    | Financial instruments at FVTPL                | 1                      
|Gold price option contracts    | Financial instruments at FVTPL                | 2                      
|Copper forward contracts       | Financial instruments at FVTPL                | 2                      
|FINANCIAL LIABILITIES          |                                               |                        
|Trade and other payables(1)    | Financial liabilities at amortized cost       |                        
|Long-term debt                 | Financial liabilities at amortized cost       |                        
|Warrants                       | Financial Instruments at FVTPL                | 1                      
|Diesel swap contracts          | Financial liability at fair value through OCI | 2                      
|Gold stream obligation         | Financial instruments at FVTPL                | 3                      
|Performance share units        | Financial instruments at FVTPL                | 3                      
|Restricted share units         | Financial instruments at FVTPL                | 1                      



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



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.



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, investments, options, swaps, and forward contracts; 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



80







customer defaults is minimal and, as a result,
the credit risk associated with gold and copper concentrate trade receivables at December 31, 2016 is not considered to be high.



The Company’s maximum exposure to credit
risk at December 31, 2016 and December 31, 2015 is as follows:







|As at December 31                                  | As at December 31
|-------------------------------------------------- | -----------------
|(in millions of U.S. dollars, except where noted)  | 2016             
|CREDIT RISK EXPOSURE                               |                  
|Cash and cash equivalents                          | 185.9            
|Trade and other receivables                        | 37.1             
|Gold price options                                 | 17.6             
|Copper forward contracts                           | 0.3              
|Total financial instrument exposure to credit risk | 240.9            







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, which is described in Note 20 to
our audited consolidated financial statements for the years ended December 31, 2016 and 2015.



The aging of trade and other receivables at December
31, 2016 and December 31, 2015 is as follows:





|                                  |            | As at December 31
|--------------------------------- | ---------- | -----------------
|(in millions of U.S. dollars)     | 0-30
 days | 31-60
 days      
|Aging trade and other receivables |            |                  
|New Afton                         | 18.3       | 4.2              
|Mesquite                          | 0.1        | -                
|Peak Mines                        | 1.3        | -                
|Cerro San Pedro                   | 3.9        | 0.3              
|Rainy River                       | 4.8        | -                
|Blackwater                        | 0.3        | -                
|Corporate                         | 2.1        | -                
|Total trade and other receivables | 30.8       | 4.5              





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.



81







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 20 to our audited consolidated financial statements for the years
ended December 31, 2016 and 2015.



The following are the contractual maturities of
debt commitments and certain other obligations. The amounts presented represent the future undiscounted cash flows, and therefore,
do not equate to the carrying amounts on the consolidated statements of financial position.







|                                                  | As at
        December 31 | As at
        December 31
|------------------------------------------------- | ------------------------- | -------------------------
|(in millions of U.S. dollars, except where noted) | < 1
        year          | 1-3
        years        
|DEBT COMMITMENTS                                  |                           |                          
|Trade and other payables                          | 169.2                     | -                        
|Long-term debt                                    | -                         | 100.0                    
|Interest payable on long-term debt                | 43.7                      | 104.5                    
|Gold stream obligation                            | 1.9                       | 68.2                     
|Total debt commitments                            | 214.8                     | 272.7                    







The Company’s future operating cash flow
and cash position are highly dependent on metal prices, including gold, copper and silver, 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.



Currency Risk

The Company operates in Canada, the United States,
Australia and Mexico. 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:



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.



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



82









|Year ended December 31, 2016                      
|--------------------------------------------------
|(in millions of U.S. dollars, except where noted) 
|EXPOSURE TO CURRENCY RISK                         
|Cash and cash equivalents                         
|Trade and other receivables                       
|Income tax payable                                
|Deferred tax asset                                
|Trade and other payables                          
|Deferred tax liability                            
|Reclamation and closure cost obligations          
|Warrants                                          
|Employee benefits                                 
|Performance share units and Restricted share units
|Total exposure to currency risk                   







|Year ended December 31, 2015                      
|--------------------------------------------------
|(in millions of U.S. dollars, except where noted) 
|EXPOSURE TO CURRENCY RISK                         
|Cash and cash equivalents                         
|Trade and other receivables                       
|Income tax receivable/(payable)                   
|Deferred tax asset                                
|Trade and other payables                          
|Deferred tax liability                            
|Reclamation and closure cost obligations          
|Warrants                                          
|Employee benefits                                 
|Performance share units and Restricted share units
|Total exposure to currency risk                   





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 and Mexican 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 earnings (loss) from the financial instruments presented by the amounts shown below.



|Year ended December 31                            | Year ended December 31
|------------------------------------------------- | ----------------------
|(in millions of U.S. dollars, except where noted) | 2016                  
|IMPACT OF 10% CHANGE IN FOREIGN EXCHANGE RATES    |                       
|Canadian dollar                                   | 20.5                  
|Australian dollar                                 | 4.6                   
|Mexican peso                                      | 1.8                   



83







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. The majority of
the Company’s outstanding debt obligations are fixed and are therefore not exposed to changes in market interest rates. The
Credit Facility interest is variable and a 1% change in interest rates would result in a difference of approximately $0.2 million
in interest paid for the year ended December 31, 2016.



The Company is exposed to interest rate risk on
its cash and cash equivalents. Interest earned on cash and cash equivalents 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 a difference of approximately $2.0 million
in interest earned by the Company for the year ended December 31, 2016. The Company has not entered into any derivative contracts
to manage this risk.



Metal price risk

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



| | · | the strength of the 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;
| | - | -------------------------------------

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

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



For theyear
ended December 31, 2016, the Company’s revenues and cash flows were impacted by gold prices in the range of $1,077 to $1,366
per ounce, and by copper prices in the range of $1.95 to $2.69 per pound. Low metal prices could cause continued development of,
and commercial production from, the Company’s properties to be uneconomic. In addition, there is a time lag between the shipment
of gold and copper and final pricing, and changes in pricing can impact the Company’s revenue and working capital position.
As at December 31, 2016, working capital includes unpriced gold and copper concentrate receivables totalling 3,958 ounces of gold
and 3.0 million pounds of copper relating to the Peak Mines and New Afton not offset by copper swap contracts. The
Company’s exposure to changes in gold prices has been significantly reduced during the year ended December 31, 2016 as the
Company has entered into gold swap contracts to reduce exposure to changes in gold prices.



The Company’s
exposure to changes in gold prices has been significantly reduced during the current year and during the first six months of 2017
as the Company has entered into gold price option contracts (whereby it sold a series of call option contracts and purchased
a series of put option contracts) to reduce exposure to changes in gold prices.



The details of the remaining contracts are as follows
as at December 31, 2016:



|                                  | Quantityoutstanding | Remaining term       | Exercise
price ($) | Fair
value  - asset
(liability)(1)
|--------------------------------- | ------------------- | -------------------- | ------------------ | ----------------------------------
|Gold option contracts outstanding |                     |                      |                    |                                   
|Gold call contracts – sold        | 120,000 oz          | January – June  2017 | 1,400              | (0.1)                             
|Gold put contracts – purchased    | 120,000 oz          | January – June  2017 | 1,300              | 17.7                              

| | 1. | The Company presents the fair value of its put and call options on a net basis on the condensed
consolidated statements of financial position. The Company has a legally enforceable right to set off the amounts under its options
contracts and intends to settle on a net basis. The 2017 contracts cover 20,000 ounces of gold per month.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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A $100 change in the gold price per ounce
would have an impact of $0.4 million on the Company’s working capital position. 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.



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



|Year ended December 31                            | Year ended December 31  
|------------------------------------------------- | ------------------------
|(in millions of U.S. dollars, except where noted) | 2016
Net Earnings
(Loss)
|IMPACT OF 10% CHANGE IN COMMODITY PRICES          |                         
|Gold price                                        | 47.4                    
|Copper price                                      | 22.1                    
|Silver price                                      | 1.4                     
|Fuel price                                        | 3.5                     
|Warrants                                          | 0.1                     
|Restricted share units                            | 0.7                     



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



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 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, restricted
share units 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.



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Other Risks

Production Estimates

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



Cost Estimates

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



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



Government Regulation

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



86







Permitting

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



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



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



Dependence on New
Afton Mine

The Company’s operations at the
New Afton Mine in British Columbia accounted for approximately 26% of the Company’s gold production and 85% of its copper
production in 2016 and are expected to account for approximately 18% of the Company’s gold production and 86% of its copper
production in 2017. Also, in 2016 the New Afton Mine accounted for approximately 57% of the Company’s operating margin. Any
adverse condition affecting mining or milling conditions at the New Afton Mine could have a material adverse effect on the Company’s
financial performance and results of operations.



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



87







Operating Risks

Mining operations generally involve a
high degree of risk. The Company’s operations are subject to all the hazards and risks normally encountered in the exploration,
development and production of gold, copper and silver including unusual and unexpected geologic formations, seismic activity, rock
bursts, rock slides, cave-ins, slope or pit wall failures, flooding, fire, metal loses, periodic interruption due to inclement
or hazardous weather conditions and other conditions that would impact the drilling and removal of material. Block caving activities,
including at the New Afton mine, generally result in surface subsidence. The configuration of subsidence presently occurring above
the west cave at the New Afton mine is slightly offset from the original model, which is thought to be driven largely by the weaker
rockmass located south of the cave footprint. The subsidence is being monitored and evaluated on an ongoing basis. Surface subsidence
or any of the above hazards and risks could result in reduced production, damage to, or destruction of, mines and other producing
facilities, damage to life or property, environmental damage and possible legal liability. In addition, production may be adversely
impacted by operational problems such as a failure of a production hoist, filter press, SAG mill or other equipment, or industrial
accidents, as well as other potential issues such as actual ore mined varying from estimates of grade or tonnage, dilution, block
cave performance and metallurgical or other characteristics, interruptions in electrical power or water, shortages of required
inputs, labour shortages or strikes, restrictions or regulations imposed by government agencies or changes in the regulatory environment.
The Company’s milling operations are subject to hazards such as equipment failure or failure of retaining dams around tailings
disposal areas, which may result in environmental pollution and consequent liability. In addition, short-term operating factors,
such as the need for orderly development of the ore bodies or the processing of new or different ore grades, may cause a mining
operation to be unprofitable in any particular accounting period. The occurrence of one or more of these events may result in the
death of, or personal injury to, employees, other personnel or third parties, the loss of mining equipment, damage to or destruction
of mineral properties or production facilities, monetary losses, deferral or unanticipated fluctuations in production, suspension,
curtailment or termination of operations, environmental damage and potential legal liabilities, any of which may adversely affect
the Company’s business, reputation, prospects, results of operations and financial condition.



Exploration and
Development Risks

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



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



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



88







recoveries in small scale laboratory tests
will be duplicated in larger scale tests under on-site conditions or during production.



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



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



Construction Risks

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



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



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



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



Risks Related to
Start-Up

The start-up of the Company’s Rainy
River project is subject to a number of inherent risks, including those described above under “Permitting”, “Exploration
and Development Risks” and “Construction Risks”. The permits, capital expenditures and time required to develop
new mines are considerable and changes in cost or construction schedules can significantly increase both the time and capital required
to build the project. Further, it is not unusual in the mining industry for new mining operations to experience unexpected problems
leading up to and during start-up, including failure of equipment, machinery, the processing circuit or other processes to perform
as designed or intended, inadequate water, insufficient



89







ore stock pile or grade, and failure to
deliver adequate tonnes of ore to the mill, any of which could result in delays, slowdowns or suspensions and require more capital
than anticipated. In addition, Mineral Reserves and Mineral Resources projected by the applicable feasibility study and anticipated
costs, including, without limitation, operating expenses, cash costs and all-in sustaining costs, anticipated mine life, projected
production, anticipated production rates and other projected economic and operating parameters may not be realized, and the level
of future metal prices needed to ensure commercial viability may deteriorate. Consequently, there is a risk that the start-up of
Rainy River may encounter problems, be subject to delays or have other material adverse consequences for the Company.



Financing Risks

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



Need for Additional
Mineral Reserves and Mineral Resources

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



Uncertainty in
the Estimation of Mineral Reserves and Mineral Resources

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



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



90







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



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



Impairment

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



Title Claims and
Rights of Indigenous Peoples

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



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



91







affect existing operations as well as
development projects. These legal requirements may also affect the Company’s ability to expand or transfer existing operations
or to develop new projects.



Environmental Risk

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



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



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



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



Insurance and Uninsured
Risks

New Gold’s business is subject to
a number of risks and hazards generally including adverse environmental conditions, industrial accidents, labour disputes, unusual
or unexpected geological conditions, ground or slope or wall failures, cave-ins, metallurgical or other processing problems, fires,
operational problems, changes in the regulatory environment and natural phenomena, such as inclement weather conditions, floods,
hurricanes and earthquakes. Such occurrences could



92







result in damage to mineral properties
or production facilities or other property, personal injury or death, environmental damage to its properties or the properties
of others, delays in mining, monetary losses and possible legal liability.



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



Reclamation Costs

The Company’s operations are subject
to reclamation plans that establish its obligations to reclaim properties after minerals have been mined from a site. These obligations
represent significant future costs for the Company. Reclamation bonds or other forms of financial assurance are often required
to secure reclamation activities. Governing authorities require companies to periodically recalculate the amount of a reclamation
bond and may require bond amounts to be increased. It may be necessary to revise the planned reclamation expenditures and the operating
plan for a mine in order to fund an increase to a reclamation bond. In addition, reclamation bonds are generally issued under the
Company’s credit facilities; increases in the amount of reclamation bonds will decrease the amount of the Credit Facility
available for other purposes. Reclamation bonds may represent only a portion of the total amount of money that will be spent on
reclamation over the life of a mine operation. The actual costs of reclamation set out in mine plans are estimates only and may
not represent the actual amounts that will be required to complete all reclamation activity. If actual costs are significantly
higher than the Company’s estimates, then its results of operations and financial position could be materially adversely
affected.



Debt and Liquidity
Risk

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



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



93







could adversely affect the value of New
Gold’s outstanding securities and existing debt and its ability to obtain new financing on favourable terms, and increase
New Gold’s borrowing costs.



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



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



Litigation and
Dispute Resolution

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



Title Risks

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



94







Hedging Risks

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



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



95







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 are described in the Company’s audited
consolidated financial statements for the years ended December 31, 2016 and 2015.



accounting
policies

The Company's significant accounting policies
and future changes in accounting policies are presented in the audited consolidated financial statements for the year ended December
31, 2016.



96







CONTROLS
AND PROCEDURES

Disclosure Controls
and Procedures

The Company’s management, with the
participation of and under the supervision of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (“Exchange Act”) and in National Instrument 52-109 Certification of Disclosure in Issuers’
Annual and Interim Filings, as at and for the year ended December 31, 2016. Based on that evaluation, the Company’s Chief
Executive Officer and Chief Financial Officer have concluded that, as at and for the year ended December 31, 2016, the Company’s
disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed
by the Company in reports it files is recorded, processed, summarized and reported, within the appropriate time periods.



Internal Controls over
Financial Reporting

New Gold’s management, with the
participation of its Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate
internal controls over financial reporting. Internal controls over financial reporting is 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 International Financial Reporting Standards. New Gold’s
management assessed the effectiveness of the Company’s internal controls over financial reporting as at and for the year
ended December 31, 2016 based on the 2013 updated Committee of Sponsoring Organization of the Treadway Commission (“COSO”)
and has concluded that New Gold’s internal controls over financial reporting are effective as at and for the year ended December
31, 2016.



The effectiveness of the Company’s
internal control over financial reporting as of December 31, 2016 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, 2016.



Limitations of Controls
and Procedures

The Company’s management, including
its Chief Executive Officer and Chief Financial Officer, believe that any internal controls and procedures for financial reporting,
no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. Furthermore, the design of a control system must reflect the fact that there are resource constraints and the benefits
of controls must be considered relative to their costs. Due to the inherent limitations of all control systems, they cannot provide
absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented and/or detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and breakdowns can occur because
of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of
two or more people, or by unauthorized override control. The design of any system of controls is also based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.



Changes in Internal
Controls over Financial Reporting

There has been no change in the Company’s
design of internal controls and procedures over financial reporting that has materially affected, or is reasonably likely to materially
affect, the Company’s internal controls over financial reporting during the period covered by this MD&A.



97







MINERAL
RESERVEs AND MINERAL RESOURCES

Mineral Reserves

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



|MINERAL RESERVE ESTIMATES          
|-----------------------------------
|                                   
|                                   
|NEW AFTON                          
|A&B Zones                          
|Proven                             
|Probable                           
|C Zone                             
|Proven                             
|Probable                           
|Total New Afton P&P                
|MESQUITE                           
|Proven                             
|Probable                           
|Total Mesquite P&P                 
|PEAK MINES                         
|Southern Mine Corridor             
|Proven                             
|Probable                           
|Southern Mine Corridor P&P         
|Northern Mine Corridor             
|Proven                             
|Probable                           
|Northern Mine Corridor P&P         
|Stockpile                          
|Proven                             
|                                   
|Combined P&P                       
|Proven                             
|Probable                           
|Total Peak Mines P&P               
|RAINY RIVER                        
|Direct processing material         
|Open Pit                           
|Proven                             
|Probable                           
|Open Pit P&P (direct processing)   
|Underground                        
|Proven                             
|Probable                           
|Underground P&P (direct processing)
|Stockpile material                 
|Open Pit                           
|Proven                             
|Probable                           
|Open Pit P&P (stockpile)           
|                                   
|                                   
|Combined P&P                       
|Proven                             
|Probable                           
|Total Rainy River P&P              



98







|MINERAL RESERVE ESTIMATES 
|--------------------------
|                          
|                          
|                          
|BLACKWATER                
|Direct processing material
|Proven                    
|Probable                  
|P&P (direct processing)   
|Stockpile material        
|Proven                    
|Probable                  
|P&P (stockpile)           
|Total Blackwater P&P      
|Total P&P                 

Notes to the Mineral
Reserve and Mineral Resource estimates are provided below.



Mineral Resources

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



|MEASURED & INDICATED MINERAL RESOURCES ESTIMATES (EXCLUSIVE OF MINERAL RESERVES)
|--------------------------------------------------------------------------------
|                                                                                
|                                                                                
|NEW AFTON                                                                       
|A&B Zones                                                                       
|Measured                                                                        
|Indicated                                                                       
|A&B Zone M&I                                                                    
|C-Zone                                                                          
|Measured                                                                        
|Indicated                                                                       
|C-Zone M&I                                                                      
|HW Lens                                                                         
|Measured                                                                        
|Indicated                                                                       
|HW Lens M&I                                                                     
|Total New Afton M&I                                                             
|MESQUITE                                                                        
|Measured                                                                        
|Indicated                                                                       
|Total Mesquite M&I                                                              
|PEAK MINES                                                                      
|Southern Mine Corridor                                                          
|Measured                                                                        
|Indicated                                                                       
|Southern Mine Corridor M&I                                                      
|Northern Mine Corridor                                                          
|Measured                                                                        
|Indicated                                                                       
|Northern Mine Corridor M&I                                                      
|                                                                                
|Combined M&I                                                                    
|Measured                                                                        
|Indicated                                                                       
|Total Peak Mines M&I                                                            



99







|MEASURED & INDICATED MINERAL RESOURCES ESTIMATES (EXCLUSIVE OF MINERAL RESERVES)
|--------------------------------------------------------------------------------
|                                                                                
|                                                                                
|                                                                                
|RAINY RIVER                                                                     
|Direct processing material                                                      
|Open Pit                                                                        
|Measured                                                                        
|Indicated                                                                       
|Open Pit M&I (direct processing)                                                
|Underground                                                                     
|Measured                                                                        
|Indicated                                                                       
|Underground M&I (direct processing)                                             
|Stockpile material                                                              
|Open Pit                                                                        
|Measured                                                                        
|Indicated                                                                       
|Open Pit M&I (stockpile)                                                        
|                                                                                
|Combined M&I                                                                    
|Measured                                                                        
|Indicated                                                                       
|Total Rainy River M&I                                                           
|BLACKWATER                                                                      
|Direct processing material                                                      
|Measured                                                                        
|Indicated                                                                       
|M&I (direct processing)                                                         
|Stockpile material                                                              
|Measured                                                                        
|Indicated                                                                       
|M&I (stockpile)                                                                 
|Total Blackwater M&I                                                            
|Total M&I Exclusive of Reserves                                                 

Notes to the Mineral
Reserve and Mineral Resource estimates are provided below.



Inferred Mineral Resources

INFERRED MINERAL RESOURCE
ESTIMATES

|                       |            | Metal grade | Contained metal
|---------------------- | ---------- | ----------- | ---------------
|                       | Tonnes000s | Goldg/t     | Silverg/t      
|NEW AFTON              |            |             |                
|A&B-Zone               | 7,344      | 0.35        | 1.3            
|C-Zone                 | 6,900      | 0.43        | 1.3            
|HW Lens                | 978        | 0.69        | 1.4            
|New Afton Inferred     | 15,219     | 0.41        | 1.3            
|MESQUITE               | 7,118      | 0.32        | -              
|PEAK MINES             |            |             |                
|Southern Mine Corridor | 440        | 3.66        | 9.6            
|Northern Mine Corridor | 3,540      | 1.11        | 6.0            
|Peak Inferred          | 3,980      | 1.39        | 6.4            



100







|INFERRED MINERAL RESOURCE ESTIMATES
|-----------------------------------
|                                   
|                                   
|RAINY RIVER                        
|Direct processing                  
|Open Pit                           
|Underground                        
|Total Direct Processing            
|Stockpile                          
|Open Pit                           
|Rainy River Inferred               
|BLACKWATER                         
|Direct processing                  
|Stockpile                          
|Blackwater Inferred                
|Total Inferred                     



INFERRED MINERAL RESOURCE
ESTIMATES

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

Notes to the Mineral
Reserve and Mineral Resource estimates are provided below.



Notes to Mineral Reserve
and Resource Estimates



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



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



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



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



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



|Mineral Property | Mineral Reserves
        LOWER cut-off | Mineral Resources
        LOWER Cut-off
|---------------- | -------------------------------------- | ---------------------------------------
|New Afton        | Main Zone – B1 & B2 Blocks:            | C$ 17.00/t                             
|                 | B3 Block & C-Zone:                     | C$ 24.00/t                             



101







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



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



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



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



| | 8. | Qualified Person: The preparation of New Gold's Mineral Reserve and Mineral Resource estimates has
been done by Qualified Persons as defined under NI 43-101, under the oversight and review of Mr. Mark A. Petersen, a Qualified
Person under NI 43-101.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



102







CAUTIONARY
NOTES

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

Information concerning the properties
and operations of New Gold has been prepared in accordance with Canadian standards under applicable Canadian securities laws, and
may not be comparable to similar information for United States companies. The terms “Mineral Resource”, “Measured
Mineral Resource”, “Indicated Mineral Resource” and “Inferred Mineral Resource” used in this MD&A
are Canadian mining terms as defined in the CIM Definition Standards for Mineral Resources and Mineral Reserves adopted by the
CIM Council on May 10, 2014 and incorporated by reference in National Instrument 43-101 (“NI 43-101”). While the terms
“Mineral Resource”, “Measured Mineral Resource”, “Indicated Mineral Resource” and “Inferred
Mineral Resource” are recognized and required by Canadian securities regulations, they are not defined terms under standards
of the United States Securities and Exchange Commission. As such, certain information contained in this MD&A concerning descriptions
of mineralization and resources under Canadian standards is not comparable to similar information made public by United States
companies subject to the reporting and disclosure requirements of the United States Securities and Exchange Commission.



An “Inferred Mineral Resource”
has a great amount of uncertainty as to its existence and as to its economic and legal feasibility. Under Canadian rules, estimates
of Inferred Mineral Resources may not form the basis of feasibility or pre-feasibility studies. It cannot be assumed that all or
any part of an “Inferred Mineral Resource” will ever be upgraded to a higher confidence category through additional
exploration drilling and technical evaluation. Readers are cautioned not to assume that all or any part of an “Inferred Mineral
Resource” exists or is economically or legally mineable.



Under United States standards, mineralization
may not be classified as a “Reserve” unless the determination has been made that the mineralization could be economically
and legally produced or extracted at the time the Reserve estimation is made. Readers are cautioned not to assume that all or any
part of the Measured or Indicated Mineral Resources will ever be converted into Mineral Reserves. In addition, the definitions
of “Proven Mineral Reserves” and “Probable Mineral Reserves” under CIM standards differ in certain respects
from the standards of the United States Securities and Exchange Commission.



Cautionary Note Regarding
Forward-Looking Statements

Certain information contained in this
MD&A, including any information relating to New Gold’s future financial or operating performance are “forward looking”.
All statements in this MD&A, other than statements of historical fact, which address events, results, outcomes or developments
that New Gold expects to occur are “forward-looking statements”. Forward-looking statements are statements that are
not historical facts and are generally, but not always, identified by the use of forward-looking terminology such as “plans”,
“expects”, “is expected”, “budget”, “scheduled”, “targeted”, “estimates”,
“forecasts”, “intends”, “anticipates”, “projects”, “potential”, “believes”
or variations of such words and phrases or statements that certain actions, events or results “may”, “could”,
“would”, “should”, “might” or “will be taken”, “occur” or “be
achieved” or the negative connotation of such terms. Forward-looking statements in this MD&A include those under the
heading “Outlook for 2016” and “Development and Exploration Review” include, among others, statements with
respect to: guidance for production, operating expenses per gold ounce sold, total cash costs and all-in sustaining costs, and
the factors contributing to those expected results, as well as expected capital expenditures; mine life; Mineral Reserve and Mineral
Resource estimates; grades expected to be mined at the Company’s operations; the expected production, costs, economics and
operating parameters of Rainy River; planned activities for 2017 and beyond at the Company’s operations and projects, as
well as planned exploration activities and expenses; expected permitting and development activities for Blackwater and New Afton
C-zone projects; planned preparations for operations at the Rainy River project, including the mining rate and removal of overburden
and waste, the expected development plans, production, remaining capital costs, the timing of such plans, production and capital
costs, project economics, operating parameters, timing of



103







completion, commissioning and full production
(and other activities), and mine life of Rainy River, including timing expectations regarding the receipt of an amendment to Schedule
2 of the Metal Mining Effluent Regulations under the Fisheries Act (Canada); and potential exploration expenditures and expenditure
commitments pursuant to an earn-in agreement with Rimfire Pacific Mining NL.



All forward-looking statements in this
MD&A are based on the opinions and estimates of management as of the date such statements are made and are subject to important
risk factors and uncertainties, many of which are beyond New Gold’s ability to control or predict. Certain material assumptions
regarding such forward-looking statements are discussed in this MD&A, New Gold’s Annual Information Form and its Technical
Reports filed on SEDAR at www.sedar.com. In addition to, and subject to, such assumptions discussed in more detail elsewhere, the
forward-looking statements in this MD&A are also subject to the following assumptions: (1) there being no significant disruptions
affecting New Gold’s operations; (2) political and legal developments in jurisdictions where New Gold operates, or may in
the future operate, being consistent with New Gold’s current expectations; (3) the accuracy of New Gold’s current Mineral
Reserve and Mineral Resource estimates; (4) the exchange rate between the Canadian dollar, Australian dollar, Mexican peso and
U.S. dollar being approximately consistent with current levels; (5) prices for diesel, natural gas, fuel oil, electricity and other
key supplies being approximately consistent with current levels; (6) equipment, labour and material costs increasing on a basis
consistent with New Gold’s current expectations; (7) arrangements with First Nations and other Aboriginal groups in respect
of Rainy River and Blackwater being consistent with New Gold’s current expectations; (8) all required permits, licenses and
authorizations being obtained from the relevant governments and other relevant stakeholders within the expected timelines; (9)
the results of the feasibility studies for Rainy River, the New Afton C-zone and Blackwater being realized; and (10) in the case
of production, cost and expenditure outlooks at operating mines for 2017, commodity prices and exchange rates being consistent
with those estimated for the purposes of 2017 guidance.



Forward-looking statements are necessarily
based on estimates and assumptions that are inherently subject to known and unknown risks, uncertainties and other factors that
may cause actual results, level of activity, performance or achievements to be materially different from those expressed or implied
by such forward-looking statements. Such factors include, without limitation: significant capital requirements and the availability
and management of capital resources; additional funding requirements; price volatility in the spot and forward markets for metals
and other commodities; fluctuations in the international currency markets and in the rates of exchange of the currencies of Canada,
the United States, Australia and Mexico; discrepancies between actual and estimated production, between actual and estimated Mineral
Reserves and Mineral Resources and between actual and estimated metallurgical recoveries; changes in national and local government
legislation in Canada, the United States, Australia and Mexico or any other country in which New Gold currently or may in the future
carry on business; taxation; controls, regulations and political or economic developments in the countries in which New Gold does
or may carry on business; the speculative nature of mineral exploration and development, including the risks of obtaining and maintaining
the validity and enforceability of the necessary licenses and permits and complying with the permitting requirements of each jurisdiction
in which New Gold operates, including, but not limited to: in Canada, obtaining the necessary permits for Rainy River, New Afton
C-zone and Blackwater; and in Mexico, where Cerro San Pedro has a history of ongoing legal challenges related to our environmental
authorization; the lack of certainty with respect to foreign legal systems, which may not be immune from the influence of political
pressure, corruption or other factors that are inconsistent with the rule of law; the uncertainties inherent to current and future
legal challenges New Gold is or may become a party to; diminishing quantities or grades of Mineral Reserves and Mineral Resources;
competition; loss of key employees; rising costs of labour, supplies, fuel and equipment; actual results of current exploration
or reclamation activities; uncertainties inherent to mining economic studies including the feasibility studies for Rainy River,
New Afton C-zone and Blackwater; the uncertainty with respect to prevailing market conditions necessary for a positive development
or construction decision at Blackwater; changes in project parameters as plans continue to be refined; accidents; labour disputes;
defective title to mineral claims or property or contests over claims to mineral properties; unexpected delays and costs inherent
to consulting and accommodating rights of First



104







Nations and other Aboriginal groups; uncertainties
and unanticipated delays associated with obtaining and maintaining necessary licenses, permits and authorizations and complying
with permitting requirements, including those associated with the environmental assessment process for Blackwater. In addition,
there are risks and hazards associated with the business of mineral exploration, development and mining, including environmental
events and hazards, industrial accidents, unusual or unexpected formations, pressures, cave-ins, flooding and gold bullion losses
(and the risk of inadequate insurance or inability to obtain insurance to cover these risks) as well as “Risk Factors”
included in New Gold’s disclosure documents filed on and available on SEDAR at www.sedar.com. Forward-looking statements
are not guarantees of future performance, and actual results and future events could materially differ from those anticipated in
such statements. All of the forward-looking statements contained in this MD&A are qualified by these cautionary statements.
New Gold expressly disclaims any intention or obligation to update or revise any forward-looking statements whether as a result
of new information, events or otherwise, except in accordance with applicable securities laws.



Technical Information

The scientific and technical information
relating to the construction of and expected operations at New Gold’s Rainy River project contained herein has been reviewed
and approved by Binsar Sirait, Director, Mine Engineering of New Gold. The scientific and technical information relating to Mineral
Resources and exploration contained herein has been reviewed and approved by Mark A. Petersen, Vice President, Exploration of New
Gold. Mr. Sirait is a Professional Engineer and a SME Registered Member. Mr. Petersen is a SME Registered Member, AIPG Certified
Professional Geologist. Mr. Sirait and Mr. Petersen are "Qualified Persons" for the purposes of NI 43-101.



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



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