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Exhibit 99.1



ANNUAL INFORMATION FORM

FOR THE FINANCIAL YEAR ENDED

DECEMBER 31, 2009

****

March 26, 2010

Suite 3110, 666 Burrard Street Vancouver, BC V6C 2X8
Canada

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|NEW GOLD
      INC.                           
|----------------------------------------------
|ANNUAL INFORMATION FORM                       
|FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2009

|TABLE OF CONTENTS                                         
|----------------------------------------------------------
|DESCRIPTION                                               
|                                                          
|INTRODUCTORY NOTES                                        
|CORPORATE STRUCTURE                                       
|GENERAL DEVELOPMENT OF THE BUSINESS                       
|DESCRIPTION OF THE BUSINESS                               
|Overview                                                  
|Specialized Skill and Knowledge                           
|Principal Products                                        
|Competitive Conditions                                    
|Operations                                                
|Environmental Protection                                  
|Technical Information                                     
|Summary of Mineral Reserve and Mineral Resource Estimates 
|MINERAL PROPERTIES                                        
|Mesquite Mine, United States                              
|Cerro San Pedro Mine, Mexico                              
|Peak Gold Mines, Australia                                
|New Afton Project, Canada                                 
|El Morro Project, Chile                                   
|RISK FACTORS                                              
|NOTES AND DEBENTURES                                      
|DIVIDENDS                                                 
|DESCRIPTION OF CAPITAL STRUCTURE                          
|TRADING PRICE AND VOLUME                                  
|DIRECTORS AND OFFICERS                                    
|AUDIT COMMITTEE                                           
|LEGAL PROCEEDINGS AND REGULATORY ACTIONS                  
|INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
|TRANSFER AGENT AND REGISTRAR                              
|MATERIAL CONTRACTS                                        
|INTERESTS OF EXPERTS                                      
|ADDITIONAL INFORMATION                                    
|SCHEDULE A AUDIT COMMITTEE CHARTER                      

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INTRODUCTORY NOTES

Date of Information

All information in this Annual
Information Form is as at December 31, 2009 unless otherwise indicated.

Cautionary Note Regarding Forward-Looking Statements

This Annual Information Form and
the documents incorporated by reference contain forward-looking statements  or
forward looking information within the meaning of the United States Private
Securities Litigation Reform Act of 1995 and applicable Canadian securities
legislation. Forward-looking statements include, but are not limited to,
statements with respect to the future prices of gold, silver and copper, the
estimation of mineral reserves and resources, the realization of mineral reserve
estimates, the timing and amount of estimated future production, costs of
production, capital expenditures, financing requirements, costs and timing of
the development of new and existing deposits, implementation, timing and success
of drilling and other exploration activities, permitting time lines, the
completion and success of acquisitions, currency exchange rate fluctuations,
requirements for additional capital, government regulation of mining operations,
environmental risks, remediation and reclamation procedures and expenses, title
disputes or claims, and limitations on insurance coverage. Generally, these
forward-looking statements can be identified by the use of forward-looking
terminology including but not limited to the words expects, does not expect,
plans, anticipates, does not anticipate, believes, intends,
estimates, projects, potential, scheduled, forecast, budget and
similar expressions or their negative connotations, or that events or conditions
will, would, may, could, should or might occur. All such
forward-looking statements are subject to important risk factors and
uncertainties, many of which are beyond the ability of New Gold Inc. (the
Company or New Gold) to control or predict. 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 New
Gold's 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; fluctuations in the international currency markets and in the
rates of exchange of the currencies of Canada, the United States, Australia,
Brazil, Mexico and Chile; price volatility in the spot and forward markets for
commodities; impact of any hedging activities, including margin limits and
margin calls; discrepancies between actual and estimated production, between
actual and estimated reserves and resources and between actual and estimated
metallurgical recoveries; changes in national and local government legislation
in Canada, the United States, Australia, Brazil, Mexico and Chile 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 that
New Gold operates in, including, but not limited to, Mexico, where New Gold is
involved with ongoing challenges relating to its environmental impact statement
for Cerro San Pedro Mine; the lack of certainty with respect to the Mexican and
other 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
the Company is or may become a party to, including the third party claim related
to the El Morro transaction with respect to New Gold's exercise of its right of
first refusal on the El Morro copper-gold project in Chile and its partnership
with Goldcorp Inc.; diminishing quantities or grades of reserves; competition;
loss of key employees; additional funding requirements; actual results of
current exploration or reclamation activities; 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. In
addition, there are risks and hazards associated with the business of mineral
exploration, development and mining, including environmental 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 the Risk Factors included in this
Annual Information Form.

Although the Company has
attempted to identify important factors that would cause actual results to
differ materially from those contained in forward-looking statements, there may
be other factors that cause results not to be as anticipated, estimated, or
intended. There can be no assurance that such statements will prove to be
accurate, as actual results and future events could differ materially from those
anticipated in such statements. All of the forward-looking statements contained in this Annual Information
Form and any documents incorporated by reference in this Annual Information Form
are qualified by these cautionary statements. Readers should not place undue
reliance on forward-looking statements. The Company 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.

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Most of the financial information
in this Annual Information Form is taken from the Companys audited consolidated
financial statements for the year ended December 31, 2009. Readers are cautioned
to refer to such financial statements for complete information, as the
information in this Annual Information Form has been selectively drawn from the
financial statements and is not complete.

Cautionary Note to U.S. Readers Concerning Estimates of
Measured, Indicated and Inferred 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 Annual Information Form are
Canadian mining terms as defined in accordance with NI 43-101 under guidelines
set out in the Canadian Institute of Mining, Metallurgy and Petroleum (CIM)
Standards on Mineral Resources and Mineral Reserves adopted by the CIM Council
on December 11, 2005. While the terms Mineral Resource, Measured Mineral
Resource, Indicated Mineral Resource and Inferred Mineral Resource are
recognized and required by Canadian regulations, they are not defined terms
under standards of the United States Securities and Exchange Commission. 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
calculation is made. As such, certain information contained in this Annual
Information Form 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. It cannot be assumed that all or any part of an
Inferred Mineral Resource will ever be upgraded to a higher category. Under
Canadian rules, estimates of Inferred Mineral Resources may not form the basis
of feasibility or other economic studies. Readers are cautioned not to assume
that all or any part of Measured or Indicated Resources will ever be converted
into Mineral Reserves. Readers are also cautioned not to assume that all or any
part of an Inferred Mineral Resource exists, or is economically or legally
mineable. 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.

Total Cash Cost

Total cash cost figures are
calculated in accordance with a standard developed by The Gold Institute, which
was a worldwide association of suppliers of gold and gold products and included
leading North American gold producers. The Gold Institute ceased operations in
2002, but the standard is an accepted standard of reporting cash cost of
production in North America. Adoption of the standard is voluntary and the cost
measures presented may not be comparable to other similarly titled measures of
other companies. The Company reports total cash cost on a sales basis. Total
cash cost includes mine site operating costs such as mining, processing,
administration, royalties and production taxes, realized gains and losses on
fuel contracts, but is exclusive of amortization, reclamation, capital and
exploration costs and net of by-product sales. Total cash cost is then divided
by ounces sold to arrive at the total cash cost per ounce sold. This measure,
along with sales, is considered to be a key indicator of a companys ability to
generate operating earnings and cash flow from its mining operations. This data
is furnished to provide additional information and is a non-GAAP measure as it
does not have any standardized meaning under GAAP. It should not be considered
in isolation as a substitute for measures of performance prepared in accordance
with GAAP and is not necessarily indicative of operating costs presented under
GAAP.1

Currency Presentation and Exchange Rate Information

This Annual Information Form contains
references to United States dollars and Canadian dollars. All dollar amounts referenced, unless otherwise indicated, are
expressed in United States dollars, and Canadian dollars are referred to as
Canadian dollars or C$.

_______________________________1See New Golds
MD&A for a reconciliation of total cash cost to the most recently comparable
GAAP measure.

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The high, low, average and
closing exchange rates for Canadian dollars in terms of the United States dollar
(noon) for each of the three years ended December 31, 2009, 2008 and 2007, as
quoted by the Bank of Canada, were as follows:

|            |  | Year ended December
      31 | 
|----------- |  | ---------------------------- | 
|            |  | 2009                         | 
|High        |  | 1.3000                       | 
|Low         |  | 1.0292                       | 
|Average (1) |  | 1.1420                       | 
|Closing     |  | 1.0510                       | 

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

On March 24, 2010, the noon
exchange rate for Canadian dollars in terms of the United States dollar, as
quoted by the Bank of Canada, was US$1 = C$1.0267 and C$1= US $0.9740.

Gold, Silver and Copper Prices

Gold Prices

The high, low, average and
closing afternoon fixing gold prices per troy ounce for each of the three years
ended December 31, 2009, 2008 and 2007 as quoted by the London Bullion Market
Association, were as follows:

|        |   | Year ended December
      31 | 
|------- | - | ---------------------------- | 
|        |   | 2009                         | 
|High    | $ | 1,212.50                     | 
|Low     |   | 810.00                       | 
|Average |   | 972.35                       | 
|Closing |   | 1,087.50                     | 

On March 24, 2010, the closing
afternoon fixing gold price per troy ounce, as quoted on the London Bullion
Market Association, was $1,090.75.

Silver Prices

The high, low, average and fixing
silver prices per troy ounce for each of the three years ended December 31,
2009, 2008 and 2007, as quoted on the London Bullion Market Association were as
follows:

|        |   | Year ended December
      31 | 
|------- | - | ---------------------------- | 
|        |   | 2009                         | 
|High    | $ | 19.18                        | 
|Low     |   | 10.51                        | 
|Average |   | 14.67                        | 
|Closing |   | 16.9                         | 

On March 24, 2010, the fixing
silver price per troy ounce, as quoted on the London Bullion Market Association,
was $16.68.

Copper Prices

The high, low, average and
closing official cash settlement copper prices per pound for each of the three
years ended December 31, 2009, 2008 and 2007, as quoted on the London Metal
Exchange, were as follows:

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|        |   | Year ended December
      31 | 
|------- | - | ---------------------------- | 
|        |   | 2009                         | 
|High    | $ | 3.333                        | 
|Low     |   | 1.384                        | 
|Average |   | 2.350                        | 
|Closing |   | 3.330                        | 

On March 24, 2010, the closing
official cash settlement copper price per pound, as quoted on the London Metal
Exchange, $3.316.

List of Abbreviations

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

μ
    micronAg
    SilverAu
    Gold°C
    degree Celsius°F
    degree Fahrenheitμg
    microgramcm
    centimetrecm2
    square centimetreCu
    Copperft
    footg
    gramG
    giga (billion)Gwh
    gigawatt-hourhr orh
    hourha
    hectareJ
    jouleK
    kilo (thousand)kg
    kilogramkm
    kilometreL
    litrelb
    poundm
    metreM
    mega (million)mm
    millimetreMW
    megawattMWh
    megawatt-houropt, oz/st
    ounce per short tonoz
    Troy ounce (31.1035g)Pb
    LeadRC
    reverse circulationRL
    relative elevations
    secondst
    short ton (one short ton equals 0.907 metric
      tonnes)stpa
    short ton per yearstpd
    short ton per dayt
    metric tonne (one metric tonne
      equals 1.102 short tons)tpa
    metric tonne per yeartpd
    metric tonne per dayV
    voltW
    wattZn
    Zinc


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CORPORATE STRUCTURE

New Gold was incorporated on
January 31, 1980 under the Company Act (British Columbia) and was
transitioned on May 10, 2005 under the Business Corporations Act (British
Columbia). On May 4, 2005, the shareholders of the Company passed a special
resolution to remove the pre-existing company provisions and to adopt new
articles. On June 1, 2005, the Company changed its name to New Gold Inc.

The head and registered office of
the Company is Suite 3110, 666 Burrard Street, Vancouver, British Columbia V6C
2X8, Canada. The Company also has offices at Suite 3120, 200 Bay Street,
Toronto, Ontario, M5J 2J4, Canada.

The following chart illustrates
the Companys principal subsidiaries (collectively, the Subsidiaries),
together with the governing law of each company and the percentage of voting
securities beneficially owned or over which control or direction is exercised by
the Company, as well as the Companys mineral projects as at the date of this
Annual Information Form.

In this Annual Information Form,
except as otherwise required by the context, reference to New Gold or the
Company means, collectively, New Gold Inc. and the Subsidiaries.



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GENERAL DEVELOPMENT OF THE BUSINESS

Historically, New Gold was a natural resource exploration and
development company engaged in the acquisition, exploration and development of
natural resource properties since 1980. After completing a business combination
with Peak Gold Ltd. (Peak) and Metallica Resources Inc. (Metallica) on June
30, 2008 (the Peak/Metallica Business Combination), and a business combination
with Western Goldfields Inc. (Western Goldfields) on June 1, 2009 (the
Western Goldfields Business Combination), the Company became an intermediate
gold mining company with the following assets:

- 100% interest in the Mesquite Mine in Imperial County, California (the
  Mesquite Mine) (the Mesquite Mine is considered to be a material project to
  New Gold and is described in detail below under the heading Mineral
  Properties  Mesquite Mine, United States).
- 100% interest in the Cerro San Pedro Mine in Mexico (the Cerro San Pedro
  Mine) (the Cerro San Pedro Mine is considered to be a material project to New
  Gold and is described in detail below under the heading Mineral Properties 
  Cerro San Pedro Mine, Mexico).
- 100% interest in the Peak Gold Mines in Australia (the Peak Gold Mines)
  (Peak Gold Mines is considered to be a material project to New Gold and is
  described in detail below under the heading Mineral Properties  Peak Gold
  Mines, Australia).
- 100% interest in the New Afton Project in Kamloops, British Columbia,
  Canada (the New Afton Project) (the New Afton Project is considered to be a
  material project to New Gold and is described in detail below under the
  heading Mineral Properties  New Afton Project, Canada).
- 30% interest in the El Morro Project in Chile (the El Morro Project) (the
  El Morro Project is considered to be a material project to New Gold and is
  described in detail below under the heading Mineral Properties  El Morro
  Project, Chile).
- 100% interest in the Amapari Mine in Brazil (the Amapari Mine).

Pre-Western Goldfields Business Combination

Prior to the Peak/Metallica
Business Combination, the Companys principal focus was the exploration and
development of the New Afton Project.

On June 28, 2007 and July 30,
2007, the Company completed an offering (the Offering) for aggregate gross
proceeds of C$392.3 million.

On June 30, 2008 the Company
completed the Peak/Metallica Business Combination. Under the terms of the
Peak/Metallica Business Combination, the holders of common shares of Peak
received common shares of the Company on the basis of 0.1 of a common share of
the Company, plus nominal cash consideration, for each common share of Peak, and
the holders of common shares of Metallica received common shares of the Company
on the basis of 0.9 of a common share of the Company, plus nominal cash
consideration, for each common share of Metallica. The Company filed a business
acquisition report dated September 12, 2008 relating to the Peak/Metallica
Business Combination and a copy of such report is available under the Companys
profile at www.sedar.com.

On November 12, 2008, New Gold
made the decision to slow development of the New Afton Project due to the
volatility and uncertainty of the capital markets as well as New Golds current
cash position in relation to the funding requirements for the fast track
construction of the New Afton Project. Under the revised development plan,
surface construction was shut down while development of the underground workings
continued at a reduced rate to gain access to the bottom of the ore body. The
revised schedule projected spending of approximately $60.0 million (excluding
interest) in 2009, as compared to the previous fast track schedule which had
spending of $286.0 million (excluding interest) for 2009. Under the original
fast track schedule, operations were to commence in late 2009, accelerating to
achieve full production in the second quarter of 2011. Under the revised
development plan, surface construction to resume in 2010 with anticipated full production
in the second half of 2012.

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New Gold also reviewed the
carrying value of its investment in the Amapari Mine and concluded that there
was an impairment. The evaluation of results from the 2007/2008 drill program
did not add significant amounts of oxide ore that would be economical to process
in the existing heap leach circuit. As a result of the limited mine life for the
oxide ore and unproven economic viability of the identified sulphide resources,
management wrote down its investment in the Amapari Mine by $156.9 million, net
of tax recoveries, to a value of $10.6 million.

In January 2009, the Company
placed the Amapari Mine on temporary care and maintenance due to depletion of
ore suitable for treatment at the existing facilities.

In January 2009, New Gold entered
into agreements with certain note holders that reduced its debt position by C$50
million through the buy-back of a portion of its senior secured notes with a
face value totaling C$50 million for consideration of C$30 million. The purchase
and cancellation of these notes reduced the principal amount outstanding under
New Golds senior secured notes from C$237 million to C$187 million, and will
result in a reduction of C$5 million per year in interest payments.

Western Goldfields Business
Combination

The Western Goldfields Business
Combination was completed on June 1, 2009. Under the terms of the Western
Goldfields Business Combination, the holders of common shares of Western
Goldfields received one common share of New Gold and nominal cash consideration
for each Western Goldfields common share outstanding. Pursuant to the plan of
arrangement, New Gold issued an aggregate of approximately 143 million common
shares of New Gold to the former shareholders of Western Goldfields and
authorized the issuance of an additional 12 million common shares  on the
exercise of the stock options and warrants held by the former security holders
of Western Goldfields. The Company filed a business acquisition report dated
June 30, 2009 relating to the Western Goldfields Business Combination and a copy
of the report is available under the Companys profile at
www.sedar.com.

Post-Western Goldfields Business
Combination

On September 11, 2009, the
Company completed a bought deal public offering (the Bought Deal Offering) of
26,700,000 common shares at a price of C$3.75, and the underwriters, a syndicate
led by BMO Capital Markets and GMP Securities L.P., exercised in full an
over-allotment option to purchase an additional 4,005,000 common shares of the
Company, for aggregate gross proceeds to the Company of approximately C$115
million.

On October 7, 2009, the Company
announced amended  terms of its Mesquite Mine term loan facility with a
syndicate of lenders led by Investec Bank plc and made a prepayment of $15
million under the facility. The prepayment reduced the outstanding principal of
the loan to $45.8 million, with scheduled repayment by June 30, 2012. The
lending syndicate  considered the development of the Mesquite Mine complete
and  released the guarantee provided by Western Goldfields. The remaining
available commitment of $18.6 million, which the Company no longer required, has
been cancelled along with all related costs to the Company. The revised interest
rate was US dollar LIBOR plus 4.25% and New Gold paid an approval fee of
$229,000. Subsequent to December 31, 2009 the facility was fully repaid.

On November 18, 2009, New Gold
was notified that it was to suspend mining operations at its Cerro San Pedro
Mine in Mexico. Following a ruling by the Federal Court of Fiscal and
Administrative Justice, SEMARNAT, the Mexican government's environmental
protection agency nullified the mine's Environmental Impact Statement ("EIS")
which was issued in 2006. PROFEPA, the Mexican environmental enforcement agency,
issued the order requiring the Cerro San Pedro Mine to suspend mining as a
consequence of the nullification of the EIS.

In December 2009, New Gold was
granted an injunction related to the suspension of operations at its Cerro San
Pedro Mine. The court ruling temporarily suspends PROFEPA's order to partially
shutdown operations at the Cerro San Pedro Mine.

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Hearings are ongoing in relation
to appeals against the nullification of the EIS and the related order issued by
PROFEPA. New Gold is working with local and federal government officials to
establish a long-term solution that should result in uninterrupted operation of
the Cerro San Pedro mine.

Subsequent to December 31, 2009,
the Company was scheduled for a hearing in the Fourth District Court in San Luis
Potosi, related to a challenge by opposition to the mine to the annual renewal
of the explosives permit at Cerro San Pedro. Additional blasting at Cerro San
Pedro was suspended while the Company vigorously defended against this
challenge. On March 17, 2010 the Company announced that the restrictions on the
explosives permit had been removed which allowed full operations to resume. This
relates to a ruling by a Federal District Court in San Luis Potosi that
overturned the earlier court order prohibiting the use of explosives at the
mine. Mining recommenced on March 20, 2010. See Legal Proceedings and
Regulatory Actions.

During the fourth quarter of
2009, New Gold sold C$56.3 million of face value asset backed notes (AB Notes)
for cash proceeds of C$31.2 million. During January 2010, the Company further
disposed of C$83.1 million face value of AB Notes for proceeds of C$49.9
million.

On January 7, 2010, New Gold
provided notice to Xstrata Copper Chile S.A. ("Xstrata"), a wholly-owned
subsidiary of Xstrata Plc, of the exercise of its right of first refusal to
acquire 70% of the El Morro copper-gold project in Chile for $463.0 million. New
Gold, as Xstratas then current 30% joint venture partner in El Morro, held a
right of first refusal over Xstratas 70% interest which was triggered on
October 12, 2009 when Barrick Gold Corporation ("Barrick") announced that it had
entered into an agreement with Xstrata to acquire Xstratas interest. On
February 16, 2010, the Company completed the acquisition of Xstratas 70%
interest in the El Morro property. Goldcorp Inc. ("Goldcorp") loaned $463.0
million to New Gold to fund the exercise of the right of first refusal. After
acquisition of the 70% interest by a New Gold subsidiary, New Gold sold that
subsidiary to Goldcorp.

Concurrent with the sale of the
New Gold subsidiary to Goldcorp, the Company received $50.0 million payment  and the parties amended the terms of the existing El Morro Shareholders
Agreement ("the Agreement").

As a result of these transactions
New Gold will continue its participation as a 30% partner in the El Morro
project under the amended Agreement with the following benefits being realized
by the Company:

Original Agreement
    Amended AgreementPayment
    --
    $50
      millionPercentage of New Golds 30% share of
      development capital carried
    70%
    100%Interest charged on carried funding
    Xstrata cost of capital + 1% (approximately
      10%)
    U.S. 7-year Treasury Rate + 1.87% (most
      recently 5.0%)Initiation of construction guarantee
    --
    Within 60 days of receipt of permits and
      approvals (subject to financial penalty of $1.5 million per month
      up to 24 months)


Goldcorp has agreed to fund 100%
of the Companys share of the development and construction capital for the
project, which was estimated in the El Morro feasibility study at approximately
$2.5 billion. Under the former Xstrata carried funding arrangements, the Company
would have been required to fund approximately $225.0 million or 9% of the
project capital prior to completion of the project.

On January 13, 2010, New Gold
received a Statement of Claim filed by Barrick in the Ontario Superior Court of
Justice, against New Gold, Goldcorp and affiliated subsidiaries. The claim
relates to New Golds exercise of its right of first refusal on the El Morro
copper-gold project. New Gold believes the claim is completely without merit and intends to defend this action using all available
legal avenues. See Legal Proceedings and Regulatory Actions.

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On January 27, 2010, the Company
announced the signing of an agreement to sell its Brazilian subsidiary Mineracao
Pedra Branca do Amapari Ltda. ("MPBA"), which holds the Amapari Mine and other
related assets, to Beadell Resources Ltd. ("Beadell") for $63.0 million payable
in cash and Beadell common shares. Beadell
is an Australian listed gold-focused company with exploration and development
assets in Western Australia and Brazil.

The transaction is contingent on
the successful completion of an  equity offering by Beadell, and related
shareholder approvals.

As part of the planned equity
offering, Beadell must obtain shareholder approval by simple majority of 50%
plus one of those votes cast. The shareholder vote took place on March 12, 2010
and shareholder approval was obtained.

DESCRIPTION OF THE BUSINESS

Overview

New Gold is an intermediate gold
producer with a portfolio of global assets in the United States, Mexico,
Australia, Canada, Chile and Brazil. The Companys operating assets consist of
the Mesquite gold mine (Mesquite Mine) in the United States, the Cerro San
Pedro gold-silver mine (Cerro San Pedro Mine) in Mexico, and the Peak
gold-copper mine (Peak Gold Mines) in Australia. Significant development
projects include the New Afton copper-gold project (New Afton) in Canada and a
30% interest in the El Morro copper-gold project (El Morro) in Chile.

New Gold is working towards
maximizing shareholder value through diversified production, maintaining a
reduced risk profile and enhancing growth potential.

In addition to information set
out elsewhere in this Annual Information Form, the following information applies
to each of the Companys reportable operating segments.

Specialized Skill and Knowledge

All aspects of New Golds
business require specialized skills and knowledge. Such skills and knowledge
include the areas of geology, drilling, mine planning, engineering, construction
and accounting. New Gold has found that it can locate and retain employees and
contractors with such skills and knowledge.

Principal Products

The Companys principal products
are gold, silver and copper. There is a worldwide gold, silver and copper market
into which the Company can sell and, as a result, the Company is not dependent
on a particular purchaser with regard to the sale of the gold, silver and copper
which it produces.

Competitive Conditions

The precious and base mineral
exploration and mining business is competitive. The Company competes with
numerous other companies and individuals in the search for and the acquisition
of attractive mineral properties. The ability of the Company to acquire mineral
properties in the future will depend not only on its ability to develop its
present properties, but also on its ability to select and acquire suitable
producing properties or prospects for development or mineral exploration.

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Operations

Raw Materials

The Company has the following mineral
reserves:

- gold at the Mesquite Mine;
- gold and silver at the Cerro San Pedro Mine;
- gold and copper at Peak Gold Mines and the El Morro Project; and
- gold, silver and copper at the New Afton Project.

Employees

As at December 31, 2009, the Company had the following
employees and contractors:

Location
    
    Full-Time
    
    
    ContractorsVancouver Office
    
    19
    
    
    1Toronto Office
    
    10
    
    
    0Denver Office
    
    1
    
    
    0Mesquite Mine
    
    241
    
    
    8Cerro San Pedro Mine
    
    342
    
    
    47Peak Gold Mines
    
    277
    
    
    11New Afton Project
    
    135
    
    
    17El Morro Project
    
    0
    
    
    0Amapari Mine (1)
    
    121
    
    
    401,146
    
    
    124


|(1) | This number represents the total number as of December
      31, 2009. The Company intends to sell the Amapari Mine to Beadell and will
      not have as of the date of completion of the sale any employees associated
      with the Amapari mine. See General Development of the Business 
      Post-Western Goldfields Business Combination.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Foreign Operations

The Company currently owns 100% of the Mesquite Mine in the
United States, 100% of the Cerro San Pedro Mine in Mexico, 100% of Peak Gold
Mines in Australia, 30% of the El Morro Project in Chile, and 100% of the
Amapari Mine in Brazil. Any changes in regulations or shifts in political
attitudes in these foreign jurisdictions are beyond the control of the Company
and may adversely affect its business. Future development and operations may be
affected in varying degrees by such factors as government regulations (or
changes thereto) with respect to the restrictions on production, export
controls, income taxes, expropriation of property, repatriation of profits,
environmental legislation, land use, water use, land claims of local people and
mine safety. The effect of these factors cannot be accurately predicted. See
Risk Factors  Foreign Operations.

Environmental Protection

The Companys mining, exploration
and development activities are subject to various federal, provincial and state
laws and regulations relating to the protection of the environment, including
requirements for closure and reclamation of mining properties.

In all jurisdictions where New
Gold operates, specific statutory and regulatory requirements and standards must
be met throughout the exploration, development and operations stages of a mining
property with regard to air quality, water quality, fisheries and wildlife
protection, solid and hazardous waste management and disposal, noise, land use
and reclamation. Details and qualification of New Gold reclamation and closure
costs obligations are set out in Note 14 of the Companys audited consolidated
financial statements.

- 11 -

---

The financial and operational
effect of environmental protection requirements on the capital expenditures and
earnings of each mineral property are not significantly different than similar
sized mines so do not and will not impact the Companys competitive position in
the current or future financial years.

New Gold has implemented a
health, safety, environmental, and sustainability policy which states that the
Company is committed to excellence in the management of health, safety,
environment and sustainability which it considers a key driver to achieving a
productive and profitable business that contributes to sustainable development
for present and future generations. Resources are focused to achieve shareholder
profitability in all operations while maintaining New Golds commitment to
fostering sustainable communities and to take the views, customs and culture of
the Companys stakeholders into account. All employees are responsible for
incorporating into their planning and work the actions necessary to fulfill this
commitment.

Technical Information

CIM Standards Definitions

The estimated mineral reserves
and mineral resources for the Mesquite Mine, Cerro San Pedro Mine, the New Afton
Project and the El Morro Project have been calculated in accordance with the
Canadian Institute of Mining, Metallurgy and Petroleum (CIM)  Definitions
Adopted by CIM Council on December 11, 2005 (the CIM Standards). The following
definitions are reproduced from the CIM Standards:

The term Qualified
Person means an individual who is an engineer or geoscientist
with at least five years experience in mineral exploration, mine development or
operation or mineral project assessment, or any combination of these; has
experience relevant to the subject matter of the mineral project and the
technical report; and is a member or licensee in good standing of a professional
association.

The term Mineral
Resource is a concentration or occurrence of diamonds, natural, solid,
inorganic or natural fossilized organic material including base and precious
metals, coal, and industrial minerals in or on the Earths crust in such form
and quantity and of such a grade or quality that it has reasonable prospects for
economic extraction. The location, quantity, grade, geological characteristics
and continuity of a Mineral Resource are known, estimated or interpreted from
specific geological evidence and knowledge. Mineral Resources are sub-divided,
in order of increasing geological confidence, into Inferred, Indicated and
Measured categories.

The term Inferred Mineral
Resource is that part of a Mineral Resource for which quantity and
grade or quality can be estimated on the basis of geological evidence and
limited sampling and reasonably assumed, but not verified, geological and grade
continuity. The estimate is based on limited information and sampling gathered
through appropriate techniques from locations such as outcrops, trenches, pits,
workings and drill holes.

The term Indicated Mineral
Resource is that part of a Mineral Resource for which quantity, grade
or quality, densities, shape and physical characteristics can be estimated with
a level of confidence sufficient to allow the appropriate application of
technical and economic parameters, to support mine planning and evaluation of
the economic viability of the deposit. The estimate is based on detailed and
reliable exploration and testing information gathered through appropriate
techniques from locations such as outcrops, trenches, pits, workings and drill
holes that are spaced closely enough for geological and grade continuity to be
reasonably assumed.

The term Measured Mineral
Resource is that part of a Mineral Resource for which quantity, grade
or quality, densities, shape, physical characteristics are so well established
that they can be estimated with confidence sufficient to allow the appropriate
application of technical and economic parameters, to support production planning
and evaluation of the economic viability of the deposit. The estimate is based
on detailed and reliable exploration, sampling and testing information gathered
through appropriate techniques from locations such as outcrops, trenches, pits,
workings and drill holes that are spaced closely enough to confirm both
geological and grade continuity.

The term Mineral
Reserve is the economically mineable part of a Measured or Indicated
Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This
study must include adequate information on mining, processing, metallurgical,
economic and other relevant factors that demonstrate, at the time of reporting,
that economic extraction can be justified. A Mineral Reserve includes diluting
materials and allowances for losses that may occur when the material is mined.

- 12 -

---

The term Probable Mineral
Reserve is the economically mineable part of an Indicated Mineral
Resource and, in some circumstances, a Measured Mineral Resource demonstrated by
at least a Preliminary Feasibility Study. This study must include adequate
information on mining, processing, metallurgical, economic and other relevant
factors that demonstrate, at the time of reporting, that economic extraction can
be justified.

The term Proven Mineral
Reserve is the economically mineable part of a Measured Mineral
Resource demonstrated by at least a Preliminary Feasibility Study. This study
must include adequate information on mining, processing, metallurgical, economic
and other relevant factors that demonstrate, at the time of reporting, that
economic extraction is justified.

JORC Code Definitions

The estimated mineral reserves
and mineral resources for Peak Gold Mines and Amapari Mine have been calculated
in accordance with the current (2004) version of the Australasian Code for
Reporting of Mineral Resources and Ore Reserves (the JORC Code), the
Australian worldwide standards, and were restated in accordance with the
requirements of the Canadian Securities Administrators National Instrument
43-101 Standards of Disclosure for Mineral Projects (NI 43-101) to comply with
CIM Standards. The following definitions are reproduced from the JORC Code:

The term Competent
Person means a person who is a Member or Fellow of the
Australasian Institute of Mining and Metallurgy, or the Australian Institute of
Geoscientists, or of a Recognised Overseas Professional Organisation included
in a list promulgated from time to time. A Competent Person must have a minimum
of five years experience which is relevant to the style of mineralization and
type of deposit under consideration and to the activity which that person is
undertaking. For example, if the Competent Person is preparing a report on
exploration results, the relevant experience must be in exploration. If the
Competent Person is estimating, or supervising the estimation of mineral
resources, the relevant experience must be in the estimation, assessment and
evaluation of mineral resources. If the Competent person is estimating, or
supervising the estimation of ore reserves, the relevant experience must be in
the estimation, assessment, evaluation and economic extraction of ore
reserves.

The term Mineral
Resource means a concentration or occurrence of material of intrinsic
economic interest in or on the Earths crust in such form and quantity that
there are reasonable prospects for eventual economic extraction. The location,
quantity, grade, geological characteristics and continuity of a Mineral Resource
are known, estimated or interpreted from specific geological evidence and
knowledge. Mineral Resources are subdivided, in order of increasing geological
confidence, into Inferred, Indicated and Measured categories.

The term Inferred Mineral
Resource means that part of a Mineral Resource for which tonnage, grade
and mineral content can be estimated with a low level of confidence. It is
inferred from geological evidence and assumed but not verified geological and/or
grade continuity. It is based on information gathered through appropriate
techniques from locations such as outcrops, trenches, pits, workings and drill
holes which may be limited or of uncertain quality and reliability.

The term Indicated Mineral
Resource means that part of a Mineral Resource for which tonnage,
densities, shape, physical characteristics, grade and mineral content can be
estimated with a reasonable level of confidence. It is based on exploration,
sampling and testing information gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill holes. The
locations are too widely or inappropriately spaced to confirm geological and/or
grade continuity but are spaced closely enough for continuity to be assumed.

The term Measured Mineral
Resource means that part of a Mineral Resource for which tonnage,
densities, shape, physical characteristics, grade and mineral content can be
estimated with a high level of confidence. It is based on detailed and reliable
exploration, sampling and testing information gathered through appropriate
techniques from locations such as outcrops, trenches, pits, workings and drill
holes. The locations are spaced closely enough to confirm geological and/or
grade continuity.

The term Ore
Reserve means the economically mineable part of a Measured or Indicated
Mineral Resource. It includes diluting materials and allowances for losses which
may occur when the material is mined. Appropriate assessments, which may include
feasibility studies, have been carried out, and include consideration of and modification by realistically assumed mining,
metallurgical, economic, marketing, legal, environmental, social and
governmental factors. These assessments demonstrate at the time of reporting
that extraction could reasonably be justified. Ore Reserves are sub-divided in
order of increasing confidence into Probable Ore Reserves and Proved Ore
Reserves.

- 13 -

---

The term Probable Ore
Reserve means the economically mineable part of an Indicated, and in
some circumstances Measured, Mineral Resource. It includes diluting materials
and allowances for losses which may occur when the material is mined.
Appropriate assessments, which may include feasibility studies, have been
carried out, and include consideration of and modification by realistically
assumed mining, metallurgical, economic, marketing, legal, environmental, social
and governmental factors. These assessments demonstrate at the time of reporting
that extraction could reasonably be justified.

The term Proved Ore
Reserve means the economically mineable part of a Measured Mineral
Resource. It includes diluting materials and allowances for losses which may
occur when the material is mined. Appropriate assessments, which may include
feasibility studies, have been carried out, and include consideration of and
modification by realistically assumed mining, metallurgical, economic,
marketing, legal, environmental, social and governmental factors. These
assessments demonstrate at the time of reporting that extraction could
reasonably be justified.

The above definitions of Ore
Reserves and Mineral Resources as contained in the JORC Code have been
reconciled to the definitions contained in the CIM Standards. If the Ore
Reserves and Mineral Resources for Peak Gold Mines and Amapari were estimated in
accordance with the definitions in the CIM Standards, there would be no
substantive difference in such Ore Reserves and Mineral Resources.

Summary of Mineral Reserve and Mineral Resource
Estimates

On January 25, 2010, the Company
reported consolidated mineral reserve and resource statements for its mines and
development projects as of December 31, 2009. A consolidated summary of total
gold, silver and copper contained within New Golds global mineral reserves and
resources is set out in the table below.

New Gold Mineral Reserves & Resources Summary as of
December 31, 2009

|                  |  | Contained Metals | 
|----------------- |  | ---------------- | 
|                  |  | Gold             | 
|                  |  | K
      oz       | 
|Mineral Reserves  |  |                  | 
|Proven            |  | 3,463            | 
|Probable          |  | 4,716            | 
|Total
      P&P   |  | 8,179            | 
|                  |  |                  | 
|Mineral Resources |  |                  | 
|Measured          |  | 5,694            | 
|Indicated         |  | 7,841            | 
|Total M&I         |  | 13,536           | 
|                  |  |                  | 
|Inferred          |  | 6,817            | 

Notes to the mineral reserve and resource statements are
provided in a separate table on page 17 of this Annual Information Form.

- 14 -

---

Mineral Reserves

Updated mineral reserve statements are
presented in the table below.

Mineral Reserve Statement  as of December 31,
2009(Reported in Metric units)

|                                                                                                                    |  | Metal Grade |  |  | Contained Metal | 
|------------------------------------------------------------------------------------------------------------------- |  | ----------- |  |  | --------------- | 
|                                                                                                                    |  | Tonnes      |  |  | Gold            | 
|                                                                                                                    |  | 000s       |  |  | g/t             | 
|Mesquite(1)(2)(6)                                                                                                   |  |             |  |  |                 | 
|Proven                                                                                                              |  | 73,522      |  |  | 0.60            | 
|Probable                                                                                                            |  | 93,287      |  |  | 0.58            | 
|Mesquite
      P&P                                                                                                  |  | 166,809     |  |  | 0.58            | 
|Cerro San Pedro
      Mine(1)(2)(6)                                                                                 |  |             |  |  |                 | 
|Proven                                                                                                              |  | 42,709      |  |  | 0.61            | 
|Probable                                                                                                            |  | 35,452      |  |  | 0.50            | 
|CSP P&P                                                                                                             |  | 78,161      |  |  | 0.56            | 
|Peak Gold Mines(1)(2)(6)                                                                                            |  |             |  |  |                 | 
|Proven                                                                                                              |  | 1,212       |  |  | 3.92            | 
|Probable                                                                                                            |  | 2,598       |  |  | 5.00            | 
|Peak P&P                                                                                                            |  | 3,810       |  |  | 4.7             | 
|New Afton(1)(2)(6)                                                                                                  |  |             |  |  |                 | 
|Proven                                                                                                              |  | -           |  |  | -               | 
|Probable                                                                                                            |  | 47,400      |  |  | 0.69            | 
|New Afton
      P&P                                                                                                 |  | 47,400      |  |  | 0.69            | 
|El Morro(1)(5)(6)                                                                                                   |  | 100% Basis  |  |  | 30% Basis       | 
|Proven                                                                                                              |  | 208,473     |  |  | 0.53            | 
|Probable                                                                                                            |  | 241,761     |  |  | 0.41            | 
|El Morro P&P                                                                                                        |  | 450,234     |  |  | 0.46            | 
|Notes to the mineral reserve statement are provided in a
separate table on page 17 of this Annual Information Form.



- 15 -

---

Mineral Resources

Updated mineral resource
statements for the Mesquite Mine, Cerro San Pedro Mine, Peak Gold Mines, New
Afton Project and El Morro Project and the Amapari Mine, inclusive of mineral
reserves, as of December 31, 2009, are presented in the tables below. The
qualified persons as defined by NI 43-101 in connection with the Mineral Reserve
and Mineral Resource estimates for the Companys mineral properties are in
Interests of Experts.

Measured and Indicated Mineral Resource Statement (Inclusive
of Reserves) as of December 31, 2009(Reported in Metric
units)

|                                                                                                                     |  | Metal Grade |           |  | Contained Metal | 
|-------------------------------------------------------------------------------------------------------------------- |  | ----------- | --------- |  | --------------- | 
|                                                                                                                     |  | Tonnes      |           |  | Gold            | 
|                                                                                                                     |  | 000s       |           |  | g/t             | 
|Mesquite(3)(6)                                                                                                       |  |             |           |  |                 | 
|Measured                                                                                                             |  | 111,576     |           |  | 0.52            | 
|Indicated                                                                                                            |  | 185,363     |           |  | 0.50            | 
|Mesquite
      M&I                                                                                                   |  | 296,939     |           |  | 0.51            | 
|Cerro San Pedro Mine(3)(4)(6)                                                                                        |  |             |           |  |                 | 
|Measured (oxide)                                                                                                     |  | 48,254      |           |  | 0.52            | 
|Indicated (oxide)                                                                                                    |  | 43,861      |           |  | 0.39            | 
|CSP M&I (oxide)                                                                                                      |  | 92,115      |           |  | 0.46            | 
|Measured (sulphide)                                                                                                  |  | 18,739      |           |  | 0.53            | 
|Indicated (sulphide)                                                                                                 |  | 42,307      |           |  | 0.42            | 
|CSP M&I (sulphide)                                                                                                   |  | 61,046      |           |  | 0.46            | 
|Peak Gold Mines (3)(6)                                                                                               |  |             |           |  |                 | 
|Measured                                                                                                             |  | 2,453       |           |  | 3.70            | 
|Indicated                                                                                                            |  | 3,614       |           |  | 4.80            | 
|Peak
      M&I                                                                                                       |  | 6,067       |           |  | 4.36            | 
|New Afton(3)(6)                                                                                                      |  |             |           |  |                 | 
|Measured                                                                                                             |  | 35,100      |           |  | 0.91            | 
|Indicated                                                                                                            |  | 29,900      |           |  | 0.67            | 
|New Afton M&I                                                                                                        |  | 65,000      |           |  | 0.80            | 
|El Morro(3)(5)(6)                                                                                                    |  | 100% Basis  | 30% Basis
|Measured                                                                                                             |  | 211,164     |           |  | 0.54            | 
|Indicated                                                                                                            |  | 347,242     |           |  | 0.46            | 
|El Morro M&I                                                                                                         |  | 558,406     |           |  | 0.49            | 
|Amapari(3)(6)                                                                                                        |  |             |           |  |                 | 
|Measured                                                                                                             |  | 8,949       |           |  | 1.00            | 
|Indicated                                                                                                            |  | 17,948      |           |  | 1.65            | 
|Amapari
      M&I                                                                                                    |  | 26,987      |           |  | 1.43            | 
|Notes to the mineral resource statement are provided in a
separate table on page 17 of this Annual Information Form.



- 16 -

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Inferred Mineral Resource Statement as of December 31,
2009(1)(Reported in Metric units)

|                                                                                                                              | Metal Grade | Contained Metal
|----------------------------------------------------------------------------------------------------------------------------- | ----------- | ---------------
|                                                                                                                              | Tonnes      | Gold           
|                                                                                                                              | 000s       | g/t            
|Mesquite                                                                                                                      | 22,804      | 0.49           
|Cerro San Pedro                                                                                                               |             |                
|Inside Mineral Resource
      Pit                                                                                             |             |                
|Oxides                                                                                                                        | 17,931      | 0.29           
|Sulphides                                                                                                                     | 20,964      | 0.33           
|                                                                                                                              |             |                
|Outside Mineral Resource
      Pit                                                                                            |             |                
|Oxides                                                                                                                        | 86,107      | 0.27           
|Sulphides                                                                                                                     | 210,669     | 0.43           
|                                                                                                                              |             |                
|Manto Sulphides                                                                                                               | 4,470       | 1.98           
|Peak
      Gold Mines                                                                                                         | 1,999       | 4.70           
|New Afton Project                                                                                                             | 25,200      | 0.54           
|El Morro Project                                                                                                              | 100% Basis  | 30% Basis      
|                                                                                                                              | 62,335      | 0.18           
|Amapari                                                                                                                       | 17,449      | 2.20           
|Notes to inferred resource statement are
      provided in a separate table on page 17 of this Annual Information
      Form.

Notes to Mineral Reserve & Resource Statements

|1) | Mineral reserves are contained within measured and
      indicated mineral resources. Measured and indicated mineral resources that
      are not mineral reserves do not have demonstrated economic viability.
      Inferred mineral resources are not known with the same degree of certainty
      as measured and indicated resources, do not have demonstrated economic
      viability, and are exclusive of mineral reserves.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|2) | Mineral reserves for the Companys mining operations and
      development projects have been calculated based on the following metal
      prices and lower cut-off criteria:                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                      | Gold   | Silver | Copper |                                
|--------------------- | ------ | ------ | ------ | -------------------------------
|Mineral Property      | US$/oz | US$/oz | US$/lb | **Lower cutoff**               
|                      |        |        |        | 0.21 g/t Au  Oxide reserves   
|Mesquite              | $800   | -      | -      | 0.41 g/t Au  Sulphide reserves
|Cerro San
      Pedro | $800   | $12.00 | -      | US$2.58/t NSR                  
|Peak Gold
      Mines | $800   | $12.00 | $2.00  | AU$118 - 152/t NSR             
|New Afton             | $800   | $12.00 | $2.00  | C$19/t NSR                     
|El Morro              | $500   | -      | $1.25  | 0.30% CuEq                     

|   |                                                                                                                                                                                                                                  
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | Mineral reserves have been estimated and reported in
      accordance with the standards of the Canadian Institute of Mining,
      Metallurgy and Petroleum and National Instrument 43-101, or the AusIMM
      JORC equivalent.
|   |                                                                                                                                                                                                                                  
|3) | Mineral resources for the Companys mining operations and
      development projects have been calculated based on the following metal
      prices and lower cut-off criteria:                                                  
|   |                                                                                                                                                                                                                                  

|                      | Gold   | Silver | Copper | Zinc   | Lead   |                                          
|--------------------- | ------ | ------ | ------ | ------ | ------ | -----------------------------------------
|Mineral Property      | US$/oz | US$/oz | US$/lb | US$/lb | US$/lb | **Lower cutoff**                         
|                      |        |        |        |        |        | 0.09 g/t Au  Oxide resources            
|Mesquite              | $900   | -      | -      | -      | -      | 0.19 g/t Au - Sulphide resources         
|                      |        |        |        |        |        | 0.1 g/t Au  Oxide resources             
|Cerro San Pedro       | $900   | $15.00 | -      | $1.00  | $0.75  | 0.4 g/t AuEq  Sulphide resources        
|                      |        |        |        |        |        | 2.5 g/t AuEq  High grade manto resources
|Peak Gold
      Mines | $800   | $12.00 | $2.00  | $0.80  | $0.60  | A$95/t NSR                               
|New Afton             | $900   | $15.00 | $2.00  | -      | -      | 0.4% CuEq  All resources                

|El Morro | $500 | - | $1.25 | - | - | 0.3% CuEq  All resources            
|-------- | ---- | - | ----- | - | - | -------------------------------------
|Amapari  | $900 | - | -     | - | - | 0.5  0.7 g/t Au  Open pit resources
|         |      |   |       |   |   | 1.4 g/t Au  Underground resources   

- 17 -

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Notes to Mineral Reserve & Resource Statements

|   | Mineral resources have been estimated and reported in
      accordance with the standards of the Canadian Institute of Mining,
      Metallurgy and Petroleum and National Instrument 43-101, or the AusIMM
      JORC equivalent.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4) | Cerro San Pedro mineral resources include measured,
      indicated and a portion of inferred resources that are contained within a
      Mineral Resource Pit based on metal prices of $900/oz gold, $15.00/oz
      silver, $1.00/lb zinc and $0.75/lb lead at lower cut-offs of 0.1 g/t Au
      for oxide mineralization and 0.4 g/t AuEq for sulphide mineralization.
      Inferred resources also include potentially economic mineralization
      extending outside the limits of the Mineral Resource Pit which is
      delimited by lower cut-off grade shells of 0.1 g/t Au for oxide
      mineralization and 0.4 g/t AuEq for sulphide mineralization.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|5) | El Morro mineral reserve and resources tonnes and grade
      are reported on a 100% basis; contained metals are reported on a 30% basis
      to reflect New Golds 30% ownership interest in the project.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | El Morro mineral reserves and resources have been
      reported based on a lower grade cut-off of 0.3% copper-equivalent (EqCu)
      where:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | EqCu(%) = Cu(%) + 0.592 x Au (g/t) and Cu(%) = percent
      copper, Au(g/t) = grams per tonne gold, and 0.592 represents a constant
      based on metal prices of $1.25/lb copper and $500/oz gold and average
      metal recoveries for the deposit.                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|6) | Numbers may not add due to
rounding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

MINERAL PROPERTIES

Mesquite Mine, United States

Except as otherwise stated, the
following disclosure relating to the Mesquite Mine is based on information
derived from the technical report entitled Technical Report on the Mesquite
Mine, Brawley, California, U.S.A., dated February 26, 2010 (the Mesquite
Report). The Mesquite Report was prepared by Richard J. Lambert, P.E., Wayne W.
Valliant, P. Geo., and Holger Krutzelmann, P.Eng., all of Scott Wilson RPA.

The following description of the
Mesquite Mine has been summarized from the Mesquite Report and readers should
consult the Mesquite Report to obtain further particulars about the Mesquite
Mine. The Mesquite Report is available for review on the SEDAR website located
at www.sedar.com under the Companys profile.

Project Description and Location

The Mesquite Mine is located in
Imperial County, in southern California, approximately 24 miles north of the
border with Mexico and 16 miles west of the border with the State of Arizona.
The Company became the owner of the Mesquite Mine following the Western
Goldfields Business Combination, and the mine is operated by the Companys
wholly-owned subsidiary, Western Mesquite Mines, Inc. (WMMI).

The mineral rights at the
Mesquite Mine consist of 213 unpatented and 53 patented mining lode claims, 127
patented and 97 unpatented mill site claims, 658 acres of California state
leased land, and 315 acres of fee lands that cover a total area of approximately
5,200 acres. The claims located on federally owned lands are administered by the
Bureau of Land Management. Patented mining lode claims and patented mill site
claims on U.S. federal land represent a secure title to the land. Unpatented
mining and mill site claims do not have a termination date as long as annual
assessment work is maintained and the land is held for mining purposes. The
federal fee land is leased by WMMI and can also be maintained indefinitely as
long as the annual maintenance fees are paid.

All of the claims have certain
restrictions in common, including applicable land use restrictions of the
California Desert Conservation Areas, any multiple-use rights of third parties
as provided for in the applicable federal laws and regulations, and reservations
to the United States for right of way for ditches or canals constructed by the
federal government. Some of the unpatented claims may have small areas that
encroach on the Chocolate Mountain Gunnery Range. Any portions of the claims
that are located inside the gunnery range are invalid, but do not affect any
known potential mining areas.

In November 2003, Western Goldfields acquired the Mesquite Mine
from Newmont Mining Corporation (Newmont) for consideration of a transfer of Western
Goldfields common stock and warrants and the assumption by Western Goldfields of
the environmental reclamation and closure liability at the Mesquite Mine. Under
the terms of the asset purchase agreement governing the acquisition, previously
mined material and any newly mined material will be subject to production
royalties ranging from 2% to 6.8% depending on the location.  Newmonts 2% net
smelter royalty on newly mined ore from the project was transferred to
Franco-Nevada Corporation in 2007. The majority of the tons planned for future
mining at Mesquite will be subject only to this 2% royalty held by
Franco-Nevada.

- 18 -

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In 1993, Hospah Coal Company
(Hospah), a subsidiary of Newmont, entered into a Mineral Lease and Landfill
Agreement (the Landfill Agreement) with Hanson Resource Company (now the Los
Angeles County Sanitation District (LACSD)). WMMI assumed the rights of Hospah
under this agreement when the Mesquite operation was acquired by Western
Goldfields in November 2003. LACSD has constructed a landfill facility adjacent
to and overlying portions of the existing Mesquite Mine property. The landfill
project will be located on private land owned by LACSD.

The landfill is expected to have
an operational life of 100 years with a receiving capacity of 20,000 tons of
landfill material per day. As part of the landfill project, LACSD plans to
construct a future rail spur from the main rail line at Brawley to the site for
delivery of containerized waste from their facilities in the Los Angeles
area.

Under the Landfill Agreement,
WMMI retains the right to explore, mine, extract, process, market and sell ore,
and otherwise conduct mining and processing activities, anywhere within the
Mesquite property for an initial period through 2024 with automatic extensions
until 2078. LACSD has the right to utilize portions of the overburden stockpiles
and spent ore from the leach pads for use as daily cover for the landfill as
well as for construction materials for general purposes as well as liner design.
Although this resource will be jointly used by both LACSD and WMMI, WMMI will
have priority. WMMI remains responsible for the reclamation and environmental
obligations for materials mined and processed from previous or future mining
activities according to the existing permit requirements. If LACSD requires
additional treatment, relocation, or additional processing of stockpiled or
rinsed heap materials, the Landfill Agreement stipulates that WMMI will be
compensated for any additional costs incurred.

The Mesquite Mine operates under
a variety of permits issued by local, State, and Federal agencies. Operating
permits exist for full operation.

Access, Climate, Local Resources, Infrastructure and
Physiography

Access to the Mesquite Mine is
from California State Highway 78 and then north along a paved private road into
the Mesquite site. Accommodations, supplies, labour, and mining suppliers and
contractors are available in either the town of Brawley, California, 35 miles to
the west of the mine, or the city of Yuma, Arizona, 52 miles southeast.

The climate for Mesquite is arid,
with high temperatures in the summer generally in the 100-110°F range and winter
highs generally in the 70-80°F range. Winter temperatures are rarely below 32°F,
and the average annual temperature is 73°F. Precipitation can occur throughout
the year, but is most common during the late summer months or during the winter
months of January through March. Precipitation at the property totals less than
three inches per year.

The Landfill Agreement provides
for joint use of certain assets associated with the Mesquite Property for the
mutual benefit of WMMI and LACSD. Water is delivered to the property by WMMI
from the existing Vista well field located southeast of the mine. The two
current active water wells are deemed capable of supplying the water requirements of the mine and the landfill. The two
existing pumping systems are capable of supplying 2,000 gpm of fresh water to
the operation. The mine will require about 1,000 gpm and the landfill a maximum
of 700 gpm when operating at full capacity. The water wells and associated
pipeline will be operated and maintained by WMMI and water will be provided to
LACSD with the costs shared based on proportional usage.

- 19 -

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Electricity for the mine is
provided through a 92 kV power line and is supplied by Imperial Irrigation
District Power Company. The major facilities associated with the Mesquite Mine
are the physical plant site, including heap leach pads, process plant,
workshops, warehouses, administration buildings and dry facilities, and mine
infrastructure, including open pits, ramps, maintenance shops, and mobile
equipment fleet.

The Mesquite Mine is located a
few miles to the southwest of the Chocolate Mountains, at an elevation of
between 600 to 1,000 ft above sea level. The property is on an alluvial fan that
slopes gently from the northeast to the southwest. The vegetation consists of
sparse desert vegetation with creosote bush, brittle brush, barrel cactus and
cholla cactus present.

History

Gold was first discovered at
Mesquite by track crews building the Southern Pacific railroad around 1876. The
first strike and claims in the area were staked at this time by Felisaro Parro.
During the 1920s and 1930s, small-scale subsistence placer mining was conducted
in the district by jobless men searching for gold in the Chocolate Mountains and
surrounding foothills. Larger placer and lode mining was reported in the area
from 1937 through to the mid-1970s.

Commercial gold production at
Mesquite started in March 1986 as a heap leach gold operation by Gold Fields
Mining Corporation (Gold Fields). In 1993, Santa Fe Pacific Gold Corporation
(Santa Fe) acquired the Mesquite Mine from Gold Fields. In May 1997, Santa Fe
was acquired by Newmont. Newmont mined the deposit through May 2001 when there
was a slope failure in the Big Chief pit and the existing reserves at a $300/oz
gold price were deemed to be uneconomic. Gold recovery from the Mesquite heap
continued through to 2007.

A total of 154 million tons of
material grading 0.026 oz/ton Au had been placed on the leach pads when mining
operations stopped in 2001. Approximately 3.05 million ounces of gold were
recovered between 1985 and 2007 with a calculated average gold recovery of 76.5%
prior to the restart of operations in late 2007.

Western Goldfields acquired the
Mesquite Mine from Newmont in November 2003 and completed a feasibility study in
2006. The Mesquite Mine received regulatory approval to begin mining operations
on July 2, 2007, after the issuance of the Air Quality permit from the Imperial
County Air Pollution Control District. Commercial production began in January
2008, and the mine sold 144,000 ounces of gold in calendar year 2009.

Geological Setting

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

The Mesquite Mine comprises two
subparallel, Oligocene-age orebodies: Big Chief  Vista (Big Chief, Cholla, and
Lena, Rubble Ridge, Panhandle, and Vista), and Rainbow (Cherokee, Rainbow, and
East Rainbow). Gold mineralization is hosted in Mesozoic gneisses that are
intruded by biotite/muscovite rich granites. The district is covered by a thin
veneer (0-300 ft) of Tertiary and Quaternary sediments, shed from the south
slope of the Chocolate Mountains. Gold mineralization is bound by post-mineral
faulting related to the Neogene San Andreas fault system.

Historical Exploration

The first gold production at the
Mesquite project dates to the late 1800s and early 1900s when placer gold was
recovered on a small scale. After World War II, small-scale subsistence mining
continued. At times, hundreds of people worked the mines or prospected in the area.
Exploration during the 1970s included work by Placer-Amax, Conoco, Glamis Gold
Corporation (Glamis), Newmont, and Gold Fields. Exploration sampling,
trenching, and drilling identified a number of gold bearing zones.

- 20 -

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In 1980, Gold Fields acquired the
property and conducted exploration, initiating a thorough exploration program
that included surface sampling and geophysics. In September 1981, Gold Fields
drilled twelve rotary drill holes, ten of which encountered significant
mineralization within 200 ft of the surface. In 1982, Gold Fields drilled the
Big Chief deposit on a 141 ft fence line, with holes spaced 141 ft apart along
the fence line. This campaign employed 5-1/4 inch RC holes above the water table
(approximately 200 ft) and 3-1/16 inch core holes below the water table. By
September 1982, 350 exploration holes had been drilled. By September 1983, a
total of 868 holes were completed totalling 284,439 ft of drilling. About half
of the holes in the present database were completed by mid-year 1988 (3,200
holes and 1.3 million ft). Gold Fields, Santa Fe, and Newmont continued to drill
on the Mesquite property by mostly RC drilling as they mined the deposits,
although Gold Fields completed most of the drilling on the property. By 1993,
over 5,000 holes had been completed by Gold Fields totalling 2.4 million ft.

In late 1982, sinking of a
decline began, with the objective of improving the confidence in the drill
results of the Big Chief deposit. A total of 2,390 ft of underground decline
development (586 rounds) near the centre of the deposit was completed in 1983.
The decline was driven to provide material for pilot heap leach tests and to
allow detailed geologic mapping and bulk sampling of the deposit. Each round
from the decline was bulk sampled and a comparison with drill sampling was
noted. A total of 50 model blocks were estimated from the decline data and
compared to the same blocks estimated from drill holes drilled along the path of
the decline on 20 ft intervals. The average grade of the two estimates compared
closely, although the grade estimates of individual blocks did not correlate
well.

Gold Fields, Santa Fe, and
Newmont continued to drill and develop the Big Chief, Vista, Cherokee, Rainbow,
Lena, and Gold Bug deposits on the property. The initial grid at Big Chief was
reduced to 70 ft with infill drilling along the 141 ft space fence lines. The
Vista deposit was initially drilled on 140 ft sections, with drill holes spaced
70 ft apart on the sections. The other deposits were drilled initially on 200 ft
to 400 ft grids, with infill drilling generally completed on 100 ft spacing.

Mineralization

The gold mineralization at
Mesquite was deposited in an epithermal setting, within 500 ft to 1,000 ft of
the surface. The majority of the economically attractive mineralization is found
in the biotite gneiss and hornblende-biotite gneiss, while the mafic gneiss and
intrusive rocks are generally less mineralized. Gold mineralization is found
both disseminated and vein hosted within these units. The majority of the
veining is controlled by faults and fault junctions which have moderate to steep
dips. The gold mineralization dominantly occurs in two types: pods of
mineralization that are limited in lateral and vertical extent at fault
intersections, and trends of mineralization along faults.

Gold occurs at Mesquite as both
submicron disseminated and coarse gold. All documented gold occurrences are
native gold, and classification has been based on silver content and grain size.
A silver-free native gold is the most common type in the oxidized zone. It
occurs in particles less than five microns, although clusters up to 100 μ are
common in fault zones. Gold grains are subhedral to anhedral in shape, with
anhedral morphology predominating. In general, the grains are characterized by
irregular, ragged boundaries and equant to elongate shape. Gold within the oxide
portion of the deposit is commonly associated with goethite pseudomorphs after
pyrite and mica minerals. Later stage gold, less than five microns, is found
along the cleavages of the micas.

A second type of gold is the
silver-bearing (5% to 20%) coarse (10 μ to 600 μ) gold. Its average size is 30 μ
to 50 μ and it is typically found in the unoxidized zone, and only occasionally
in the oxidized zone. Grains have octahedral morphology, with cuspate to sharp
boundaries. Gold specimens are usually bright yellow electrum, with minor
inclusions of galena and pyrite. Silver-bearing gold is associated with
quartz-adularia pyrite veins containing arsenopyrite, magnetite, and
chalcopyrite.

Visible gold has been identified
throughout Mesquite. Small flakes, less than 50 μ, of free flour gold have
been found within the oxidized gouge and clay fault zones. The flour gold is
thought to be a result of remobilization during oxidation and is supergene in
nature. Gold is typically associated with titanium oxides (rutile) and hematite.

- 21 -

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These zones are limited in extent (one inch to three feet wide,
with three feet to 50 ft of strike length), but can be extremely high grade.
Selective sampling indicates typical gold values of 1.0 oz/ton to 2.0 oz/ton Au,
with a high of 35.9 oz/ton Au recorded in Big Chief. Coarse-grained hypogene
gold has also been noted with more frequency and larger size in the unoxidized
portion of the deposits. Recent test work on non-oxidized ore indicates that 65%
to 78% of the gold is liberated free milling gold, 13% is associated with
refractory sulphide minerals, and the remainder is associated with iron oxides
and carbonates. Grain size ranges from 10 μ to 600 μ, with no textural
indications of remobilization. Coarse gold generally occurs as electrum within
quartz veins (occluded and void fill), while the refractory portion is found
within overgrowth rims of arsenopyrite, chalcopyrite, and pyrite.

Drilling

The Mesquite Mine database
comprises 2.7 million ft of drilling in 6,221 drill holes, most of which are
reverse circulation ("RC")
holes. A total of 103 holes in the database were diamond drill holes. During the
early development of the property, 128 of the RC drill holes were deepened by
diamond drilling below the water table. A total of 13 PQ core holes that were
drilled for metallurgical testing were not found in the current drill hole
database. Most of the drill holes were vertical holes and have not been downhole
surveyed. In general, the disseminated mineralization appears to be flat-lying
or with a moderate 16o southwest dip. The vertical drilling provides an
appropriate measure of the true mineralization thickness.

Gold Fields drilled two pairs of
twin RC/diamond drill holes during the preproduction exploration. They concluded
that the assays showed the same overall distribution of gold grades although
with high local variation. The correlation coefficient for the paired composites
is 55%; the mean value of the core composites (20 ft) was 0.028 oz/ton Au; and
the mean of the RC composites (also 20 ft) was 0.027 oz/ton Au. The coefficient
of variation was 1.3 for the core composites and 0.9 for the RC composites.

Previously, a number of the
vertical diamond drill holes had been drilled within 25 ft of vertical RC drill
holes. These were compared with 32 core holes with nearby RC drill holes
representing approximately 10,000 ft of compared data. This comparison showed
significant differences between some of the holes, indicating that the RC assays
tend to return higher assays than comparable core assays. Subsequently, it was
concluded that though it was possible there was a bias in the RC samples,
resource modelling methods employed at the property, particularly capping of
high grade assays to get models to conform to production results, must have
compensated for this bias. This is supported by the performance of the resource
models to the actual mined tonnage.

Sampling and Analysis

Reverse Circulation Sampling

Gold Fields initial sampling on
the  RC drilling was completed using two field samplers
to collect and quarter each 2.5 ft drill interval from a Jones riffle located
beneath the drill cyclone. The succeeding 2.5 ft interval split was combined to
produce a quarter split of the five-foot interval. This sample generally weighed
25 lb to 30 lb. This sample was placed in bags and trucked to Yuma, Arizona, to
the Gold Fields in-house sample preparation facility. The samples were dried in
Yuma prior to processing. Details of Santa Fe and Newmont sampling methods have
not been documented.

Diamond Drill Core Sampling

The whole core was transported to
Gold Fields in-house sample preparation facility in Yuma, Arizona. The whole
core was reduced, with the primary size reduction done with a jaw crusher
followed by secondary crushing with a rolls crusher. After crushing, the sample
preparation was similar to RC drilling.

Blasthole Drilling

In addition to the drilling data,
over 650,000 blasthole samples were taken during mine operations from 1985 to
2001. Blastholes were drilled on 19 ft to 24 ft spacing on each bench to define
the ore and waste boundaries while mining. The blasthole samples were collected
by the blasthole driller using a through-the-deck rocket sampler, and assayed
at the mine laboratory using methyl-isobutylketone gold dissolution and atomic
absorption assaying.

- 22 -

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The assay information for most of
these data is available in a database. Historically, the blasthole database has
been used to reconcile the various resource models developed for the property.
This means that, on a continuous basis, a key step in the development of
resource models was the comparison of how the modelling techniques performed
compared to these historic data. Historic data was also used to reconcile the
model on which the current mineral resource estimate is based.

In the opinion of Scott Wilson
RPA, the sampling method and approach are appropriate for mineral resource
estimation. Although the data are historic and details of the Santa Fe and
Newmont sampling methods have not been documented, the mineral resource
estimates vs. actual production reconciliation has been reasonable and therefore
minimizes these issues.

Sample Preparation, Analyses and Security

The samples were collected,
split, and placed in sealed bags at the drill site and transported to the
Mesquite Mine exploration sample preparation facilities located in Yuma,
Arizona, by company employees. The sample pulps were prepared in Yuma and were
shipped to assay laboratories. Most of the samples were shipped to Gold Fields
assay laboratory facilities in Lakewood, Colorado. Although the procedure used
by Santa Fe or Newmont has not been formally documented, the only probable
change to sampling protocol was that the Yuma office was closed during this
time, resulting in sample preparation work being done at the mine site.

Reverse circulation drill
samples, core samples, and bulk samples (from the decline), were treated at the
Gold Fields sample preparation facility in Yuma, Arizona. The previously
prepared 40 lb bulk sample and the drill samples were crushed to -10 mesh and
then split in a Jones splitter to approximately one pound. This sample was
pulverized to -150 mesh and split into four pulps. One of these pulps was
fire-assayed at Gold Fields laboratory in Lakewood, Colorado. Check assays were
run on 20% of the samples by submitting a second pulp to either Skyline
Laboratory or Barringer Laboratory. The check assays made on the duplicate pulps
were noted to agree with the original assay with no bias and 95% correlation
coefficient.

During sample preparation,
periodic checks were made for coarse gold by running the reject material through
a Denver gold saver and carrying out both visual and quantitative assessments of
the results. Due to the historic nature of the Mesquite assay data, the
certification applicable to the Barringer and Skyline laboratories during the
course of their work is not known. Both were commercial laboratories that were
heavily relied on by the mining industry during that time. A significant number
of the assays were also done by the Gold Fields facility in Lakewood. Much of
the Gold Fields laboratory analyses would have been in the areas of Big Chief
that have been mostly mined out and would not be a major factor for future
production.

Gold Fields prepared all drill
samples (both core and RC) and the bulk samples from the decline at its sample
preparation laboratory in Yuma, Arizona. After the samples were fire assayed at
the Gold Fields laboratory in Lakewood, Colorado, check assays were done on
approximately 20% of the samples. A second duplicated pulp was assayed by either
Barringer Laboratory or Skyline Laboratory. Gold Fields comparison of 1,383
check assays with the corresponding original assays shows a good correlation of
the two sets of data. The means were within approximately 5% and the correlation
coefficient was 95%. The QA/QC procedures by Santa Fe or Newmont have not been
formally documented, but QA/QC, check samples, and check assays were done as
evidenced by information in the hard copy files existing for each individual
hole. In addition, a program of soluble cyanide assaying was performed along
with the fire assaying.

- 23 -

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Mineral Resource and Mineral Reserve
Estimates

The Mesquite mineral resources
inclusive of mineral reserves, and mineral reserves, effective December 31,
2009, are summarized in the following tables.

MINERAL RESOURCES DECEMBER 31, 2009 New Gold Inc. 
Mesquite Mine, U.S.A.(Reported in Imperial units)

|                     |  |                         |  |  | Tonnage & Grade |  |  | Contained Metal | 
|-------------------- |  | ----------------------- |  |  | --------------- |  |  | --------------- | 
|Classification       |  | Mineralization Category |  |  | Tons            |  |  | Au              | 
|                     |  |                         |  |  | (000s)          |  |  | oz/t            | 
|Measured             |  | Oxide                   |  |  | 86,772          |  |  | 0.014           | 
|                     |  | Non oxide               |  |  | 34,017          |  |  | 0.019           | 
|                     |  | Subtotal                |  |  | 120,788         |  |  | 0.015           | 
|Indicated            |  | Oxide                   |  |  | 122,265         |  |  | 0.014           | 
|                     |  | Non oxide               |  |  | 76,790          |  |  | 0.017           | 
|                     |  | Subtotal                |  |  | 199,055         |  |  | 0.015           | 
|Measured & Indicated |  | Total M&I               |  |  | 319,844         |  |  | 0.015           | 
|                     |  |                         |  |  |                 |  |  |                 | 
|Inferred             |  | Oxide                   |  |  | 10,563          |  |  | 0.011           | 
|                     |  | Non oxide               |  |  | 13,579          |  |  | 0.017           | 
|                     |  | Total Infd             |  |  | 24,142          |  |  | 0.015           | 

|Notes: |                                                                                                                                                                                    
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.     | Measured and indicated mineral resources are
      inclusive of mineral reserves.                                                                                                  
|2.     | CIM Definition Standards were used for mineral
      resource estimation and classification.                                                                                       
|3.     | Mineral resources are based on a gold price of
      US$900/oz gold and cut-off grades of 0.003 oz/ton Au and 0.006 oz/ton Au
      for oxide and non-oxide material, respectively.
|4.     | Columns may not add exactly due to rounding.                                                                                                                                       
|5.     | Mineral resources were confirmed by Mr. Wayne
      Valliant, Scott Wilson RPA, who is a Qualified Person under NI 43-101.                                                         
|6.     | Numbers may not add due to rounding.                                                                                                                                               

MINERAL RESERVES  DECEMBER 31, 2009 New Gold Inc. 
Mesquite Mine, U.S.A.(Reported in Imperial units)

|                  |  |                         |  |  | Tonnage & Grade |  |  | Contained Metal | 
|----------------- |  | ----------------------- |  |  | --------------- |  |  | --------------- | 
|Classification    |  | Mineralization Category |  |  | Tons            |  |  | Au              | 
|                  |  |                         |  |  | **(000s)**      |  |  | oz/t            | 
|Proven            |  | Oxide                   |  |  | 63,768          |  |  | 0.015           | 
|                  |  | Non oxide               |  |  | 17,722          |  |  | 0.024           | 
|                  |  | Subtotal                |  |  | 81,490          |  |  | 0.017           | 
|                  |  |                         |  |  |                 |  |  |                 | 
|Probable          |  | Oxide                   |  |  | 75,335          |  |  | 0.015           | 
|                  |  | Non oxide               |  |  | 27,988          |  |  | 0.021           | 
|                  |  | Subtotal                |  |  | 103,343         |  |  | 0.017           | 
|                  |  |                         |  |  |                 |  |  |                 | 
|Proven & Probable |  | Oxide                   |  |  | 139,123         |  |  | 0.015           | 
|                  |  | Non oxide               |  |  | 45,710          |  |  | 0.022           | 
|                  |  | Total P&P               |  |  | 184,883         |  |  | 0.017           | 

|Notes:
|------
|1.    
|2.    
|3.    

- 24 -

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|4. | Mineral reserves were confirmed by Mr. Richard J.
      Lambert, Scott Wilson RPA, who is a Qualified Person under NI
    43-101.
|-- | ---------------------------------------------------------------------------------------------------------------------------------
|5. | Numbers may not add due to
rounding.                                                                                             

The mineral resource model was
imported into Whittle pit optimization software. Pit shells were optimized based
on the parameters summarized in the following table.

OPEN PIT OPTIMIZATION PARAMETERS New Gold Inc. 
Mesquite Mine, U.S.A.

|Pit Slopes(1)                 | Above Water Table                  |                    
|----------------------------- | ---------------------------------- | -------------------
|                              | North                              | 40°, 38° in gravels
|                              | East                               | 43°, 46° in rainbow
|                              | South                              | 46°                
|                              | West                               | 46°                
|                              |                                    |                    
|                              | Below Water Table                  |                    
|                              | North                              | 37°                
|                              | East                               | 43°, 40° in rainbow
|                              | South                              | 43°                
|                              | West                               | 43°                
|                              |                                    |                    
|Operating Cost                | Mining                             | $0.93/ton mined    
|                              | Process + General & Administration | $1.33/ton processed
|                              |                                    |                    
|Dilution                      |                                    | 5%                 
|Mining Recovery               |                                    | 95%                
|Process Recovery  Oxides     |                                    | 75%                
|Process Recovery  Non Oxides |                                    | 35%                
|Gold Price                    |                                    | $800/oz            
|Gold Selling Price            |                                    | $12.00             
|Cut-off Grade  Oxides        |                                    | 0.006 oz/ton Au    
|Cut-off Grade  Non Oxides    |                                    | 0.012 oz/ton Au    

Notes:         
1. Pit slopes may vary slightly for individual pits.

Mining Operations

The Mesquite Mine is an operating
open pit mine with ore processing by heap leaching in a carbon-in-column circuit
that recovers gold. The mine operations started in late 2007 with commercial
production in January 2008. Mining is performed using a conventional
truck/shovel open-pit mining method. Operations include drilling, blasting,
loading, and hauling. Run-of-mine ore is hauled directly to the leach pad to the
south for processing. Waste mining uses the same equipment fleet used to produce
ore. Current mine production is a nominal 165,000 tons per day of total
material, including a nominal 30,000 to 40,000 tons per day of ore that is
hauled to the leach pad. For 2009, gold production was 150,000 ounces.

Mineral Processing

Mineral processing uses a heap
leaching technique. At the leach pad, a weak cyanide solution (0.4 lb/ton) is
applied to dissolve the gold and take it into solution. The solution is
collected in the carbon-in-column plant where the gold is collected on the
carbon. The gold is stripped from the carbon using a strong cyanide solution.
The gold in solution is electrowon onto steel wool. The steel wool is sent to a
furnace where the gold is separated from the impurities and the molten metal is
poured out to create gold doré bars assaying approximately 92% gold and 7%
silver.

Process recoveries are determined
by oxidation. Inception-to-date recoveries are slightly higher than predicted at
76.5%. The process recoveries for the mine reserves and life-of-mine production
plan are based on 75% recovery of the oxide ores and gravels and 35% recovery of
the non-oxide ores.

- 25 -

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Contracts

Doré is shipped from site to a
major refiner. Contracts are in place for refining with charges of $0.60 per
ounce (silver plus gold) with payment of 99.9% of the gold and 97.0% of the
silver.

Environmental Considerations

The Mesquite Mine received regulatory approval to begin mining
operations on July 2, 2007, after the issuance of the Air Quality permit from
the Imperial County Air Pollution Control District. The closure and reclamation
plan for the Mesquite Mine has been developed by WMMI with the assistance of
independent consultants, with the specific objective of leaving the land in a
useful, safe, and stable configuration capable of supporting native plant life,
providing wildlife habitat, maintaining watershed functions, and supporting
limited livestock grazing.

Taxes

U.S. federal income taxes are 35% and California State
income taxes are 8.8%, for a combined income tax of 40.7%.

Capital and Operating Cost Estimates

WMMI has developed a capital cost
estimate for the life of mine. Capital over the remaining fourteen years is
$45.3 million. The average operating cost for the Mesquite operation over the
life of mine is estimated at $0.99 per ton mined for ore and waste, $1.47 per
ton for processing, and $0.48 per ton processed for general and administrative
costs.

Cerro San Pedro Mine, Mexico

Except as otherwise stated, the
following disclosure relating to the Cerro San Pedro Mine is based on
information derived from the amended technical report entitled Technical Report
on the Cerro San Pedro Mine, San Luis Potosí, Mexico dated February 16, 2010
and amended March 22, 2010 (the CSP Report). The CSP Report was prepared by
Richard J. Lambert, P.E., Christopher Moreton, Ph.D. and P.Geo., and Holger
Krutzelmann, P.Eng., all of Scott Wilson Roscoe Postle Associates Inc. (Scott
Wilson RPA).

The following description of the
Cerro San Pedro Mine has been summarized from the CSP Report and readers should
consult the CSP Report to obtain further particulars about the Cerro San Pedro
Mine. The CSP Report is available for review under the Companys profile on the
SEDAR website located at www.sedar.com.

Project Description and Location

The Cerro San Pedro Mine is
located in central Mexico in the state of San Luis Potosí, approximately 400
kilometres north of Mexico City along the interstate highway connecting Mexico
City with Monterrey, and approximately 20 kilometres east-northeast of the city
of San Luis Potosí, which is the state capital. The Cerro San Pedro mine is
operated by the Companys wholly owned subsidiary, Minera San Xavier, S.A. de
C.V. (MSX).

The Cerro San Pedro Mine is an
open-pit gold and silver heap-leach mining operation that is expected to produce
a nominal 130,000 ounces of gold and 3.2 million ounces of silver, annually,
over an estimated remaining mine life of six years. Commercial production at
Cerro San Pedro commenced in May 2007. The heap leach pad area, process plant
and solution ponds are located approximately 3 kilometres south of the open pit
along a haul road.

The mineral rights at the Cerro
San Pedro Mine consist of 53 mineral concessions, covering an area of 7,719
hectares. The majority of mineral concessions have been acquired through
purchase agreements and, to a lesser extent, through staking. The unique mineral
concessions begin to expire in December 2036 through October 2058, subject to
the timely filing of periodic reports and payment of taxes to the Directorate
General of Mines (the DGM), the federal mining bureau. These concessions may
be extended for an additional 50-year period. The Company does not anticipate
that extensions to the mineral concessions will be required.

All of the mineral concessions
are held by the Company without any encumbrances, except for two concessions
optioned from Antonio Alvarez Ruiz are subject to a note agreement with an
outstanding balance of $675,000 as of March 13, 2008. The note does not bear interest
and is payable in annual installments of $75,000 from March 2008 through March
2016. The only outstanding royalty is a 1.95% gross value royalty owned by
Franco-Nevada Corporation.

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Although the Company has
investigated title to its mineral concessions at the Cerro San Pedro project,
there is no guarantee that title to such concessions will not be challenged.

The surface rights to the Cerro
San Pedro Mine are controlled by both private and communal parties. The communal
parties are called an ejido, which is a communal agrarian structure that
has governed approximately half of the agricultural land in Mexico since the
land reform that followed the 1910 Mexican Revolution. In order to build and
operate the Cerro San Pedro Mine, surface rights agreements were and continue to
be required. The Company has obtained surface occupation lease agreements with
the three ejidos and the possessionary rights holders that own property in the
Cerro San Pedro mine area. A total of 470 hectares are under lease agreements.
The leases grant the Company temporary occupancy for a period of 15 years
(through January 2011), and may be extended by the Company for an additional 15
years.

In addition, DGM has granted the
Company a Temporary Occupancy and Right of Way Authorization for ejido Cerro San
Pedro and ejido Palma de la Cruz land, which provides federally mandated surface
rights access over the life of the mine and additional certainty of land tenure.
Finally, in early 2008, the Company entered into an agreement with the ejido of
Cerro San Pedro to purchase the title to the surface lands covering the mine
area and haul road.

Permitting Requirements and Status

Mexican environmental regulations
addressing permitting and operation of mines have been subject to significant
changes in recent years with new standards and policies continuing to be
developed. The General Law on Ecological Equilibrium and Protection of the
Environment requires certain types of projects, including mining operations, to
complete a Manifestacion de Impacto Ambiental [Manifest of Environmental Impact]
(MIA), if the project has the potential to cause an ecological imbalance or to
exceed limits and conditions in applicable environmental regulations.

The Company was issued an
Environmental Authorization with respect to its MIA for the Cerro San Pedro Mine
by the Mexican federal agency, Secretaria de Medio Ambiente y Recursos Naturales
(Secretariat of Environment and Natural Resources) (SEMARNAT) in February
1999. The Environmental Authorization lists various conditions which the Company
is required to observe with respect to its operations at the Cerro San Pedro.
Most of these items are normal business activities associated with operating a
mine. The Environmental Authorization is the primary federal permit required for
the approval of the proposed mine.

In August 2004, the Company
received notification that a Mexican Federal Court rendered a judgment in favor
of a group opposing the Cerro San Pedro project who was seeking nullification of
the Companys Environmental Authorization. The legal action brought by the
contesting group claimed that the Environmental Authorization issued by SEMARNAT
violated various environmental laws and standards, and a local land use plan. In
June 2004, a Mexican Federal Appeals Court rendered a judgment in favour of a
group opposing the Cerro San Pedro project that was seeking nullification of the
1999 Environmental Authorization. The legal action brought by the opposition
group claimed that the 1999 Environmental Authorization violated various
environmental laws and standards, and a local land use plan. The Appeals Court
directed that the case be sent back to the Administrative and Fiscal Court which
rendered a decision in September 2004 ordering SEMARNAT to nullify the 1999
Environmental Authorization and issue a new one. After another series of appeals
a final Administrative and Fiscal Court judgment was issued in 2005. In April
2006, SEMARNAT issued the Company a new Environmental Authorization that
complied with the requirements of the Federal Court order. A group opposing the
project filed a lawsuit against SEMARNAT alleging that SEMARNAT did not comply
with the Federal Court order when it issued the new Environmental Authorization.
In September 2007, a court of appeals upheld the earlier Federal Court ruling
that the Environmental Authorization granted by SEMARNAT to the Company in April
2006 was valid.

In 2006, a group opposing the
project filed a lawsuit against SEMARNAT alleging that SEMARNAT did not comply
with the Federal Court order when it issued the 2006 Environmental
Authorization. A series of motions and appeals followed, culminating in a
September 2009 Administrative and Fiscal Court ruling that ordered SEMARNAT to cancel the 2006 Environmental Authorization, which
SEMARNAT did in November 2009. The cancellation was followed by the Mexican
federal environmental enforcement agency, Procuraduría Federal de Protección al
Ambiente (PROFEPA), ordering MSX to suspend mining activities. MSX appealed the
PROFEPA order, and in December 2009 was granted an injunction allowing it to
continue operating pending a final resolution of the litigation on the merits.
As a result of the injunction, operations recommenced. See Legal Proceedings
and Regulatory Actions.

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The Environmental Authorization
granted in April 2006 is valid for a twelve-year period through April 2018. The
Company may be required to apply for an extension within 60 days of the April
2018 Environmental Authorization expiration date in order to extend the
Environmental Authorization term to adequately cover the proposed mining and
reclamation period. The current mine plan anticipates completion of mining in
2014. The Environmental Authorization lists over 90 conditions that the Company
is required to satisfy, most of which relate to the reclamation phase of the
project, and includes the establishment of reclamation funding requirements for
the project. The reclamation funding requirements are discussed below under
permitting compliance.

The Companys mining operations
require the use of explosives. Mexican law requires all companies that use
explosives to obtain a federal explosives permit on an annual basis. In addition
to the annual federal explosives permit, the Company is also required to obtain
a state explosives permit on a quarterly basis. In the event that federal
authorities determine that the Company is not in compliance with these permits,
or if the federal renewals are not renewed in a timely manner, the Companys
operations could be negatively affected. The Company is required to renew its
municipal construction and operating licenses on an annual basis.

The Company has been granted a
local Land Use License that includes numerous conditions and recommendations for
which the Company has agreed to fulfill. These include the stabilization of the
Cerro San Pedro Apostle Church, and the formation of a technical committee to
oversee an environmental audit of the project. The structural stabilization of
the church and installation of blast monitoring equipment near the church will
be financed through a trust fund managed by an independent technical committee
and other interested parties. The Company has deposited approximately $217,000
in a bank trust account as a deposit towards the estimated cost of the
stabilization program. A federal governmental agency is reviewing the proposed
stabilization work plans and with its approval, the Company will commence work
on the program.

The Company must also comply with
conditions in other permits and licenses that have been issued by various
regulatory and governmental authorities. Although the Company believes that it
is currently in compliance with its existing permits, and although its permits
have been renewed by governmental and regulatory authorities in the past, there
are no assurances that the applicable governmental and regulatory authorities
will renew the permits as they expire, or that pending or future permit
applications will be granted. In the event that the required permits are not
granted or renewed in a timely manner, or in the event that governmental and
regulatory authorities determine that the Company is not in compliance with its
existing permits, the Companys operations could be negatively affected.

Accessibility, Climate, Local Resources, Infrastructure
and Physiography

The Cerro San Pedro Mine is
located 400 kilometres north of Mexico City along Federal Highway 57 (Carretera
Federal 57) connecting Mexico City with Monterrey. The site is located 20
kilometres east-northeast of the city of San Luis Potosí. The mine site can be
easily reached via a 10 kilometre secondary road extending from the Periferico
Oriente to the village of Cerro San Pedro. The city of San Luis Potosí has a
population of approximately 685,000 people and has an international airport with
daily flights to Mexico City, Monterrey, Houston, Dallas and other cities. The
local employment market includes a readily available pool of skilled workers
covering a broad range of professions and trades.

The Cerro San Pedro Mine is
located at the margins of two physiographic provinces, the Sierra Madre Oriental
to the east and the Mesa Central to the west. It lies within the Sierra de Cerro
San Pedro, which is characterized by moderate to rugged relief with elevations
ranging between 1800 metres above sea level and 2300 metres above sea level. The
climate for Cerro San Pedro is semi-arid, with an average precipitation of 350
millimetres per year. The warmest months are from April through September,
averaging 20.1°C for this period with the maximum averaging 29.2°C for May. The
coldest months are December through February with an average of 7.4°C for this
period, and a minimum temperature averaging 4.4°C in December. Wind direction
is predominantly from the west, with winds of these directions prevailing 160 to
240 days of the year. The vegetative cover consists of various shrubs, mesquite,
and cactus.

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Electricity for the mine is
provided through a 115 kilovolt power line that runs to a location near the
processing facilities. In addition, the Company has acquired a diesel generator
as a backup power system for the process facilities.

Water rights are federally owned
in Mexico and administered by an agency of the federal government, the Comision
Naciónal del Agua [National Water Commission] (CNA). CNA granted water
concessions to private parties throughout the defined San Luis Potosí Hydrologic
Basin (the Basin). As no new water rights are being issued in the Basin, new
users of water must purchase rights from private parties who received the water
concessions from the CNA. The Cerro San Pedro project is forecast to use a
maximum of approximately one million cubic metres of water per year. The Company
has acquired titles for pumping rights for 1,010,234 cubic metres per year,
which generally must be renewed with CNA at various intervals during mine
operations. The Company has also acquired an additional 360,000 cubic metres of
water rights for which it is awaiting receipt of title from CNA. This brings the
total to 1,370,234 cubic metres, which is in excess of the estimated mine
requirements.

The approximately 1.4 million
cubic metres of water rights that are owned or leased by the Company have been
acquired from various wells throughout the Basin. All of these water rights have
been, or will be, transferred to a well at La Zapatilla. The La Zapatilla well
was constructed by the Company and has a total pumping capacity of approximately
two million cubic metres of water per year. The La Zapatilla well is located 1.5
kilometres west of the leach pad, which is where most of the mines water
consumption takes place.

History

The Cerro San Pedro district has
undergone several periods of significant mineral production over the past 400
years. Initial mining activity is reported to have begun in 1575 when the
Spanish discovered outcropping bonanza-type gold and silver mineralization.
Mining continued until 1663 when a mine fire collapsed the main production
stope, effectively curtailing organized mining activity for the next two hundred
years. Although there are no reliable production records for this period, it is
estimated that approximately 200,000 to 500,000 ounces of gold and 2 to 5
million ounces of silver were produced from near-surface high-grade ores by the
Spanish.

The second major period of mining
activity began in 1870 when Minera La Victoria y Anexas consolidated
approximately 80% of the district. During this period, the La Victoria Company
drove the Victoria adit beneath the collapsed stope in an attempt to regain
access to the bonanza-grade ore bodies that had been mined by the Spanish.
Concurrently, the El Barreno Company developed an underground mine in the
adjacent Barreno Hill area to the south. By 1904 there were more than 100 active
mines in the district. All mining operations were reportedly suspended between
1925 and 1930. In 1930, mining activity resumed when American Smelting and
Refining Company (Asarco) acquired the La Victoria and Barreno properties and
began mining a combination of near surface oxide ores by open pit on Barreno
Hill, and high-grade sulfide ore from underground in an area approximately 500
metres to the south. Asarcos production continued uninterrupted until 1948 when
mining operations ceased due to a labor dispute. Asarcos total production
during this period is reported as approximately 300,000 ounces of gold, 22
million ounces of silver, 405 million pounds of zinc, 224 million pounds of lead
and 93 million pounds of copper.

The advent of modern heap leach
technology in the early 1970s resulted in renewed interest in the Cerro San
Pedro district with successive exploration campaigns by companies that included
Geocon, Inc. (Geocon), Bear Creek Mining Company (Bear Creek), Compañía
Fresnillo (Fresnillo) and ultimately MSX (a subsidiary of Metallica Resources
Inc.) who, beginning in April 1995, completed the first feasibility study for
the project in March 1997. In early 1998, Metallica executed a 50:50 joint
venture agreement with Cambior Inc. (Cambior) to further develop the property.
Cambiors activities resulted in the completion of a second feasibility study
for the project. Cambior sold its interest in MSX to Glamis Gold Ltd. (Glamis)
in May 2000. In November 2000 Glamis completed a third feasibility study for the
project which serves as the basis for the open pit run-of-mine heap leach
currently in operation. In February 2003, Metallica acquired Glamis 50%
interest in the project, excluding a royalty on net proceeds which was
subsequently acquired and cancelled by Metallica in 2004. The only outstanding
royalty on the project is the 1.95% gross value royalty owned by Franco-Nevada
Corporation.

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Construction of the Cerro San
Pedro gold and silver, heap-leach, open-pit mine began in 2004, and was expected
to take approximately nine months to complete. Metallica encountered delays with
the construction schedule in 2004, 2005 and 2006 resulting from various legal
challenges involving surface rights access, the explosives permit and other
permits and licenses. Most of these challenges were resolved by 2006, which
enabled Metallica to complete construction of the mine and commence commercial
production on May 1, 2007.

Geological Setting

Regional Geology

The Cerro San Pedro mining
district is located within the Parras Nappe section of the Eastern Sierra Madre
fold belt of northeastern Mexico along the contact with the Central Mesa plateau
to the west. The Parras Nappe is part of a larger system of Laramide-age,
supracrustal anticlinoria comprising the Mexican fold and thrust belt. The local
stratigraphic section is dominated by the early Cretaceous La Peña (Aptian) and
Cuesta del Cura (Albian) Formations. Both formations represent deepwater
fore-slope and basin facies deposited along the western margin of the Valles-San
Luis Potosí carbonate platform. Lithologies consist of thin- to medium-bedded
calcareous mudstones with locally interbedded shale, chert and carbonate slide
breccias. Tectonism within these units is characterized by thin-skinned,
east-northeast directed compression and shortening (denoted as D1), which
resulted in a series of sinuous, northerly-trending, east-verging, overturned
anticlinal folds and associated thrust faults. These structures locally deflect
and dilate along younger crosscutting northeast trending transverse wrench
faults that developed under northwest-southeast directed compression (denoted as
D2). Fold hinges and zones of wrench faulting commonly show moderately developed
fault-related (S-C) fabric and shear foliations suggesting that D1 and D2
occurred under largely brittle-ductile conditions and were likely closely linked
in time.

Local Geology

The Cerro San Pedro mining
district centres on one such D1/D2 structural deflection. A Laramide-age pluton,
the San Pedro porphyry, was emplaced within a zone of dilation formed at the
intersection of west-dipping thrusts and/or axial planar reverse faults with a
system of northeast-striking dextral wrench faults. Intrusion and subsequent
hypogene mineralization of the San Pedro porphyry occurred during early
Paleocene time as indicated by a whole rock K/Ar age for fresh porphyry of 64
+/- 3.2 Ma and a sericite Ar/Ar date for altered porphyry of 64.56 +/- 0.76 Ma.
The overlapping ages for fresh and altered porphyry clearly indicate that
emplacement of the San Pedro porphyry and related hypogene sulphide
mineralization took place between about 67 and 62 Ma.

Timing of porphyry emplacement
and hypogene sulphide mineralization also provides a lower limit for the timing
of Laramide deformation in the region. Previous work noted that the style of
folding and thrusting corresponded to the Sevier Orogeny and probably occurred
sometime during the middle to late Cretaceous and prior to the intrusion of the
San Pedro porphyry; however more recent work has determined that much of the San
Pedro porphyry was emplaced during reverse slip associated with D1
east-northeast-directed shortening and likely continued through subsequent
southeast directed D2 compression and wrench faulting. Moreover, the floor of
the San Pedro porphyry sill is now interpreted as a major thrust fault that
juxtaposes older La Peña limestones against younger Cuesta del Cura limestones.
This floor thrust is exposed along the entire length of Sierra de San Pedro.
These observations suggest that the San Pedro porphyry was dynamically emplaced
and mineralized during the D1 and D2 folding, thrusting and wrench faulting,
effectively constraining the timing of these events to the early Paleocene.
Subsequent uplift and erosion of the San Pedro porphyry and mineralized country
rocks during Laramide time is implied by two K/Ar radiometric ages for alunite
of 54.6 +/- 1.4 Ma and 47.6 +/- 1.3. An upper limit to uplift and erosion is
provided by middle Eocene age andesitic flows of the Casita Blanca Formation
(44.1 + 2.2 Ma) which unconformably overlie the Cretaceous limestones. In the
southern Cerro San Pedro area, Casita Blanca andesite directly overlies
mineralized limestone several tens of metres above the San Pedro porphyry,
suggesting that exhumation, and possibly oxidation, of the San Pedro mineralized
system was well-advanced by middle Eocene time.

Post-Laramide deformation is
characterized by Basin and Range style extensional block faulting accompanied by
the eruption of the San Luis volcanic units and formation of the Villa de Reyes
graben lying immediately to the west of the Sierra de San Pedro. Volcanic units
cover the southern third of the Sierra San Pedro area and include the Oligocene
Santa Maria Ignimbrite (34 +/- 0.9 Ma) and the Portezuelo latite (30.6 +/- 1.5
Ma). These units unconformably overlie the Cretaceous limestones and Eocene
continental clastic and andesite flow units discussed above. Subsequent block faulting and graben formation
occurred between 29 and 27 Ma along two sets of intersecting north-northeast and
northwest oriented normal fault systems. Final exhumation and supergene
oxidation of the San Pedro mineralized system occurred shortly thereafter, as
evidenced by Ar/Ar dating of alunite from the oxidized San Pedro porphyry which
yielded an age of 24.15 +/- 0.13 Ma.

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Property Geology

The Cerro San Pedro deposit is a
gold-silver-zinc-lead plus minor copper mineral resource that is hosted within a
late Cretaceous to early Tertiary monzodiorite porphyry. The porphyry has
intruded a sequence of Cretaceous limestones that suffered broad-scale regional
tectonic folding and faulting during the Laramide orogeny. The geometry of the
San Pedro porphyry, as defined by surface mapping and drill hole intercepts, is
that of an elongate (1.5 kilometres to 2.0 kilometres long by 200 metres to 400+
metres thick) wedge-shaped body emplaced along a westerly-dipping system of
thrust faults. In general, the complex deformational history of pre-mineral
faulting, folding, and intrusion of the San Pedro porphyry are the primary
factors behind the localization of the mineralization in the Cerro San Pedro
mining district.

The Cerro San Pedro porphyry is a
holocrystalline porphyritic rock of metaluminous alkalicalcic composition. Modal
mineralogy consists of 35 to 55 volume percent fine- to medium-grained
phenocrysts of plagioclase (20-35%), biotite (15-20%), hornblende (10-15%),
K-feldspar (~5%), and quartz (1-2%), within an aphanitic groundmass consisting
of quartz (15-18%) and K-feldspar (15-17%). The San Pedro porphyry has been
characterized as a quartz diorite; however, more recent work suggests the term
monzodiorite better fits its higher modal K-feldspar content.

Exploration

Exploration work by the Companys
subsidiaries on the CSP deposit began in 1995 and resulted in the first
feasibility study for the project in 1997. The structural control on the
mineralization was recognized as a critical component of the deposit geometry
and consequently a lot of effort was directed towards trying to unravel the
structural history. Multi-year detailed mapping programs, accompanied by grab
sampling, led to a better understanding of the geology and mineralization styles
and distribution. In conjunction with the mapping and sampling programs, a
series of drilling campaigns involving a combination of RC and diamond core
drilling were conducted during the periods from 1995 to 1999 and from 2008
through 2009. These drill programs were designed to both fill-in the data gaps
so that a feasibility study could be performed and to extend the known limits of
the mineralization. Contract drilling companies have been used throughout the
Companys 15 year history with the project. Layne de Mexico, S.A. de C.V. has
served as the primary contractor for the RC drilling programs, and Major
Drilling de Mexico S.A. de C.V. and BDW International of Mexico S.A. de C.V. for
the core drilling programs. Exploration by the Company is summarized in the
following table:

SUMMARY OF EXPLORATION WORK New Gold Inc.  Cerro San
Pedro Mine, Mexico

|Year        | Work Type                                                                                                                    | Results                                                                                                                           
|----------- | ---------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------
|1995 - 1997 | Mapping and
      Sampling. Exploration and RC and core drilling: 49,000 m in about
      213 holes. Feasibility Study (1st) | Proven and probable reserve
      estimated: 77.3 Mt @ 0.60 g/t Au, 24.8 g/t Ag (based on $360/oz gold,
      $5.25/oz silver)(1) 
|1997 - 2000 | Mapping and Sampling. Exploration
      and core drilling: 7,612 m in about 53 holes Feasibility Study
      (2nd)           | Proven and probable reserve estimated: 63.5 Mt
      @ 0.62 g/t Au, 24.6 g/t Ag (based on $300/oz gold, $5.50/oz
      silver).(1)
|2000 - 2002 | Feasibility Study
      (3rd)                                                                                                | Proven and probable reserve
      estimated: 50 Mt @ 0.77 g/t Au, 23.0 g/t Ag (based on $275/oz gold,
      $5.25/oz silver).(1)  
|2003 - 2008 | Mine Development: Feb  Dec 2003
      Construction  Jan 2004 to April 2007 Commercial Production  May
      2007          | Proven and probable reserve estimated: 61 Mt @
      0.59 g/t Au, 24.0 g/t Ag (based on $325/oz gold, $4.62/oz
      silver).(2)  
|2008 - 2009 | Exploration and
      core/RC drilling: 16,799m in 29 holes                                                                  | Refer to mineral reserve and
      mineral resource statements as of December 31, 2009.                                           

|Notes: |                                                                         
|------ | ------------------------------------------------------------------------
|1.     | These estimates are historical and
      should not be relied upon.     
|2.     | This estimate is historic in nature and
      should not be relied upon.

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Mineralization

The mineralization at Cerro San
Pedro has two principal forms: 1) gold and silver within iron oxide minerals,
and 2) gold, silver, zinc, and lead (plus minor, locally occurring copper)
within sulphides. Both styles of mineralization are hosted within a
well-developed system of crosscutting fractures (stockwork) in the San Pedro
porphyry and along faults and fractures that extend into the surrounding
limestone country rock. In addition, secondary oxide-hosted gold and silver
mineralization is present in the near-surface parts of the Cerro San Pedro
district. Here, surficial weathering and oxidation has removed zinc, lead and
copper from pre-existing primary sulphide minerals. The majority of the current
mineral resources and reserves are contained within the gold and silver bearing
oxide portion of the Cerro San Pedro deposit. Although no mineral resources or
reserves have been defined for the deeper sulphide-rich portion of the deposit,
gold, silver, zinc, lead, and minor amounts of copper were mined from high-grade
sulphide deposits along the contact of the San Pedro porphyry and limestone
country rocks.

Sulphide-dominated mineralization
at Cerro San Pedro occurs in two modes: 1) low-grade porphyry-hosted stockwork
and disseminated sulphides, and 2) high-grade polymetallic semi-massive to
massive sulphide mantos replacing the adjacent limestones. The dominant sulphide
minerals are pyrite, sphalerite, and galena.

The Cerro San Pedro district
covers a one by two kilometre area. It is centred upon an uplifted block of San
Pedro porphyry, and its overlying limestone, which is locally referred to as the
Begoñia horst. Within this area, D1 structures are characterized by overturned
east verging anticlines and synclines with a gentle northerly plunge. Bedding
parallel reverse faults and penetrative thrusts develop where fold axial
surfaces are flatter; shear failure is more apparent within the hinge zones of
synclines. Within the central horst, a series of northerly striking D1 faults,
locally referred to as the Mendez fault system, serves as one of the primary
controls to mineralization in the district. D2 structures are characterized by
steeply north and south dipping faults that cut and offset earlier D1
structures. These represent a second set of mineralization controls in the
district. In combination with the upper contact of the San Pedro porphyry, the
D1 and D2 structures are the principal mineralization controls in the district.

Historic production stopes in the
district define a moderately plunging southwest trend, extending over a
horizontal distance of approximately 1.5 kilometres with a vertical range of at
least 750 metres. This mineralization trend remains open at depth. Modern
surface exploration work in the district indicates this mineralized trend
remains largely unexplored for at least another one kilometre south from the
area of historical underground mining.

Drilling

In November 2008, MSX began its
Cerro San Pedro Sulphide drilling project to understand the geometry of the
sulphide mineralization. This mineralization extends from beneath the current
area of open-pit mining to an area of historical underground mining
approximately 500 m to 600 m to the south. In this area, Asarco is reported to
have produced approximately 300,000 ounces of gold, 22 million ounces of silver,
405 million pounds of zinc, 224 million pounds of lead, and 93 million pounds of
copper from a manto-style sulphide body between 1928 and 1948. The objective of
the CSP Sulphide project is to explore the resource potential of the Au-Ag-Zn-Pb
sulphide zone as it extends from beneath the Au-Ag oxide pit toward the historic
Asarco mine area (and possibly beyond). As of December 31, 2009, 29 holes
totalling 16,799 metres of core drilling had been completed. The core drilling
company used for this program is BDW International Drilling Inc. was contracted
for all diamond core drilling and Layne de Mexico, S.A. de C.V. was contracted
for all RC work, with head offices in Rouyn-Noranda, Quebec, Canada.

The historic Cerro San Pedro
drill hole database includes the results from four different drilling campaigns
by four different companies: Bear Creek, Fresnillo, MSX-Metallica, and MSX under
the Cambior-Metallica Joint Venture. The database for the current
resource/reserve estimate includes gold and silver assay results for
approximately 284 drill holes totalling 75,003 metres.

Contents of the database are
summarized in the table below:

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CERRO SAN PEDRO DRILL HOLE DATABASE New Gold Inc. - Cerro
San Pedro Mine, Mexico

|                      |  |         |  |  | Core Holes |  |  | RC Holes |  |  | Total |  |  |        | 
|--------------------- |  | ------- |  |  | ---------- |  |  | -------- |  |  | ----- |  |  | ------ | 
|Company               |  | Year    |  |  | No.        |  |  | Metres   |  |  | No.   |  |  | Metres | 
|Bear Creek            |  | 1982    |  |  |            |  |  |          |  |  | 3     |  |  | 276    | 
|Fresnillo             |  | 1992    |  |  |            |  |  |          |  |  | 49    |  |  | 9,518  | 
|Metallica - MSX       |  | 1995    |  |  |            |  |  |          |  |  | 47    |  |  | 11,970 | 
|Metallica - MSX       |  | 1996    |  |  | 28         |  |  | 8,568    |  |  | 78    |  |  | 20,895 | 
|Cambior - MSX         |  | 1997    |  |  | 11         |  |  | 2,650    |  |  |       |  |  |        | 
|Cambior  MSX Surface |  | 1998    |  |  | 13         |  |  | 1,439    |  |  |       |  |  |        | 
|Cambior  MSX         |  | 1998    |  |  | 42         |  |  | 3,523    |  |  |       |  |  |        | 
|Underground           |  |         |  |  |            |  |  |          |  |  |       |  |  |        | 
|New Gold  MSX        |  | 2008-09 |  |  | 28         |  |  | 15,288   |  |  | 7     |  |  | 1,511  | 
|                      |  | Total   |  |  | 122        |  |  | 31,468   |  |  | 184   |  |  | 44,170 | 

For the current mineral resource
estimate, 284 of the total 330 drill holes were used; 16 drill holes were
excluded (three Bear Creek holes and 13 of the Fresnillo holes) were excluded
due to a lack of supporting data (missing logging sheets). The area defined by
the mineral resource estimate has generally been drilled on 50 metre centres.
Much of the area centering on the current open pit mineral reserve has been
drilled and sampled at a closer spacing approaching 25 metres.

The style and distribution of the
Cerro San Pedro Mine mineralization makes it difficult to determine a single
useful value that describes the relationship between the true thickness and the
sample length. Similarly, the orientation of the mineralization is not easily
definable due the heterogeneous nature of the veining, dissemination, and manto
distribution.

Sampling and Analysis

All of the samples used in the
resource estimate came from the area in and around the current open-pit
operation. RC, diamond drill core and underground chip samples were collected.
Layne Drilling Services de Mexico served as the primary contractor to MSX for
the RC drilling program at the Cerro San Pedro Mine. Daily supervision of
drilling activities was the combined responsibility of project field geologists,
the senior project geologist, and the drilling contractor. Detailed drill logs,
chip boards, and sample records were prepared on site by the rig geologists, who
oversaw all sampling activities at the drill rig.

The standard sampling procedure
for RC drill holes involved systematic sampling at regular two metre intervals
starting from the drill collar and continuing to total depth. Samples collected
under dry conditions were split using a three-tiered Jones sample splitter. Due
to poor ground conditions within the upper parts of the deposit, however, the
majority of reverse circulation holes required the injection of water and the
use of wet sampling methods in order to maintain optimum circulation and sample
return. To date, no groundwater has been intercepted in the area containing the
open pit gold-silver mineral resource at the Cerro San Pedro Mine.

Collection of wet drilling
samples involved the use a rotary wet sample splitter, which reduced recovered
drill cuttings into two parts: one split was sent to Bondar-Clegg Laboratories
(now part of the ALS Laboratory Group) for analysis, and one duplicate split was
saved for future sample analyses and test work. Suspended fines were collected
by adding an anionic flocculent to each sample at the start of each sample
interval. Collected samples were then allowed to sit undisturbed, until sample
fines had settled sufficiently after which excess water was decanted and the
samples bagged for storage and shipment to the Bondar-Clegg sample preparation
facility in San Luis Potosí.

Although every effort was made to
optimize sample recovery, the abundance of historic mine workings and related
collapse voids in the upper parts of the San Pedro deposit has at times made
consistent sample recovery a problem. To overcome this, synthetic polymer
(EZ-Mud® or Alcomer®) was routinely added to drilling
water to increase fluid viscosity and effectively seal the outer part of the
hole. In more difficult zones, sample recovery was maintained by the addition of bentonite or drilling foam. In
some areas, however, the presence of large open voids precluded proper sample
recovery until the drill bit had passed several metres back into solid rock. In
an attempt to address this problem, a Digger® center-return hammer-bit was used
in place of the conventional reverse circulation hammer to minimize sample loss
through known mine workings and voids.

- 33 -

---

Prior to 2008, the sampling
procedure for core holes involved systematic sampling at regular two meter
intervals, except where holes intercepted major lithologic/geologic contacts or
encountered mine workings and voids. During 2008-09, systematic sampling took
place at regular two meter intervals for the first two drill holes, after which
the sampling interval was increased to regular three meter intervals which were
used throughout the remainder of the campaign with the same exceptions listed
above, including zones of manto mineralization. During 2008-09 zones of manto
mineralization with ample core recovery were sampled at regular one meter
intervals, with exceptions made at major geologic or mineralogical contacts. The
majority of core holes were completed with HQ-sized core (6.4 centimetre
diameter), with reductions to NQ-size core (4.8 centimetre diameter) where
necessary. Two methods of core sample splitting were employed, depending on
sample lithology. In 2009, one metallurgical hole was drilled with PQ-size core
(8.5 centimetre diameter).

During the 2008-09 drill
campaign, all core samples were cut using either a manual or hydraulic core
splitter. Sample pieces measuring up to 10 centimetre to 15 centimetre were
placed in the splitter lengthwise and cut. One half of the core was place back
into the core box while the other was placed in the appropriate sample bags.
Each splitter was thoroughly cleaned by the operator(s) between samples using
hand brushes. All work was supervised by a project geologist.

Prior to 2008, the preparation of
bulk composites for column leach metallurgical testing involved the collection
of approximately 500 kg of Begoñia Limestone, as well as the collection of three
200 kg of whole-core composites of porphyry oxide material. All samples selected
for bulk compositing were submitted as separate sample intervals and were
subsequently composited by McClelland Laboratories. The samples for bottle-roll
leach tests were submitted as un-split two metre intervals. Head assays for
these samples were subsequently entered into the drill assay database upon
receipt of results from McClelland Laboratories. Density determinations of the
various ore types were made on underground and core samples of mineralized
porphyry. Split core samples of representative ore and waste rock lithologies
were selected for Acid Rock Drainage (ARD) characterization and submitted to
Hazen Laboratories, Golden, Colorado, USA, for analysis.

In the fall of 2009, a twin hole
of a
previous 8.5 centimetre diameter hole was drilled to collect metallurgical
samples of porphyry oxide and porphyry sulphide-oxide material. Whole PQ sized
core samples were individually sealed and bagged to prevent oxidation and placed
in 55 gallon barrels for shipment. Porphyry sulphide and porphyry sulphide-oxide
material were collected and submitted for analyses. Determinations of density
and head assay along with mineralogical, grind, and flotation testwork will be
completed by Dawson Metallurgical labs of Salt Lake City, Utah, USA.

Sample Preparation, Analysis and Security

Prior to 2008, drill samples
submitted for Au-Ag fire assay were routinely sent to the Bondar-Clegg sample
preparation facility in San Luis Potosí, where each sample was dried at
approximately 150°C, weighed, and crushed to a minimum of 75% passing minus 10
mesh. Quality assurance was maintained by screening at least one sample from
each daily submittal through a 10 mesh screen. The crushed sample was then
passed through a Jones splitter and a representative 250 gram split was retained
for subsequent pulverization. The remaining coarse rejects were rebagged and
returned to the San Pedro project site for storage. The 250 gram split was then
pulverized using a ring and puck pulverizer, reducing the sample to a minimum
standard of 95% passing 150 mesh. Beginning in late 1995, Bondar-Clegg began
separating each pulverized sample into separate 150 gram to 200 gram and 50 gram
splits, the larger of which was forwarded to the Bondar-Clegg laboratory in
Vancouver, British Columbia for gold-silver fire assay, and the smaller retained
for storage at the Bondar-Clegg facility in San Luis Potosí. Consequently, an
additional set of 50 gram sample pulps remains available for future analytical
work.

The Bondar-Clegg fire assay
procedure involved a standard one assay ton gold-silver fire assay with an
atomic absorption (AA) finish. The assay procedures include blending of sample
pulps followed by weighing of one assay ton (29.17 gram) splits from each sample
pulp. The weighed samples were fused with an appropriate flux at a temperature
of 1038°C for approximately 45 minutes, allowed to cool, and subsequently
cupelled at 954°C for gold and 871°C for silver. The cupelled sample buttons were
then dissolved in aqua regia for approximately three hours and the resulting
solution analyzed for gold and silver on an AA spectrometer. Sample analyses
reporting above 10 g/t Au or 500 g/t Ag were re-analyzed via fire assay with a
gravimetric finish. In addition, all samples reporting above 0.10 g/t Au are
forwarded to Bondar-Cleggs Reno, Nevada, facility where they were analyzed for
cyanide (CN) - soluble gold via a one assay ton hot CN shake leach.
Bondar-Cleggs agitated cyanide assay procedure first involved the preparation
of a second 30 gram split from the original sample pulp, which was mixed with 30
milliliters of 5 gram per liter CN solution and 2.5 g/t sodium hydroxide
solution to bring the solution pH up to 10.5. The sample is then agitated for
one hour at 80°C after which the solution was analyzed by AA. Results were
initially reported in ounces per short ton of dry solids and subsequently
converted to g/t. Upon receipt of results from Bondar-Clegg, all CN-soluble
assay data were recorded in the Cerro San Pedro project database along with the
original fire assay results for each individual sample.

- 34 -

---

Bondar-Clegg systematically
re-assayed every 25th sample as an internal quality control check (the Company
did not include standards, blanks or duplicates with the sample batches that
were sent to Bondar-Clegg). The entire batch of samples was re-assayed if any
discrepancies were noted between the original results and the re-assay values
(for Au and Ag). Statistical tests (the F-test and the Student t-test) comparing
the two sets of data from the two runs found no significant statistical
difference between the two populations.

In order to check the accuracy of
the Bondar-Clegg values, the pulp from every 25th sample was re-assayed by Cone
Geochemical Inc. of Lakewood, Colorado (Cone) for samples taken in 1995 and
1996. Cone used an analytical procedure that was similar to the Bondar-Clegg
method except that all sample pulps received from Bondar-Clegg were reground to
90% passing 200 mesh prior to fire assay. Gold analyses followed essentially the
same procedures described above; however, silver analyses utilized a four-acid
digestion technique (Perchloric-Hydrofluoric-Nitric-Hydrochloric), which
generally yields a more complete sample digestion resulting in a more complete
analysis of total contained silver. When the data from the two laboratories are
analyzed, there is a marked difference between the Ag values (but not Au); at
the time, this was explained by the pulverization technique (rather than the
digestion method).

In 1998, Cambior twinned some of
the RC holes in the pit area with NQ diamond drill holes. The samples were
submitted to Bondar-Clegg but they were analyzed using a different protocol
(essentially the Cone protocol of additional grinding, a four-acid dissolution
followed by a fire assay and AA finish). With the new protocol the core samples
returned higher Ag values than the samples from the original RC hole. An
extensive re-assay program and statistical analysis showed that the 1998
laboratory protocol returned a positive Ag bias of around 30% when compared to
the samples assayed before 1998. Further checks were made by assaying a subset
of the samples at two additional laboratories using both assaying protocols. The
conclusion is that the aqua regia digestion used on samples before 1998
under-reported the Ag values (but not Au). The samples in the database (prior to
September 1997) were readjusted using a polynomial regression for both channel
and drill hole samples. This resulted in an adjustment of 85% of the Ag values
in the database with a 23% increase in the Ag average (from 13.84 g/t to 17.10
g/t).

In 1998, more than 50% of the
reverse circulation samples (2,232 from a total of 4,253) collected by Fresnillo
were re-assayed for gold and silver during 1996 by MSX. During the 1995 and 1996
drilling by MSX-Metallica, the samples were assayed in a systematic way for gold
and silver, and sporadically for copper, lead, zinc, molybdenum (Mo), arsenic
(As), antimony (Sb), mercury (Hg) bismuth (Bi), and manganese (Mn). From 1997
on, each sample was assayed for gold, silver, copper, lead, zinc, molybdenum,
arsenic, antimony, mercury and manganese.

For the 2008-09 drill program,
all samples from holes 1-12 along with holes 17, 19-23, and hole 25 were
submitted to ALS Chemex laboratory in Guadalajara, Jalisco, Mexico for sample
preparation. Samples were first weighed and dried, if necessary. Entire samples
were fine crushed to a minimum of 70% passing through minus 10 mesh (2
millimetres). Quality assurance was maintained by screening at least one sample
from each submittal through a minus 10 mesh screen. A riffle splitter was used
to get splits of 250g which were pulverized to a minimum of 85% passing through
minus 200 mesh (75 microns). In the case where the lab was instructed to create
pulp duplicate samples, 500g of crushed material was pulverized and subsequently
split. One 250 g pulp was submitted as usual with the rest of the sequence and
the duplicate was kept for check analyses at a later date by SGS Labs. Batches
of 250 g pulps were shipped to ALS Chemex in Vancouver, British Columbia, Canada
for Au assay, Ag analysis, and 32-element ICP analyses. Remaining coarse rejects
were re-bagged and returned to the CSP mine

- 35 -

---

site for storage. Remaining pulps were also returned and stored
on site at CSP.

Holes 13-16, 18, 24, 26, and
28-29 were submitted to SGS Laboratories in Durango, Durango, Mexico for sample
preparation. Samples were first weighed and dried, if necessary. Entire samples
were fine crushed to a minimum of 90% passing through minus 10 mesh (2
millimetres). Quality assurance was maintained by screening at least one sample
from each submittal through a minus 10 mesh screen. Splits of 1,000 g using a
riffle splitter were pulverized to a minimum of 90% passing through minus 200
mesh (75 microns). In the case where the lab was instructed to create pulp
duplicate samples, 2000g of crushed material was pulverized and subsequently
split. One 1000 g pulp was submitted as usual with the rest of the sequence and
the duplicate was kept for check analyses at a later date by ALS Labs. Batches
of 1000 g pulps were initially shipped to SGS Laboratories in Toronto, Ontario,
Canada for Au assay, Ag analysis, and 32-element ICP analyses. After mid-July
2009, all analyses were completed at the SGS laboratory in Durango. Remaining
coarse rejects were re-bagged and returned to the CSP mine site for storage.
Remaining pulps were also returned and stored on site at CSP.

Detailed geological mapping, core
logging, structural analysis, and extensive sampling of the mine property, have
led to a fuller understanding of the controls on mineralization at CSP. As well,
the CSP Mine has been the subject of at least three feasibility studies and
numerous resource and reserve updates. Due diligence by all parties involved has
created an error-free database. Practical examples of this due diligence include
the creation of structural domains, exclusion of samples with less than 15%
recovery, and the examination (and rectification) of the Ag-bias in some of the
dataset. Scott Wilson RPA had no issues with the quality and appropriateness of
this database for use in resource and reserve modelling.

Mineral Resource and Mineral Reserve
Estimates

The New Gold 2009 mineral
resource estimate for the CSP Mine is effective December 31, 2009. The basis for
the New Gold estimate is a new block model which replaces the Glamis (2000)
feasibility study block model used for previous mineral resources estimates for
the CSP Mine, including the previous December 31, 2008 mineral resource and
reserve estimates prepared  for the Company.

As part of the review of the New
Gold 2009 mineral resource estimate for the Cerro San Pedro Report, WLR supplied
the following information to Scott Wilson RPA:

- Previous Mineral Resource and Mineral Reserve reports
- Pit shells (in DXF format).

The Company supplied the following information to Scott Wilson
RPA:

- End of December 2009 topography data files;
- Drill hole database;
- Rock Code, specific gravities, and rock code heap leach recoveries;
- A new MSX 3-D computer model that incorporates new exploration drilling,
  an updated geological interpretation, and resource classification scheme;
- Intermediate mine phase designs; and
- Economic Parameters

A Lerchs-Grossman pit shell for
the oxide portion of the deposit was developed based on US$800/oz Au, US$12/oz
Ag metal prices, the topography surface as of December 28, 2009 and certain cost
and metal recovery parameters (Schimann, 2009). A second Lerchs-Grossman pit
shell for the sulphide portion of the deposit was developed based on US$900/oz
Au, US$15/oz Ag, US$1.00/lb Zn, US$0.75/lb Pb metal prices, the oxide Whittle
pit surface as the upper bounding surface, and certain cost and metal recovery
parameters. A hard boundary for the pit shell was established at the INAH buffer
zone. This buffer zone represents a volume of rock for which no open pit mining
will be allowed so as to not have an impact upon the current townsite. No
dilution has been added to the reserve estimate, except for the material already
incorporated into the block grade interpolations in the deposit model. In
addition, no ore loss adjustment for the accounting of previously mined
underground material was made in the mineral reserve estimate.

- 36 -

---

Economic Parameters for Mineral Reserves  December 31, 2009
New Gold Inc. - Cerro San Pedro Mine, Mexico

Parameter
    
    Units
    
    
    ValueGold Price
    
    US$/oz
    
    
    800.00Silver Price
    
    US$/oz
    
    
    12.00Gold Refining Charge
    
    US$/oz
    
    
    3.84Silver Refining Charge
    
    US$/oz
    
    
    0.25Gross Receipts Royalty
    
    %
    
    
    1.95%Mining Cost - ore
    
    US$/t
    
    
    1.60Mining Cost - waste
    
    US$/t
    
    
    1.33Processing Cost - ore
    
    US$/t
    
    
    1.40General & Administration Cost - ore
    
    US$/t
    
    
    0.91Gold And Silver Recoveries
    
    Vary by Rock Type


Scott Wilson RPA created its own
block model for CSP (using Gemcom software version 6.2.1) to confirm the New
Gold estimates shown in the table below.

The Lerchs-Grossman pit shell was
superimposed upon the block model and latest topography as of December 28, 2009
to generate a resource estimate at various cut-offs. The combined measured and
indicated resource estimated by Scott Wilson RPA (at all cut-offs) is within
0.5% of the estimates produced by the Company.

The Cerro San Pedro mineral
resources inclusive of mineral reserves, effective December 31, 2009, are
summarized in the following tables.

MEASURED & INDICATED MINERAL RESOURCE DECEMBER 31, 2009
New Gold Inc.  Cerro San Pedro Mine, Mexico(Reported in
Metric units)

Tonnage & Grade
    Contained MetalCategory
    Cut-off Grade (g/t)
    Tonnes (000s)
    Gold (g/t)
    Silver (g/t)
    Zinc (%)
    Lead (%)
    Gold K oz
    Silver K oz
    Zinc M lbs
    Lead M lbsOxide Resources2Measured
    0.10 Au
    48,254
    0.52
    19.72
    -
    -
    799
    30,600
    -
    -Indicated
    0.10 Au
    43,861
    0.39
    14.79
    -
    -
    556
    20,859
    -
    -Total M&I Oxide
    0.10 Au
    92,115
    0.46
    17.38
    -
    -
    1,355
    51,459
    -
    -Sulphide Resources3Measured
    0.40 AuEq4
    18,739
    0.53
    17.10
    0.80
    0.19
    320
    10,305
    332
    79Indicated
    0.40 AuEq
    42,307
    0.42
    11.79
    0.71
    0.13
    576
    16,036
    660
    123Total M&I Sulphide
    0.40 AuEq
    61,046
    0.46
    13.42
    0.74
    0.15
    897
    26,341
    992
    203


|Notes:
|------
|1.    

- 37 -

---

|2. | Oxide resources based on a US$900/oz Au and US$15.00/oz
      Ag Lerchs-Grossmann shell using Measured, Indicated and Inferred
      categories and a topography surface as at Dec 28, 2009.                                        
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3. | Sulphide resources are based on a US$900/oz Au,
      US$15.00/oz Ag, US$1.00/lb Zn and US$0.75/lb Lerchs-Grossmann shell using
      Measured, Indicated and Inferred categories and a topography surface as at
      Dec 28, 2009.
|4. | Gold Equivalent (AuEq) cut-off formula as follows. AuEq
      (g/t) = Ag (g/t) x 0.0167 + Pb(%) x 0.5714 + Zn(%) x 0.7619                                                                                                           
|5. | Mineral resource estimate was confirmed by Mr.Chris
      Moreton, Scott Wilson RPA, who is a Qualified Person as defined under NI
      43-101.                                                                                    
|6. | Numbers may not add due to
rounding.                                                                                                                                                                                                

INFERRED MINERAL RESOURCES  DECEMBER 31, 2009 New Gold
Inc.  Cerro San Pedro Mine, Mexico(Reported in Metric
units)

Tonnage & Grade
    Contained MetalCategory
    Cut-off Grade (g/t)
    Tonnes (000s)
    Gold (g/t)
    Silver (g/t)
    Zinc (%)
    Lead (%)
    Gold K oz
    Silver K oz
    Zinc M lbs
    Lead M lbsInferred Resources Inside Whittle Resource
      PitInferred Oxide1
    0.1 Au
    17,931
    0.29
    9.69
    -
    -
    168
    5,586
    -
    -Inferred Sulphide2
    0.4 AuEq3
    20,964
    0.33
    8.54
    1.22
    0.05
    224
    5,758
    564
    22Total
    392
    11,344
    564
    22Inferred Resources Outside Whittle Resource
      Pit, but within a specified grade shellInferred Oxide
    0.1 Au
    86,107
    0.27
    6.88
    -
    -
    756
    19,054
    -
    -Inferred Sulphide
    0.4 AuEq
    210,669
    0.43
    8.00
    0.45
    0.07
    2,945
    54,161
    2,073
    319Inferred Manto
    2.5 AuEq
    4,470
    1.98
    114.51
    6.17
    1.61
    285
    16,456
    608
    159Total
    3,986
    89,671
    2,681
    478


|Notes:
|------
|1.    
|2.    
|      
|3.    
|4.    
|5.    
|6.    

Mineral Reserves

Mineral reserves were generated
from a mineable pit design produced from a Lerchs- Grossmann economic
computer-generated pit shell. The computer-generated pit utilized third-party
metallurgical results and pit stability analysis, historical and current
in-house operating cost estimates, and current contract prices. The table below
summarizes mineral reserve estimates as of December 31, 2009 based on a gold
price of $800/oz, a silver price of $12.00/oz, and a net smelter return (NSR)
breakeven cut-off of $2.58/t.

MINERAL RESERVES - DECEMBER 31, 2009 New Gold Inc. 
Cerro San Pedro, Mexico(Reported in Metric units)

Tonnage & Grade
    Contained MetalClassification
    Tonnes (000s)
    Gold (g/t)
    Silver (g/t)
    Gold K oz
    Silver K ozProven
    42,709
    0.61
    22.41
    838
    30,772Probable
    35,452
    0.51
    18.79
    570
    21,417Total
      P&P
    78,161
    0.56
    20.77
    1,408
    52,189Notes:


- 38 -

---

|1. | CIM Definition Standards were used for mineral reserve
      estimation and classification.                                                   
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------
|2. | Mineral reserves are based on a US$800/oz Au and
      US$12.00/oz Ag and an NSR cut-off of US$2.58/t.                                        
|3. | Mineral reserves were confirmed by Mr. Richard J.
      Lambert, Scott Wilson RPA, who is a Qualified Person as defined under NI
      43-101.
|4. | Numbers may not add due to
rounding.                                                                                                          

Mining Operations

The Cerro San Pedro Mine is an
operating open pit mine with ore processing by heap leaching in a Merrill-Crowe
circuit that recovers both gold and silver. Current mine production is a nominal
94,000 tonnes per day of total material, including a nominal 39,000 tonnes per
day of ore that is hauled to the leach pad. For 2010, production plans called
for a nominal 99,000 ounces of gold and 2.19 million ounces of silver with
resumption of blasting in April 2010. The mine operations started pre-stripping
in late 2006 with commercial production in May 2007.

Mine access is via a 3 kilometre
haul road beginning at the leach pad extending north to the open pit. Mining is
performed through a conventional truck/loader open pit mining method. Operations
include drilling, blasting, loading and hauling. Run-of-mine (ROM) ore is hauled
directly to the leach pad for processing. Waste mining utilizes the same
equipment fleet used to produce ore; however, waste is being deposited in two
waste disposal facilities, the primary waste disposal facility to the east and a
smaller secondary facility to the west.

Mineral Processing

Mineral processing uses a heap
leaching technique. At the leach pad, a weak cyanide solution (160 ppm) is
applied to dissolve the gold and silver and take it into solution. The solution
is collected in the Merrill-Crowe plant where the zinc is added to the solution
containing gold and silver. The zinc reacts with the cyanide and the gold and
silver are precipitated in a solid form. The precipitate is collected on a
series of filters. The gold and silver precipitate is sent to a furnace where
the gold and silver are separated from the impurities and the molten metal
poured out to create gold and silver doré bars assaying approximately 95% silver
and 4% gold.

Contracts

Doré is shipped from site to a
major refiner where the silver and gold are separated. Contracts are in place
for refining with charges of $0.25 per ounce (silver plus gold) with payment of
99.8% of precious metal content.

Environmental Considerations

The closure and reclamation plan
for the Cerro San Pedro Mine has been developed by MSX with the assistance of
independent consultants, with the specific objective of leaving the land in a
useful, safe, and stable configuration capable of supporting native plant life,
providing wildlife habitat, maintaining watershed functions, and supporting
limited livestock grazing. SEMARNAT has agreed to allow MSX to fund its
reclamation obligation during mining operations, although negotiations with
SEMARNAT to determine the interim funding requirements have not yet been
finalized. The schedule for completing the closure activities is dictated by the
requirements contained in the Environmental Authorization; specifically, the
site reclamation must be completed within four years of final processing.

A Mine Closure Plan was developed
by Rescan Environmental Services Ltd. in October 2008. In essence, the plan
includes the cost of reclamation of all disturbances and the removal of all
buildings and related infrastructure over a four-year period, as well as the
cost of a three year post-closure monitoring/maintenance program. During the
three-year monitoring and maintenance program, the reclaimed sites will be
checked and plants which have not successfully established will be replaced.
There are monitoring wells and stations located in various locations on the
property and these will likely be left in place for long-term monitoring.

During the course of construction
approximately 311,000 metres3 of topsoil was salvaged primarily
during the construction of the heap leach pads. There are two soil stockpiles
located on site. The costing is based on placing 30 centimetres of topsoil on
the flat portions and 15 centimetres of topsoil for the side slopes of the waste
dumps and heap leach pad.

- 39 -

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Taxes

Mexican income taxes are 28%.

Operating and Capital Cost Estimates

CSP has developed a life-of-mine
production plan. Average mining cost per tonne over the life-of-mine is expected
to be US$1.83 for ore and US$1.90 for waste. These costs were used in
conjunction with operating experience for 2007 through 2009 to develop
processing and general and administrative costs. Process operating costs are
expected to average US$1.16 per ore tonne over the mine life. General and
administrative costs are expected to average US$0.68 per ore tonne over the mine
life.

CSP has developed a capital cost
estimate for the life of mine. Mine equipment capital is included in the
operating costs as the Company rents the mine equipment fleet. The major capital
purchases remaining are for the leach pad expansion on Modules 2 and 3. Capital
cost over the remaining six and one half years is US$18.2 million. Future
exploration drilling is excluded from the capital costs as the drilling should
help find additional resources.

Peak Gold Mines, Australia

Except as  otherwise stated, the
following disclosure relating to the Peak Gold Mines is based on information
derived, for the most part, from the technical report entitled Technical Report
on Peak Gold Mines, New South Wales, Australia, dated January 1, 2009 (the
Peak Report), as amended and restated on June 12, 2009. The Peak Report was
prepared by Peter Lloyd, FAusIMM, Rex Berthelsen, FAusIMM, CPGeo, and Eric
Strom, P.Eng., who are employees of the Company.

The following description of the
Peak Gold Mines has been summarized, for the most part, from the Peak Report and
readers should consult the Peak Report to obtain further particulars about the
Peak Gold Mines. The Peak Report is available for review on the SEDAR website
located at www.sedar.com under the Companys profile.

Property Description and Location

The Peak Gold Mines are located
near Cobar in New South Wales, Australia and are operated by Peak Gold Mines Pty
Ltd (PGM), a subsidiary of the Company. The Peak Gold Mines consist of two
areas of underground mining districts and a gold / copper processing plant. The
deposits accessed for underground mining are New Cobar / Chesney and Peak / New
Occidental / Perseverance deposits. The Peak Gold Mines are situated in the
vicinity of Cobar which is located, approximately 600 kilometres northwest of
Sydney, New South Wales, Australia. The township of Cobar has a population of
approximately 7,000. The Cobar gold field is defined as the 10 kilometre long
belt of operating and historic gold mines that extend northwards from the
Perseverance  Peak gold mine area to the Tharsis workings, immediately north of
the township of Cobar. The properties include four Consolidated Mining Leases
(CML 6, 7, 8 and 9) covering the Tharsis to Peak gold mine area, the
Coronation-Beechworth area and Queen Bee area; plus a Mining Lease, Mining
Purposes Lease and five Exploration Licenses (EL 5933, 6149, 6401, 6402 and
7355), all of which are held 100% by Peak.

In addition, Peak has a 75%
farm-in agreement on an exploration lease (EL 5982) with Zintoba Pty Ltd.
(Zintoba) and also a 51% farm-in agreement on an exploration lease (EL 6127)
with Lydail Pty Ltd. (Lydail) EL 5982 is held in the name of Zintoba and is
operated by Peak. A Letter of Agreement with Zintoba was entered into in March
2005, whereby Peak was required to spend $150,000 by 29th August 2006 to earn a
75% interest in the tenement. The expenditure was completed by the due date. EL
6127 is held in the names of PGM (51%) and Lydail (49%) and is operated by Peak.
Peak entered into a Letter of Agreement with Lydail on 11th July 2003. Peak was
required to spend $900,000 within 3 years to earn 51%. This condition has been
met. Under the terms of the agreement, Peak has elected to complete expenditure
of a further $1,350,000 before 11 June 2010 to earn 75% equity in EL 6127. The
Peak Gold Mines leases and licenses, including farm-in or purchase agreements,
cover approximately 93,813 hectares surrounding the Peak Gold Mines.

Accessibility, Climate, Local Resources, Infrastructure
and Physiography

The Peak Gold Mines are accessed by
driving 8 kilometres south from the township of Cobar on the Cobar-Hillston Road to a 0.5 kilometre private sealed road. Regional
road access through Cobar is provided by an all weather highway (Mitchell
Highway #32) between Sydney and Adelaide. Connection to the NSW rail service is
available at Cobar via Nyngan and extends to the port at Newcastle.

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A regional airport services
Cobar. Commercial flights from Cobar to Dubbo were suspended at the end of 2008.
Dubbo airport is a 3 hour drive from Cobar where regular commercial flights
operate to Sydney. The flight duration is approximately 1 hour.

Ore produced from the New Cobar
and Chesney deposits is transported by road 7 kilometres to the Peak processing
facility. The concentrates are currently transported by road to the point of
sale at the Cobar Management Pty Ltds CSA mine processing facility located 5
kilometres north of Cobar.
Thereafter, the concentrates are transported by rail to ports and smelters on
the east coast of Australia and overseas.

The Cobar region has a semi-arid
climate and in years of normal rainfall receives on average about 416
millimetres of rainfall per year. Under long-term average conditions, rainfall
distribution is relatively uniform throughout the year, although it may appear
as significant storm events. Temperatures range from an average maximum
temperature of 16°C in the winter to 33°C in the summer. The mean annual
evaporation rate of 2,548 millimetres causes a pronounced deficit over the
summer months. There are no permanent streams or other water bodies on the PGM
properties. Weather does not significantly affect the operations and mining is
conducted year-round.

The landscape is predominantly
flat, composed of sandy plains with minor undulations. A series of minor ridges
striking approximately north-northwest to south-southeast, reflect a belt of
more resistant sandstones and siltstones. Cobar is situated 260 metres above sea
level. The Peak is a conical hill, 324.3 metres above sea level, with thePeak
Gold Mines situated at the southern base of the Peak. Vegetation is largely
semi-arid low woodland, with minor seasonal creeks and rivers lined by taller
eucalypt species.

The Cobar Water Board supplies
untreated water to the Peak Mine via a 130-kilometre dedicated pipeline from the
Bogan River west of Nyngan. PGM is entitled to 1,890 million litres per year,
although it currently uses on average 300 million litres per year. PGM has
agreed to allocate an amount of its entitlement to the CSA Pty Ltd (Cornish,
Scottish and Australian) copper mine and, as a result, except in certain
circumstances, is not allowed to consume more than 1,000 million litres of its
water allocation. Potable water is pumped from the Cobar Shire Councils water
treatment plant to the site.

Maximum electricity consumption
demand is 9 MW and annual consumption is approximately 79 GWh. Power is provided
to the Peak Gold Mines via a 132 kV transmission line, to a substation at the
Peak Gold Mines. Power is converted to 11 kV for use on site, or transformed on
site to lower voltages. Emergency power is available from two, 0.8-MW and one
0.65-MW diesel generating units on site, owned by PGM. This is sufficient power
for emergency mine egress and to clear some of the processing lines.

History

There has been sporadic gold
mining in the Cobar district since the 1870s. The district was historically
better known for its copper deposits and was one of Australias main sources of
copper at the turn of the 20thcentury. Numerous small gold deposits
were discovered in the late 1880s, with the Occidental (or United), New Cobar,
Chesney and Peak producing gold in the late 1800s. The greatest period of
activity at Peak Gold Mines was from 1896 to 1911 when the Conqueror, Brown and
Blue Lodes were worked.

Most gold mining in the Cobar
district ceased by 1920 when the copper mines and smelters closed and there was
a decrease in gold prices following World War I.

The second phase of sustained
mining in the district began in 1935, when New Occidental Gold Mines NL
re-opened and operated the Occidental Mine as the New Occidental Mine. The New
Cobar (or Fort Bourke) and Chesney Mine also re-opened, in 1937 and 1943,
respectively. Mining again ceased in the district with the closing of the New
Occidental Mine in 1952. Between 1935 and 1952, the New Occidental Mine was the
premier gold mine in New South Wales, and had produced 700,000 oz of gold.

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Exploration by various companies
was conducted through the late 1940s to 1980 in the district with no
significant success. In early 1980, Rio Tinto plc acquired various leases
containing the New Occidental, New Cobar and Chesney mines. The Peak gold
deposit was discovered in 1981 and PGM was formed to develop the deposit in
1987. Between 1982 and 1985, a total of 30,840m was drilled to delineate the
Peak deposit. A prefeasibility study was prepared in October, 1985. An
additional study updated the mining, metallurgical and evaluation information to
June, 1986. A proposal for a feasibility study was approved in January, 1987 and
the study was completed in 1990. Production commenced at the Peak gold mine in
1992.

Subsequent exploration and
investigations led to the development of the New Occidental and Perseverance
deposits. In 1995 an exploration program exploring beneath the previously mined
area of New Occidental was successful in outlining an inferred resource of 3
million t grading 7.4 g/t gold. In July, 2000, approval was received for
development of the New Occidental deposit.

The Perseverance deposit was
identified in the 1980s from a coincident gravity and magnetic anomaly centred
on historic workings. Deep surface drilling in 1994 yielded a narrow zone of
ore-grade gold mineralization. The depth discouraged further exploration until
1996 when a decision was made to proceed with further exploration from an 800m
underground exploration drive from the base of the Peak Mine workings.
Underground drilling commenced in 1997. Following additional investigations and
studies, Perseverance was approved for development in December, 2001.

Exploration at the Fort Bourke
Hill historic workings, including shallow and deep diamond drilling, was
conducted from 1989. Following the temporary loss of access to the Peak Mine
shaft in mid-1998, PGM developed a trial open pit mine, the New Cobar mine, at
the site in October, 1998. The trial open pit continued until March, 1999,
extracting approximately 105,000 t of ore. The trial mining led to the operation
of the New Cobar open pit from 2001 until 2005. In 2005, development of a
decline was completed from the New Cobar open pit to access reserves below the
base of the pit.

Other exploration targets include
the Gladstone, Dapville and Great Cobar deposits that have been identified
through on-going exploration activities in the historic mining district.

Geological Setting

The Cobar Gold Field is located
on the eastern margin of the Early Devonian Cobar Basin. The Cobar Basin lies
within the northern part of the Central Belt of the Lachlan Orogen. An extensive
suite of Silurian S-type granitoids of the Wagga Tin Belt is exposed in the
southern part of this region. The Eastern Belt of the Lachlan Orogen comprises a
mixed Ordovician volcanic and sedimentary sequences characterized by the
presence of extensive andesitic volcanic units, which are associated with
porphyry-style copper-gold mineralization including the Goonumbla, Cadia and
Browns Creek deposits. Epithermal-style mineralization including the Lake Cowal,
Gidginbung and Peak Hill deposits, are also present within the Eastern Belt. The
Western Belt is dominated by Ordovician and Devonian turbidite sequences and
contains the extensive, structurally hosted gold deposits of the Victorian Gold
Fields.

Regional crustal extension of the
Lachlan Orogen in the Late Silurian created a series of north-south trending
deepwater troughs and basins in the Cobar region. These include the Cobar Basin
and, further to the south, the Raast and Mt. Hope Troughs. Onset of regional
extension was also marked by the emplacement of Late Silurian S-type and I-type
granitoids within the basement on the eastern margin of the Cobar Basin. These
include the S-type Thule Granite (dated age of 422 Ma) and Erimeran Granite
(dated age of 419 Ma) and the I-type Wild Wave Granodiorite (dated age of 418
Ma). The Cobar Basin was flanked by the Kopje Shelf to the east and the Winduck
shelf to the west. Formation of the Cobar Basin has an estimated age of
approximately 410 Ma.

The Cobar Basin comprises
predominantly siliciclastic (quartz-rich) turbidites of the Cobar Supergroup.
The basin contains two stages of sedimentary fill. The lower part is
characterized by coarse grained clastic sediments, while thickly bedded
sediments define the upper portion regards these two fill sequences as
representing syn-rift and post-rift stages, although there is a relatively
subtle nature of this sub-division, which is based solely on the relative
amounts of sandstone in the respective sequences. The lower unit, the Nurri
Group, is a fining upwards sequence comprising shallow-water sediments that
progress rapidly up into more extensive siliciclastic turbidites. This unit was
deposited along the eastern margin of the Cobar Basin from detritus sourced from
an eastern landmass. The upper unit, the Amphitheatre Group, comprises
more extensive low energy turbidites. The Amphitheatre Group defines an upward
coarsening cycle followed by an abrupt change to thinner beds with detritus
sourced from an uplifted north-western and western landmass. This unit occupies
most of the Cobar Basin and is intercalated with sediments deposited on the
western Winduck Shelf. Together, these sediments obscure the western margin of
the Cobar Basin.

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Exploration

The Cobar Gold Field (CGF) is
defined as the 10 kilometre long north-trending belt of historical gold mines
located east of Cobar which extends from Peak Gold Mines, south-southeast of
Cobar, to the Tharsis workings, north of Cobar. The CGF occurs on the eastern
margin of the Devonian Cobar Basin and has produced in excess of 2.75 million
ounces of gold and 200,000 tonnes of copper since mining commenced 134 years
ago. The currently producing mines within the CGF operated by the Company
include the New Occidental, New Cobar, Chesney, Peak and Perseverance mines.
Mining and exploration have taken place in the CGF area since the late 1800s.

Recent Exploration

During the year 2000, thirteen
RC holes totaling 578 metres were completed around the
New Cobar open cut to test for extensions to the south. No additional
mineralization was discovered. In 2003, 27 holes totaling 10,559 metres were
drilled during the feasibility study for the underground resource. A further 36
holes were drilled in 2007 for 3496.5m. Of these 20 were included in the 2007
resource estimate of the 30 to 40 levels of the mine.

In 2004 and 2005, a drilling
program comprising 52 diamond drill holes totaling 17,252 metres was completed
to test both the Main Lode from below the old workings to 800 metres below
surface and the Eastern Gold Lens below the oxide zone. A down hole
electromagnetic survey was completed on all drill holes and generated additional
drill targets. In 2007, 3 diamond holes were drilled from surface to test the
southern shoot of the Main lens at depth. These holes were drilled as daughters
with the parent hole being 1200m in depth.

In 2002, 2003 and 2004, a total
of 16 diamond drill holes were completed to explore the New Occidental Deeps
area below the 92 level to further define the resource. The result was an
increase of 4,906 ounces of gold in the resource base. In 2007 a program of 5 NQ
exploration holes were started from the 101 Diamond drill cuddy to further
augment the delineation drilling of the 102  108 levels. Two of these holes
completed late in the period and were not added to the resource estimate. A
further 56 holes were drilled delineating the area between the 98 and 108
Levels.

Since 2003, 46 diamond and RC
drill holes totaling 13,249 metres have been completed, testing the Peak Uppers,
Peak Deeps, Peak Oxide and Peak North areas. The Peak Uppers program comprised
16 holes totaling 3,962 metres and resulted in the delineation of a Measured,
Indicated and Inferred Resource. During 2003, 2004 and 2006, 18 underground
diamond drill holes totaling 5,538 metres were drilled to further evaluate the
Peak Deeps Resource, resulting in increased confidence in the resources. During
2002 and 2004, 12 diamond drill holes totaling 3,808 metres were completed north
of the Peak Mine to test geophysical targets; no significant intercepts were
identified. A further 14 holes were drilled in 2007 for mine delineation in the
Peak Uppers and the Peak North Areas. No holes were drilled in 2008 in the Peak
Deposit.

The evaluation of the
Perseverance Zone D commenced in 2002 and continued intermittently through 2003
and 2005 to 2008. A total of 120 underground diamond drill holes have been
completed totaling 38,440 metres which were used for the Zone D resource
estimate. During this time, the Hulk, Hercules and Zone D East mineralization
lenses were discovered in the footwall to Zone D.

Mineralization

New Cobar Deposit

The New Cobar gold deposit is
located approximately 2.5 kilometres north of the New Occidental Mine on the
CGF. It occurs within a late north-northwest trending shear zone developed
entirely within siltstones and lesser sandstones of the Great Cobar Slate immediately to the west of
the contact thrust. The orebody flanks a pronounced bend in the contact thrust
and occurs on the south-western side of a broad silicified ridge. At its
northern end the New Cobar mineralization is only 20m from the contact thrust
but diverges rapidly to the south and is up to 150m from the thrust at its
southern extent.

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Mineralization is characterized
by a stockwork of pyrrhotite-chalcopyrite-gold veins, which overprint an older
quartz-magnetite vein stockwork. Both stockworks are characterized by
gradational margins. The mineralization is developed over a strike length of
some 500 m, with a central zone 300m long by up to 35m wide; that strikes
north-south, dips steeply to the east, and plunges steeply to the north,
parallel to regional cleavage. Bedding dips steeply to the west. The contact
thrust is apparently not mineralized in the New Cobar area. The New Cobar
deposit has been overprinted by a relict lateritic weathering profile.

Distribution of Mineralization

The New Cobar deposit contains
four steep east-dipping and steep north-plunging lenses of gold-copper
mineralization. All lodes are associated with curvi-linear sections of the host
shears, with concavity to the east. This curvature appears to be related to the
intersection of northwest-trending structures with the main north-northwest
trending shears. From north to south they are:

|1. | The Jubilee Lode (located at 16400 N) is a narrow
      north-northwest trending lode approximately 3 to 6m wide and 50m long at
      the northern extremity of the deposit. The lode is characterized by sharp
      to rapidly gradational margins, relatively low gold/copper ratios, and
      accounts for only a small proportion of historical production at the mine.
      The lode has been traced vertically to a depth of 200m below surface where
      it appears to bottom out.                                                                                                                                                                                                                                  
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2. | The Northern Lode occurs immediately along strike from
      the Jubilee Lode (in the northern half of the historical open cut,
      approximately 16200N to 16300N) and is separated from the Northern Lode by
      a zone of barren quartz veining and silicified quartz breccia. The
      Northern Lode trends north-northwest, is 6 to 12m thick and is 60 to 80m
      long. A rapid thinning of the lode below 400m depth below surface is
      apparently associated with a steepening in the dip of the lode.                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|3. | The Southern Lode occurs immediately along strike from
      the Northern Lode (in the southern half of the historical open cut,
      approximately 16100N to 16200N) and is separated from this lode by a short
      narrower zone of barren quartz veining and silicified quartz breccia. The
      Southern Lode trends north-northwest, is 6 to 12m thick and is 60 to 80m
      long. It has been traced to 700m below surface by drilling and is
      apparently open-ended. The Southern and Northern Lodes were the most
      productive lodes in the deposit and are collectively referred to as the
      Main Lode. The Main Lode is typified by gradational margins and relatively
      high gold/copper ratios.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4. | The Western Lode is located 60m to the west of the
      Southern Lode (immediately adjacent to the Main shaft). It trends
      northwest and is approximately 2 to 5m wide and 50m long. The Western Lode
      does not crop out and is first discernible at 200m from surface, has been
      traced with diamond drilling to 500m below surface and is open at depth.
      The dip of the Western Lode shallows from 80° to 70° and gold grades in
      the lode improve dramatically.                                                                                                                                                                                                                                    

Chesney Deposit

The Chesney copper-gold deposit
is located approximately 1.8 kilometres north of the New Occidental mine and
600m south of New Cobar on the GCF. The deposit is associated with a late
north-northwest trending shear zone located approximately 30m to the west of,
and parallel to, the contact thrust. This shear zone is developed entirely
within siltstones and lesser sandstones of the Great Cobar Slate and occurs
along strike from, and to the south of, a warp in the contact thrust. Minor
mineralization is also present along the contact thrust. The Chesney deposit is
located on the western flank of a broad silicified ridge. The deposit is
approximately 200m long and up to 25m wide, plunges steeply to the north (80 to
85°) and dips steeply to the east (85°), parallel to the regional cleavage. Near
surface oxidized mineralization is known to exist. The surface geology of the
Chesney deposit is similar to that seen at the nearby New Cobar deposit.

The Chesney deposit comprises three
lodes: the Main Lode, the East Lode, and the Eastern Copper Zone.

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The Main Lode occupies the
north-northwest trending shear outboard of the contact thrust and within the
Great Cobar Slate. It has an attenuated S-shape and comprises two short shoots
of gold-copper mineralization, the Northern and Southern gold shoots, separated
by a central north-northwest trending narrow zone of low-grade copper
mineralization. The gold shoots are pipe-like bodies, each approximately 30m
long and 10 to 20m wide. The intervening copper lode is up to 150m long and 10m
thick. The gold shoots occur at the intersection of the main
north-northwest-trending shear and a series north-west trending cross-shears.
The cross-shears serve also to define the northern and southern limits of the
Chesney mineralization and are interpreted to extend eastwards across the
contact thrust to the East Lode. Sub-horizontal joints and shears are also
apparently associated with higher grades of mineralization. Both shoots plunge
steeply to the north and dip steeply to the east. The Northern shoot crops out
at surface and is associated with a prominent zone of silicification and
brecciation. The Northern shoot appears to die out below 250m depth from
surface. The Southern shoot was first encountered in the mine workings at a
depth of 200m below surface and is open-ended beneath the deepest workings at
300m from surface.

The East Lode is a poorly
defined, narrow, 2 to 3m thick gold lode developed on the contact thrust over a
distance of 200m. Mineralization is apparently developed where the
northwest-trending faults intersect the contact thrust. The East Lode was
apparently only worked to shallow depths and little is known of its vertical
extent.

The Eastern Copper Zone is
located in the hanging-wall of the CGF. Mineralization is hosted by chalcopyrite
bearing quartz veins in the Chesney Formation, but contains insignificant
gold.

New Occidental Deposit

Geological mapping by PGM of the
New Occidental mine and logging of drill core has identified a minimum thickness
of 500m of Upper Chesney Formation along the eastern side of the CGF. The
Chesney Formation is upward facing and dips generally steeply to the
west-southwest. It comprises medium-thick bedded, graded-bedded, coarse-grained
lithic sandstone and muddy siltstone.

The top of the Chesney Formation,
as defined by the Transition Unit, crops out in the south end of the New
Occidental open cut. Interbedded sandstones and siltstones of the lower
Transition Unit grade up into a sequence of finely bedded calcareous siltstones
and mudstones.

The Great Cobar Slate, which
crops out along the western side of the CGF in the New Occidental mine environs,
comprises relatively featureless muddy siltstone and mudstone with occasional
rare carbonate nodules. Bedding, where present, indicates that the Great Cobar
Slate also dips steeply to the west-southwest.

Gold mineralization occurs within
several discrete quartz-veined lenses that together define a disc-shaped orebody
approximately 200m long and up to 25m wide that extends down dip at least
1,200m. The orebody is superimposed on the Chesney Formation-Great Cobar Slate
contact and parallels the trace of the CGF. The orebody plunges steeply to the
north (80 to 85°) parallel to L2 lineation and dips steeply to the east (85°)
parallel to S2.

The New Occidental orebody
comprises at least six lodes developed along a network of generally
north-northwest to northwest-trending curvi-linear shears. The curvature of the
shears is concave to the east. Most mineralization occurs within the Eastern and
Western Lodes; these two main north-northwest trending lenses define a
wishbone-shape coalescing at the southern end of the orebody. Both lodes are 5
to 15m thick and, at the southern end of the orebody are collectively 25m thick.
The Eastern Lode is developed within a shear on the Chesney Formation-Great
Cobar Slate contact whilst the Western Lode occurs along a shear within the
Great Cobar Slate. Recent drilling confirms that both lodes remain separated at
depth. A third 3- to 5-m thick lens, the Gossan Lode, occupies an additional
parallel shear further to the west. A fourth blind lens, the Galena-Sphalerite
Lode, has been intersected over narrow intervals (<5m) in workings to the
west of the Gossan Lode and is apparently parallel to the other lodes. Deeper
drilling efforts failed to uncover any indication of this lode below the present
level of workings (approximately 560m below surface). Several northwest trending
cross shears link between these main shears. A small fifth lode, the Bowmans
Lode, is developed within the eastern shear, north of the Eastern Lode where the
east shear enters the Chesney Formation sandstones. A sixth lode, the Albion
Lode, also within the Chesney Formation, occurs at the northern termination of
the eastern shear where it intersects another north-west-trending cross-shear.
Both the Bowmans and Albion Lodes are 1 to 3m thick and less than 40m long. All
lodes at the New Occidental mine demonstrate considerable vertical continuity,
with the principal lodes having been individually defined over depth extents in
excess of 1,000m.

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The Peak Deposit

The Peak gold-base metal deposit
is located 9 kilometres south of the town of Cobar on the western flank of a
ridge (the Peak). The deposit occurs within and immediately peripheral to the
central section of the Peak Shear zone, vertically below the Conqueror, Brown
and Big Lodes.

The near-surface mineralization
occurs at or near the intersection of the Peak Shear and the conformable Great
Cobar Slate-Chesney Formation contact. The Peak orebody and the host shears are
vertically below the Chesney Formation-Great Cobar Slate contact, within the
Chesney Formation itself. The deposit is localized in portions of a series of
flow-banded rhyolite and rhyolitic sub volcanic breccia bodies. These rhyolites
and rhyolitic breccias do not crop out and are only known from drill core and
underground openings. These bodies are shallowest in the centre of the Peak
where they are 450m from surface. They are known to extend at least 1,000m
south, 500m north and 300m east of the deposit.

The Peak is hosted in sandstones
and siltstones of the Chesney Formation and rhyolitic sub volcanics and volcanic
breccias of uncertain affinity. At least three separate fault bounded bodies of
rhyolite/rhyolitic breccia are present in the Peak. These bodies comprise a
fine-grained flow-banded core within an envelope of often coarse breccia.
Contacts between the two rock-types are transitional over distances of several
metres.

The core of the rhyolite and
rhyolitic breccia bodies consists of potassium feldspar, chlorite, quartz and
sericite altered devitrified glassy, scoriaceous flow-banded rhyolite. Banding
is defined by a weak primary layering of varying proportions of quartz and
potassium feldspar, representing flow layering. The unit is vertically elongate
and dips steeply west, is up to 50m thick and extends no higher than 400m below
surface.

To the immediate east and above
the rhyolite core, and to a lesser extent to the west, are pervasive quartz,
potassium feldspar, sericite and chlorite altered, variably clast- and
matrix-supported, poorly sorted, monomictic lithic sub volcanic breccias with
fine quartz, potassium feldspar and sericite matrix.

Lesser tectonic breccia,
comprising angular clasts of sediment and volcanic material in a
quartz-dominated matrix, are also present. However, the tectonic breccias are
restricted to narrow shear zones, typically at the contact between the volcanic
package and surrounding sediments. These shears and breccias are interpreted to
have formed relatively late in the deformation history of the Peak Shear zone,
post-dating the main deformation and mineralizing events.

The main breccia complex displays
various textures indicating volcanic and sub volcanic emplacement of the felsic
bodies approximately coeval with deposition of the Chesney Formation in Early
Devonian time. Hyaloclastite textures, including fragments of volcanic material
in an altered siltstone matrix, are observed on the northern margin of the
eastern subvolcanic package. This is taken to indicate that the rhyolite was
intruded into wet sediments with rapid quenching causing brecciation.

The gold and base metal
mineralization lies entirely within the broad Peak Shear zone, in a series of
host structures that are spatially related to the dome-like bodies of
flow-banded rhyolite and volcanic breccia described above.

The Peaks orebody consists of
seventeen discrete lenses of mineralization. The lenses generally strike and dip
parallel to the pervasive regional cleavage, that is, they trend north-south and
are sub-vertical to steep west dipping. Another series of northwest-trending,
moderately southwest-dipping lenses are localized about the southern contact of
the eastern rhyolitic body.

The lenses consist of a series of
narrow, stacked en-echelon veins and are elliptical to thin lensoidal shapes in
plan. The host structures have strong vertical continuity, persisting at depth
below the currently defined ore body. Economic mineralization is less continuous
within the host structures. Within each lens, gold grades are highly variable in
all directions.

Drilling

The Company uses NQ sized core to
intersect mineralization for resource delineation and LTK48 sized core for the delineation of underground stope blocks. Diamond
core is sampled in 1 metre intervals.

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Reverse circulation drilling is
conducted with 130 to 140 millimetre face-sampling bits to minimize
contamination from material in the drill hole walls. Reverse circulation
drilling samples are collected in a cyclone operated by the crew of the rig.
Samples are then logged by the geologist and a representative split sent to the
laboratory for assay.

Surface drill data available for
the 2008 Mineral Resource estimate at the New Cobar mine were acquired in 21
discrete drill programs completed between 1973 and 2008. Of the holes drilled,
485 were selected for use in the Mineral Resource estimate. Subsequent to
commencing underground production, diamond drill core from an additional 205
LTK48 holes were available for use in the December 2008 Mineral Resource
estimate.

Surface drilling programs have
been completed at the Chesney deposit in 2004 and 2005 with additional holes
continuing into 2008. A number of holes were drilled to depths between 350
metres and 800 metres below surface. The oxide mineralization on the property
has been drill tested to approximately 100 metres below surface using 100
face-sampling reverse circulation drill holes and 47 percussion drill holes. In
addition, several HQ/NQ-sized diamond drill holes tested the deposit at deeper
levels below the water table. This drilling was completed in five different
drill programs between 1987 and 2001. Of the holes drilled, 147 were selected
for use in the Mineral Resource estimate. The unoxidized mineralization at
Chesney has been drill tested to approximately 550 metres below surface by
NQ/NQ2 diameter diamond drill holes. In addition, 16 AX and EX underground
diamond core holes were drilled from the lowest level of the mine (270 metres
below surface). In 2008, underground access was gained and a further 73 LTK48
holes were completed. In total, 158 holes have been used to estimate the tonnage
and grade of the mineralized system immediately below and in the hanging wall of
historic workings.

New Occidental Mineral Resource
estimates are based on 795 drill holes from drilling campaigns between 1945 and
2008.

Four drilling campaigns were
completed for Peak Gold Mines between 1997 and 2000, plus a sporadic series of
diamond drill holes between 1948 and 1995. The results of 80 drill holes from
such programs were used in the Peak oxide resource estimates. The reverse
circulation drill programs were sampled every 2 metres and the diamond drill
core was sampled on various intervals of less than 2 metres. Three programs of
exploration drilling, utilizing NQ/2 core, were conducted on Peak Deeps between
2003 and 2006. The results of 22 holes were used to update the Peak Deep
resource model in December 2006. A further 18 holes were drilled during 2007 and
were used to further delineate the Peak Uppers above 290L as well as Peak Deep
portions of the Peak deposit. The underground mine at Peak was in operation from
1992 to 2002 with mining recommencing at a reduced rate in 2005. It has a very
large and extensive database of exploration and delineation drill holes,
underground mapping, muck sampling and production reconciliation data from which
to estimate and reconcile a resource. Since the last Mineral Resource estimate
all new holes have been drilled using underground drills; LTK48 core and
whole-core sampling, and NQ core with half-core sampling. These are the same
drill rigs as currently being used at New Occidental, New Cobar, Chesney and
Perseverance.

Almost all underground drilling
at the Perseverance deposit was completed using HQ, NQ/NQ2 and LTK48-sized
drilling equipment, except for a few wedged holes which were completed using
heavy duty CHD-series drill rods. HQ-sized equipment was used to establish
collars and complete up to 300 metres of parent hole to facilitate off-hole
wedging and directional drilling. LTK48 core was used to assess the whole of
Zone A, Zone B, Upper Zone D and Hulk. Hercules lens is drilled much more
sparsely. The results of 599 drill holes were used in the Perseverance Mineral
Resource estimates.

Sampling and Analysis

No records were available for the
assaying protocols for the historic underground drilling at New Cobar, Chesney
and New Occidental. It is believed that the samples were analyzed at the mines
onsite laboratory by fire assay for gold and wet chemical methods for base
metals.

Most of the early exploration
sample analyses for Cobar Mines, CRAE and PGM used the Analabs Cobar (formerly
Australian Assay Laboratories Cobar, now SGS Cobar) laboratory for assaying. ALS
Chemex (2001-2006) was occasionally used for check assaying. CRA RC samples were
assayed for gold by fire assay and for silver, copper, lead, zinc, lithium and sodium by AAS at
Analabs Adelaide. CRA drill core samples were usually analyzed for gold by fire
assay and for base metals and silver by AAS methods. Some surface diamond core
drilled during the 1970s and 1980s was assayed for gold using acid digestion
with an AAS finish, but many of the mineralized intersections were later
re-assayed by fire assay.

- 47 -

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Other laboratories including
Aminya (1989  1996), Amdel (1987  1999) and CMPL (1973  1975) have been used
for early metallurgical test work or for assaying of some exploration
samples.

The Company currently uses
external laboratories for all core and RC chip analyses. All drill core is
analyzed for gold, copper, lead, zinc, silver and bismuth. Standard contract
analytical work is currently carried out by SGS Cobar. Prior to June 2001, ALS
Chemex in Orange was used for analysis of some Perseverance drilling. Since
1997, over 80% of all sample submissions and over 88% of all sample analyses
have been completed at either Analabs (Cobar or Orange) or SGS Cobar.

Gold Analysis

Prior to 2004, the Analabs Cobar
laboratory was mainly used for gold assaying. Special requirements, such as
screen fire assay, were performed at the Analabs Orange laboratory. All samples
include the S091 method, which is a silica wash in the pulveriser between
samples. Some samples have been analyzed at the ALS Chemex laboratories in
Brisbane and Orange. These include some Perseverance drilling samples (2000,
2001) and some check assays (2005).

On December 31st 2001,
Analabs Cobar became SGS Cobar. In 2004 the Analabs Cobar Laboratory became
referred to as SGS Cobar and the analysis methods were changed. A barren silica
wash (method WSH78) is still included between each sample.

Base Metal Analysis

Prior to mid-2004, Analabs
performed the base metal analyses at their laboratory in Townsville using the
Inductively Coupled Plasma  Optical Emission Spectroscopy method (ICP-OES).
Over-range (ore grade) base metal assays (typically above 1%) were repeated
using a triple acid digestion with an AAS finish.

ALS laboratories in Orange were
also used as discussed in the previous section. Subsequent to mid-2004 the bulk
of all base metal analyses were performed at the SGS Cobar laboratory using a
triple acid digestion on a 0.5g pulp sample with an AAS finish.

Security of Samples

Core samples that are to be
collected at site are stored within a secure shed in a fenced and locked yard
behind the main gate at the offices of Peak Gold Mines. All visitors who enter
the Peak Gold Mines site must be tagged through an electronic gate, which is
manned by security personnel 24 hours a day. It is current practice for the
samples to be collected daily by an employee of the SGS Cobar laboratory.

Sample pulps and field splits of
RC samples are also stored in a secure facility either at the mine or at the
CRAE/RTE office in Bundoora, near Melbourne, Australia. Prior to November, 1998
pulps were sent to the pulp storage facility in Bundoora. Since December, 1998
all pulps have been stored at the Peak Gold Mines core shed.

Each sample dispatch is given a
unique data processing order (DPO) number, which is used to track the sampling
details (laboratory, assaying method, and sample preparation code) in the site
Drillview database. Original DPO sheets are on file at CRAE/RTE in Bundoora, or
at the Peak Gold Mines offices.

Post-1975 assay reports issued by
analytical laboratories detail the sample preparation and analytical codes used
to perform the analyses. Original laboratory reports are filed by DPO at CRAE
Bundoora and PGM. Sample preparation codes for all DPOs are detailed in the DPO
and analytical code tables in Drillview.

- 48 -

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Mineral Reserve and Resource Estimates

New Gold currently has six
deposits that have published Mineral Resources and/or Mineral Reserves within
the Cobar gold field. The deposits are as follows:

- New Cobar
- Chesney Oxide and Sulphide (2 separate resource estimates)
- New Occidental
- Peak
- Perseverance

All of the PGM mineral reserve
and mineral resources have been estimated and classified in accordance with the
guidelines set out in the AusIMM JORC Code.

These guidelines are consistent
with the criteria laid out in the Canadian NI 43-101 and the Definition
Standards adopted by CIM Council on December 11, 2005. The JORC Code differs
from the CIM Definition Standards in the use of the terms Ore Reserve and
Proved in the JORC Code compared to Mineral Reserve and Proven in the CIM
Definition Standards. The criteria for estimating, classifying and reporting of
mineral resources and reserves under the two systems are essentially identical,
however, with one notable difference being the requirement to report Inferred
Mineral Resources separate from the totaled Measured and Indicated Mineral
Resources under NI 43-101 and the CIM Definition Standards.

Updated Mineral Resource and Ore
Reserve estimates for the Peak Gold Mines operation as of December 31, 2009 are
presented in the Peak Gold Mines Update section below.

Mining Operations

Mine production operations are
located in four distinct underground zones, plus ore stockpiled from the
completed open pit operation at New Cobar. Current mining is from zones which
are contiguous to, or nearby, earlier mined out areas. Production operations
have been underway at New Occidental since December 2001, while development
commenced at Perseverance in October 2002 with production commencing in July
2003. The New Cobar open pit mine was completed in February 2004, with the mined
ore stockpiled for subsequent treatment. The New Cobar underground development
commenced in June 2004 and was commissioned in September 2005. The Chesney ramp
development was commenced in 2006 and development of the first mining horizon
began in the second quarter 2008.

Access development to the New
Occidental and Perseverance deposits allows 45 and 55 tonne truck haulage from
the two zones to the Peak Mine crushing and hoisting infrastructure. Ore is
hauled to a Jaques jaw crusher on the 630L. Ore from the Peak deposit generally
reports to an orepass system which gravitates ore to the crusher access. Crushed
ore is loaded into the 10 tonne skip and hoisted to the surface, where it is
stockpiled for milling. The Peak shaft is concrete lined, 5.3 metres in diameter
and 740 metres deep. The hoisting system is designed to provide capacity in
excess of 700,000 tonnes per year.

Ore from New Cobar and Chesney is
hauled to the surface using 45 and 55 tonne trucks and stockpiled in the New
Cobar ROM pad. The ore is then screened and sized and hauled by surface road
trains to the Peak site where it is stockpiled in preparation for milling. All
stockpiled ore is fed into the No. 5 feeder with a surface loader.

The mining and milling operations
operate on a 4 panel roster with two 12 hour shifts per day, 365 days per year.
Maintenance is conducted by personnel of the Company and contractors carry out
the diamond drilling activities.

Drilling has identified
significant down-dip extensions to the Perseverance orebody and also an up dip
extension to the Peak orebody. Extensions to the declines are progressing in the
New Occidental, Perseverance, New Cobar and Chesney areas to enable further
mining. The mining of remnant ore around the original Peak Mine is continuing.
The Peak Mine access ramp extension to the surface was completed in December
2007.

- 49 -

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At Peak, Perseverance, New
Occidental and New Cobar the mining method employed is bench stoping with a 20
metre sublevel interval. At Chesney a combination of bench stoping and open
stoping will be employed using a 35m sublevel interval. Mining progresses from
bottom up in each panel. Drives are developed along strike in the ore on each
level, a slot is developed and ore is blasted into the void. Ore is extracted on
retreat to the access crosscut. Waste rock is used to backfill the stoping
void.

In wider sections of the orebody
(plus 8 metre) and longer strike lengths, footwall or hangingwall drives are
also developed. Once the mining void is large enough, waste rock is introduced
to the mined out section of the stope in a modified Avoca style mining method in
order to increase stability. Minimal pillars are required. An option of Cemented
Rock Fill is being examined to assist mining in wide, high value zones.

Environmental Considerations

Enesar Consulting Pty Ltd.
(formerly NSR Consultants Pty Ltd.) conducted external environmental audits of
the PGM tenements in June 2002, April 2004 and August 2006. While three high
ranking environmental issues were identified during the audits, these were
addressed as a priority. These three issues were related to tailings
management.

There were a number of
significant improvements since the previous audit in 2004, most notably in water
recycling, implementation of dust suppression measures and upgrading of the
tailings pipelines. No issues classified of very high importance were
identified. PGM is due for another external audit in July of 2009. This audit
will be a benchmarking against the international standards ISO 14001, the
International Cyanide Code and the World Bank Equator Principles. PGM is using
the standard ISO 14001 as a guideline for its environmental management
system.

PGM has a responsibility under
state law to rehabilitate areas of historic mining as well as current mining
activities on its leases to an agreed end land use. The current bank guarantee
in favour of the Department of Primary Industries (New South Wales) is now in
the amount of A$ 10.1M.

Taxes

Both New South Wales state and
Australian federal tax are levied on the proceeds from the PGM operations.
Federal income tax, after appropriate eligible deductions, is imposed at 30%,
while New South Wales state tax effectively is a mining royalty set at
approximately 3% of gross revenue, before treatment charges and all other costs.
Payroll tax of approximately 6% is incurred on the payroll.

Exploration and Development

Exploration in 2009 concentrated
on extending the known resources at Perseverance and Chesney, continuing near
mine exploration of satellite ore bodies around known deposits and evaluating
regional targets generated from the regional targeting initiative.

Peak Gold Mines Update

The following disclosure provides
the updated Peak Gold Mines Mineral Resources and Ore Reserve statements as of
December 31, 2009 which was not derived from the Peak Report. The Mineral
Resource and Ore Reserve estimates were prepared by Mr. Rex Berthelsen, FAusIMM,
CPGeo, and Mr. Sean Pearce, MAusIMM respectively, who are each recognized as
both a Competent Person under Australian JORC Code and a Qualified Person
under Canadian NI 43-101 and CIM Definition Standards.

- 50 -

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The Peak Gold Mines mineral
resources inclusive of mineral reserves and ore reserves, effective December 31,
2009, are summarized in the following tables.

MINERAL RESOURCES  DECEMBER 31, 2009 New Gold Inc. 
Peak Gold Mines, Australia(Reported in Metric units)

Tonnage & Grade
    Contained MetalClassification
    Tonnes (000s)
    Gold g/t
    Silver g/t
    Copper %
    Gold K oz
    Silver K oz
    Copper M lbsMeasured
    2,453
    3.74
    9
    1.05
    295
    715
    57Indicated
    3,614
    4.77
    7
    0.88
    554
    775
    70Total M&I
    6,067
    4.35
    8
    0.95
    849
    1,490
    127Inferred
    1,998
    4.67
    5
    0.75
    300
    347
    33


|Notes: |                                                                                                                                                                                      
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.     | Measured and indicated mineral resources are
      inclusive of ore reserves. Inferred resources are exclusive of ore
      reserves.                                                
|2.     | JORC Code definitions were used for mineral
      resource estimation and classification.                                                                                            
|3.     | Mineral resources are based on metal prices of
      US$800 per ounce gold, US$12.00 per ounce silver and US$2.00 per pound
      copper and an NSR cut-off grade of AUD$95 per tonne
|4.     | Columns may not add exactly and numbers may
      differ slightly from NGD consolidated mineral resources due to rounding.                                                           
|5.     | Mineral Resources were estimated by Mr. Rex
      Berthelsen, New Gold, who is a Competent Person under JORC Code and a
      Qualified Person under NI 43-101.                      
|6.     | Numbers may not add due to rounding.                                                                                                                                                 

ORE RESERVES  DECEMBER 31, 2009 
New Gold Inc.  Peak Mines, Australia(Reported in Metric units)

Tonnage & Grade
    Contained MetalClassification
    Tonnes (000s)
    Gold g/t
    Silver g/t
    Copper %
    Gold K oz
    Silver K oz
    Copper M lbsProven
    1,212
    3.92
    11
    0.79
    153
    417
    21Probable
    2,598
    5.00
    6
    0.80
    420
    501
    46Total
      P&P
    3,810
    4.70
    7
    0.80
    573
    918
    67


|Notes: |                                                                                                                                                                                       
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.     | Mineral Reserves are exclusive of inferred
      mineral resources.                                                                                                                   
|2.     | JORC Code definitions were used for mineral
      reserve estimation and classification.                                                                                              
|3.     | Mineral reserves are based on metal prices of
      US$800 per ounce gold, US$12.00 per ounce silver and US$2.00 per pound
      copper.                                              
|4.     | Mineral reserves were estimated using NSR
      cut-off grades ranging from AUD$118-152 per tonne which vary depending on
      mining depth and distance to Peak processing facility.
|5.     | Columns may not add exactly and numbers may
      differ slightly from NGD consolidated mineral resources due to rounding.                                                            
|6.     | Ore Reserves were estimated by Mr. Sean Pearce,
      New Gold, who is a Competent Person under JORC Code and a Qualified Person
      under NI 43-101.                               
|7.     | Numbers may not add due to rounding.                                                                                                                                                  

Exploration and Development Update

Exploration in 2010 will continue
to concentrate on extending the known mineral resources at Perseverance New
Cobar and Chesney, continuing near mine exploration of satellite targets around
known deposits and evaluating regional exploration prospects generated from the
Peak Gold Mines regional targeting initiative.

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New Afton Project, Canada

Except as otherwise stated, the
following disclosure relating to the New Afton Project is based on information
derived from the technical report entitled Technical Report on the New Afton
Project, British Columbia, Canada, dated December 31, 2009 (the New Afton
Report). The New Afton Report was prepared by R. Dennis Bergen, P. Eng., David
W. Rennie, P.Eng., and Kevin C. Scott, P.Eng., all of Scott Wilson RPA.

The following description of the
New Afton Project has been summarized from the New Afton Report and readers
should consult the New Afton Report to obtain further particulars about the New
Afton Project. The New Afton Report is available for review on the SEDAR website
located at www.sedar.com under the Companys profile.

Project Description and Location

The New Afton Project is located
approximately 350 kilometres northeast of Vancouver and 10 kilometres west of
Kamloops in the South-Central Interior of British Columbia, on the site of the
historic Afton Mine, a previous operation of Teck Resources Limited (Teck).

The Companys holdings in the
Project area comprise two groups: the Afton Group and the Ajax Group. The New
Afton deposit lies within the Afton Group. The Afton Group consists of 44
mineral claims, a portion of which have been surveyed and are included in a
mining lease that was issued by the Ministry of Energy, Mines and Petroleum
Resources on November 9, 2006 (the Afton Mining Lease). The total area of the
Afton Mining Lease and all other claims is 7,352.7 hectares.

New Gold acquired the option to
purchase the Afton 1  11 claims (the Original Claims) in September 1999,
subject to an option agreement with Westridge Enterprises Ltd. and Indo-Gold
Development Ltd. (the Optionors). Under the terms of the option agreement, New
Gold was required to make a series of payments to the Optionors in shares and
expenditures totalling 2 million shares and C$6.5 million in expenditures over a
nine year time frame. The payments and work expenditures have been completed as
required and New Gold now owns the property subject to a 10% net profit royalty
owed to the Optionors. New Gold has an option exercisable on or before December
1, 2010 to purchase the Optionors 10% net profit royalty for C$2 million. In
addition to the Original Claims, New Gold has staked other claims for its own
account to consolidate its land position at the New Afton Project.

The Company holds surface rights
on approximately 4,300 acres surrounding the New Afton Project, purchased from
subsidiaries of Teck on October 25, 2007. The terms of the purchase agreement
with Teck provide title to fee simple land, a covenant to obtain a release of
grazing leases, and access to surface improvements, including a water pipeline
to the site from Kamloops Lake.

Reclamation permits covering the
existing pits, plant facility and tailings pond, issued by the British Columbia
Ministry of Energy and Mines, are held in the name of the previous operator,
Teck.

Accessibility, Climate, Local Resources, Infrastructure
and Physiography

The New Afton Project is located
on the south side of the Thompson River Valley, approximately 350 kilometres
northeast of Vancouver and 10 kilometres west of Kamloops, British Columbia. The
Trans-Canada Highway No. 1, just west of its junction with the Coquihalla
Highway No. 5, passes through the middle of the Afton Mining Lease. Access to
the mine site is by a mine road located off the Trans-Canada Highway.

The Kamloops area is in the rain
shadow of the Coast Mountains. Precipitation is minor, averaging about 257
millimetres annually (of which 175 millimetres is rainfall), with light winter
snow and infrequent rain in the spring and fall. The area has warm summers where
temperatures can reach 38°C and cool winters where temperatures hover around the
freezing mark. During the winter, short periods of cold weather can occur where
temperatures drop to as low as -29°C.

Kamloops is a major
transportation hub for highway, air and railroad. Forestry, ranching, mining and
tourism are the most important economic activities in the area. The city has an
airport with daily air service from Vancouver, British Columbia and Calgary,
Alberta and is serviced by both Canadian National and Canadian Pacific Railways. Kamloops is a natural resource-based city of 80,000
people. The area has a ready supply of trained workers and professionals and has
suppliers and contractors to support heavy industry.

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BC Hydro transmission lines, a
Terasen natural gas pipeline, and a Pembina oil pipeline traverse the mining
lease north of the Afton pit. A water pipeline approximately four kilometres in
length can deliver fresh water from Kamloops Lake to the mine site. The Company
purchased the pipeline and pump house facilities from Teck as part of the
purchase agreement in 2007. The Company has obtained a temporary water permit
and applied for a permanent water permit to withdraw water from Kamloops Lake
for mining and milling operations.

The surface and underground
infrastructure at the New Afton Project includes: Site access from the
Trans-Canada Highway which is immediately adjacent to the site; Underground mine
workings a conveyor gallery, a second access from the open pit, and ventilation
raises to surface; Facilities providing basic infrastructure to the site
including electric power, water supply, communications, and mine offices; An
underground mobile equipment fleet and support facilities at both the upper,
conveyor gallery portal and the portal in the open pit; Dewatering facilities
for pumping from the open pit to a storage area in Pothook Lake, which has been
bermed to increase its volume; Construction support equipment including a
concrete batch plant and trucks for the delivery of concrete and surface support
equipment; Engineering and administration offices, mine dry and first aid
facilities; A new concentrator building with the SAG mill, ball mill and
vertical mill mechanically installed, and A partially cleared and prepared
tailings storage facility.

The old Teck concentrator
building remains in its location on the east side of the open pit, but the New
Afton facilities are located to the west of the pit. Similarly, the old Teck
tailings storage area remains on site but is not planned for use by New Gold.
Both the concentrator building and tailings pond are on land owned by
others.

The surface and underground
infrastructure at the New Afton Project includes: underground mine workings, a
conveyor gallery, a second access from the open pit, and ventilation raises to
surface; facilities providing basic infrastructure to the site including
electric power, water supply, communications, and mine offices; an underground
mobile equipment fleet and support facilities at both the upper, conveyor
gallery portal and the portal in the open pit; dewatering facilities for pumping
from the open pit to a storage area in Pothook Lake, which has been bermed to
increase its volume; construction support equipment including a concrete batch
plant and trucks for the delivery of concrete and surface support equipment;
engineering and administration offices, mine dry and first aid facilities; a new
concentrator building with the SAG mill, ball mill and vertical mill
mechanically installed; and a partially cleared and prepared tailings storage
facility.

The landscape is characterized by
hilly, till-covered, drumlinoidal terrain and dispersed, small, alkaline water
bodies. Relief adjacent to Kamloops Lake is a few hundred metres or more. The
most significant topographic features within the mining lease are the Afton and
Pothook open pits and the reclaimed waste rock dumps of the Afton Operating
Corporation, the former operator. Kamloops Lake is located north of the mining
lease and bisects the Afton mineral tenure. Vegetation consists of open
grasslands and sparse pine forests as a consequence of a continental, semi-arid
climate.

History

Exploration in the Afton area
began in the mid-1800s, as prospectors pushed into the interior of British
Columbia following the Fraser and Caribou gold rushes. The Iron Mask property,
staked in 1896, was the first in the Kamloops district. The Afton property
claims were staked over the Pothook workings in 1949. This was followed by
sporadic, and largely unsuccessful, exploration work by a number of parties
through the 1950s and 1960s.

In 1970, a private company called
Afton Mines Ltd. (Afton Mines) obtained a drill intersection of 170 ft of 0.4%
Cu from what ultimately became the Afton deposit. For the next three years, over
150,000 ft of drilling was carried out by a number of operators. Teck and Iso
Mines Ltd. acquired the Afton property in 1973, and initiated engineering and
metallurgical studies. A production decision was taken in October 1975, with
production commencing at the Afton open pit mine in late 1977. At the start of
production, the reserves were 34 million tons grading 1% Cu, 0.016 oz/ton Au,
and 0.12 oz/ton Ag (30.8 million tonnes grading 1% Cu, 0.58 g/t Au, and 4.2 g/t
Ag). Mining took place on the property at the Afton, Crescent, Pothook, and Ajax
pits. The mine closed in 1991, reopened again in 1994, closing finally in 1997.

- 53 -

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In 1999, the Afton mining leases
expired and the ground was staked by two geologists. Later that year, the
Company, under its predecessor name, DRC Resources Corporation, acquired an
option on the property, surrounded it with additional staking, and carried out
surface drilling in the New Afton deposit. In February 2001, the Company
completed a Scoping Study based on drilling results to date. Further definition
drilling was recommended to confirm the continuity of the mineralization. An
Advanced Scoping Study completed in February 2004 contemplated an underground
mine, using a block caving method, feeding a conventional flotation mill
operating at a rate of 9,000 tpd. Measured and Indicated Mineral Resources were
68.7 million tonnes grading 1.08% Cu, 0.85 g/t Au, and 2.62 g/t Ag.

In late 2004, a portal was
collared on the south wall of the Afton pit, and 1,915 m of decline and drift
were driven to provide access for definition drilling and bulk sampling of the
deposit. Diamond drilling, both from surface and underground, has been carried
out more or less continuously. At the cut-off date for the 2006 Mineral Resource
estimate, the total amount of diamond drilling was 84,755 m in 182 holes.

The Company commissioned a
Feasibility Study  in 2005. The study, completed in
2007 (the 2007 Feasibility Study), contemplated a block cave mine and
conventional grinding/flotation mill operation with a daily throughput of 11,000
tonnes. Mineral Reserves comprised 44.4 million tonnes in the Probable category
grading 0.98% Cu, 0.72 g/t Au, and 2.27 g/t Ag. Mine life was estimated to be 12
years, with preproduction capital costs of C$268 million and Life of Mine
sustaining capital of C$215 million. Exploration drilling during 2006-2007
resulted in the discovery of the C Zone located below the main body of
mineralization.

Underground development at the
New Afton Project is currently underway, the mill building has been erected with
exterior cladding installed, and mill foundations have been poured. Surface
construction has been suspended until late 2010, and underground development is
expected to be completed in 2012.

Geological Setting

The Afton area is underlain
primarily by rocks of the Upper to Lower Palaeozoic Quesnel Terrane, a package
of island-arc sedimentary rocks, volcanic assemblages and associated intrusive
phases. Quesnel Terrane was accreted onto the North American continental margin
during the Early to Mid-Jurassic and is distributed throughout the entire length
of British Columbia. It forms part of the Intermontane Belt, which is host to
many porphyry Cu-Au-Mo deposits including Copper Mountain, Afton, Highland
Valley, Mount Polley, Gibraltar, Kemess, and Galore Creek. In the immediate
Project area, the Quesnel Terrane comprises Late Triassic to Early Jurassic
Nicola Group island-arc volcanic and sedimentary rocks, and coeval alkalic to
subalkalic intrusions of the Iron Mask batholith.

The New Afton deposit is hosted
within the Cherry Creek member of the Iron Mask batholith complex. The Iron Mask
complex is a multi-phase plutonic body exposed in a southeast-trending belt
measuring 34 kilometres long by 5 kilometres wide. The Cherry Creek phase is a
partially fault-bounded body trending east-northeast through the deposit area,
curving to east side of the property to a more southeasterly trend. At Afton,
the Cherry Creek intrusive is a variably and multiply brecciated assemblage of
porphyritic and equigranular monzonite-monzodiorite. Cherry Creek rocks include
fine- to medium-grained pyroxene-hornblende monzodiorite and fine-grained
biotite-monzonite, varying to more dioritic composition, and minor syenite. The
principal host phase of the Cherry Creek is a magnetic fine- to medium-grained
porphyritic pyroxene-hornblende monzodiorite which forms a wedge of intrusive
breccia between the Nicola and Pothook rocks. Contacts to the west and southwest
are with Nicola Group volcanic rocks and to the east and southeast with the
Pothook diorite.

The Project area is traversed by
regional-scale fault zones which are believed to be the principal control to
intrusion of the batholithic rocks, as well as the mineralization processes.
North- to northwest-trending steep to moderate-dipping fault zones are primary
controlling structures for emplacement of the Iron Mask intrusives.
East-to-northeast-trending faults are important controls to hydrothermal
alteration and mineralization. The faulting and associated fracturing also
provided conduits for meteoric waters, which gave rise to weathering and
supergene enrichment of the primary sulphide mineralization.

A steeply dipping body of
serpentinized and sheared picrite has been entrained within the Hanging Wall
Fault, a major structural control to the New Afton deposit. This unit separates
strongly mineralized, pyrite-poor, potassically altered monzodiorite to the
northwest from pyritic, sericite-carbonate-clay-chlorite-altered monzodiorite to the southeast. Ground conditions within the picrite are
poor, which has hampered efforts to drill through it. As a result, drill
information on the hanging wall side of the picrite is limited.

- 54 -

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Exploration

Prior to New Golds involvement,
the only work that had been done on the deep resource at Afton was the seven
holes drilled by Afton Mines in 1973 (two holes) and 1980 (five holes). New Gold
commenced exploration work in 2000, with mapping and sampling of the pit (as
well as any available outcrop surrounding the pit) and drilling of 96 surface
diamond core holes totalling 42,250 metres.

In November 2004, an adit was
collared in the former Afton open pit at 512 metres above sea level. A ramp was
driven from this portal to provide access for underground sampling, infill
drilling to confirm the mineral resources, and further exploration drilling to
determine the full extent of the mineralization. Total drifting was 2,200
metres.

Diamond drilling from February
2005 to April 2006 totalled 30,778 metres in 78 holes, bringing the total amount
of drilling on the Project to 84,755 metres in 182 holes. Drilling continued
throughout 2006 and into 2007 on the C Zone, a deep extension to the New Afton
ore body. Five exploration holes totalling 2,996 metres were drilled in the
Pothook Pit area, which is approximately 0.5 kilometres east of the Afton mine
pit. Drilling was also conducted on the Hanging Wall Zones, located under the
east side of the Afton pit, in 2008. To date, 276 exploration diamond drill
holes have been completed in the entire Project area, for an aggregate length of
130,439 metres.

In late 2005, New Gold contracted
Fugro Airborne Surveys to complete 1,323 line-kilometres of airborne
electromagnetic surveying of the Afton and Ajax claims, and Quantec Geoscience
Ltd. was retained in 2008 to carry out Tensor Magnetotelluric and DC Resistivity
and Induced Polarization surveys totalling 34.5 line- kilometres.

In addition to the work at Afton,
New Gold has carried out relatively small exploration programs on the Ajax
Group, which is located just over 7 kilometres to the southeast of the Afton
pit. Drilling on the Ajax Group in 2004 and 2006 totalled 4,635 metres in ten
holes. During the period from 2006 to 2008, New Gold drilled another 16 holes
totalling 6,820 metres. A radiometric survey, consisting of 44.73 line-
kilometres, was carried out in 2007, along with collection of 2,040 geochemical
soil samples.

Mineralization

The Afton deposits are Cu-Au
silica-saturated, alkalic porphyry style deposits. Hypogene mineralization
comprises fine-grained disseminated chalcopyrite and relatively minor bornite or
chalcocite. In weathered portions of the deposit, the chalcopyrite has been
altered to bornite and chalcocite, and in the most intensely oxidized areas,
native copper. Native gold is rarely observed. Gold and silver reportedly occur
as electrum grains within the chalcopyrite and bornite.

The bulk of the deposit occupies
a large tabular mass measuring 900 m long by approximately 100 metres wide and
spanning a vertical distance of approximately 350 metres. The zone dips
vertically to steeply south-southeast and plunges at moderate angles to the
southwest. Two subsidiary satellite bodies occur to the northeast of the Main
Zone. One of these zones appears to branch off of the Main Zone and strikes in a
somewhat more easterly trend, dipping steeply to the south-southeast. The other,
which is further away from the Main Zone, has a similar strike to the Main Zone
but dips at a flatter angle (approximately 60° southeast).

The deposit is porphyry-style,
with very distinct structural controls. The primary mineralizing event was
preceded by development of disseminated magnetite-pyrite. Primary economic
sulphide mineralization occurred in association with potassic alteration
(principally K-spar) resulting in destruction of the earlier magnetite-pyrite
assemblage. Following this, carbonate veinlets (principally ankerite) developed
along and surrounding the faults, along with varying amounts of pyrite, clay
gouge, and sericite.

Subsequent faulting reshuffled
portions of the deposit in a manner that is not completely understood. This has
resulted in truncation of the zone along the Hanging Wall Fault in places, and
apparent displacement of mineralized blocks. These blocks may occur as isolated
pods in the hanging wall or may also be situated adjacent to the Main Zone such
that they appear to comprise a continuous body of mineralization crossing the
fault.

- 55 -

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Drilling

All drilling completed to date on
the Project has been diamond core drilling, conducted in a series of programs
over a period spanning 2000 to 2008. Most of the drilling has been for
exploration and resource definition. However, in recent years (2007 and later),
geotechnical holes have been drilled for groundwater monitoring and collection
of data for mine design. To date, 276 holes have been drilled for a total of
130,439 metres.

In 2008, drilling continued on
the Wall Hanging Zones, with a total of 4,450 metres drilled in 15 surface
holes. Drilling contractors used were Atlas Drilling Company, Western
Exploration Diamond Drilling Ltd. and Connors Drilling Ltd.

New Gold now has a formal
protocol for locating, monitoring, surveying, and logging the drill holes.
Planned holes are plotted in plan and section to confirm the target and collar
location. A geologist inspects the collar site, and the surveyors mark both the
collar location and line. Once the drill has been set up, the geologist conducts
an inspection, checks the orientation of the rig, and confirms with the driller.
Daily site inspections are conducted by a geologist as the hole is being
drilled.

Following completion, a downhole
survey is carried out by a technician using the Reflex Easy-Shot instrument,
with measurements made every 50 metres for holes greater than 100 metres in
depth. For shorter holes, measurements are made at the mid-point and bottom of
the hole. Also at this time, a request is made to the surveyors for collar
pick-up. In practice, some underground collars are not actually surveyed, but
are located relative to the drift survey. Site reclamation of both the pad and
the sump is then carried out.

Core is delivered at the end of
each shift to the logging facility housed in a Quonset hut on site. Depending on
the back-log, the core is either laid out for processing or stored for later
logging. Processed core is laid out, washed, checked for correct depth
measurements, and marked with start and end measurements. Any incorrect depth
blocks are corrected at this time. Aluminum tags, denoting hole and box numbers,
are affixed to each box. The core is then marked for sampling on two-metre
intervals.

Geotechnical logging is then
carried out, followed by the geological logging. Geological logging includes
lithology, alteration, and mineralization. The logs are transcribed into
spreadsheets, which are then sent to the database manager along with the core
imagery and sample lists. Sample tags are prepared for the marked intervals as
well as the quality assurance/quality control (QA/QC) samples, and this is all
recorded in a spreadsheet. The core is then photographed and placed in racks to
await sampling.

Sampling Method and Approach

For all drilling programs from
2007 onwards, a two-metre sampling interval has been maintained and is specified
in the formal protocol maintained by New Gold. Samples are marked as described
above. Technicians retrieve the boxes from the rack and convey them to the
cutting shack. Core is sawn in half, and the sample is placed in a plastic bag
marked with the tag number. The remaining half core is put back in the box for
storage. Each day, the samples are placed in rice bags, which are then marked
with the sample sequence and prepared for shipping. A daily manifest is
prepared, detailing the sample numbers cut and packaged, and is provided to the
laboratory. Samples are stored in a locked enclosure until pick-up by laboratory
personnel. Each shipment is accompanied by the manifest, with a duplicate copy
retained at site.

Starting in early 2007, New Gold
commenced a program of assaying pulps by inductively coupled plasma (ICP) in
order to build a database of potentially deleterious elements. Starting in the
walls, and progressing through the deposit to the opposite wall, every fifth
sample was selected from the drill database. These samples were run using
ICP.

A detailed description of the
sampling methods and approach for drilling programs prior to 2007 can be found
in Section 12 of the New Afton Report.

Sample Preparation, Analyses and Security

For the 2000  2003 drill programs,
all samples were sorted, documented, dried (if necessary), roll crushed to -10 mesh, split into 250g subsamples, and then pulverized to
95% -140 mesh. Samples for Cu metallics assay were split and pulverized into
additional 250g subsamples of -10 mesh material, and the entire pulp was
screened to -140 mesh. Au and Pd were subsampled to 30g aliquots and analyzed
with conventional fire assay using atomic absorption (AA) and/or ICP. The
minimum reported detection for Au and Pd was 0.005 g/t. Cu was determined by AA
using aqua regia digestion. Metallic Cu when required included two Cu assays
per sample. Ag geochemical analysis was by aqua regie digestion and AA. All
equipment was flushed with barren material and blasted with compressed air
between each sampling procedure.

- 56 -

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All core drilled in the 2000 
2003 drilling programs was assayed by Eco Tech Laboratories Limited (Eco Tech)
of Kamloops, British Columbia, who are certified assayers and participate in the
National Canmet Proficiency Testing, and who maintain their own in-house QA/QC
program. Eco Tech is ISO 9001-2000 accredited, and was recently acquired by
Stewart Group Ltd., of the United Kingdom.

Eco Tech also performed all of
the analytical work for the 2005 and subsequent drill programs. Copper and
silver assays were determined using standard acid digestion followed by AA. Gold
and palladium were determined using fire assay followed by an AA finish. The
one-in-five deleterious element samples were run for 30-element ICP.

Internal checks at the Eco Tech
laboratory consist of a minimum two repeats, one blank, two re-splits, and two
or three reference standards, one for Cu, one for Ag, or one combined Cu/Ag and
one for Au/Pd. If native Cu is reported on the sample sheets, a metallic screen
analysis is run in addition to the regular assay. Assay results and internal
check results are checked and batches rerun if problems are observed.

Bulk density measurements are
made at Eco Tech, using a water immersion method. Specimens are sealed in wax,
weighed in air and in water, and the density determined by the ratio between the
weight of displaced water and the weight of the sample. Correction is made for
the volume of wax encasing the specimen.

The New Afton property is fenced
and gated, and reasonably secure. After the core is logged and sawn, tied sample
bags are locked in New Golds field office until picked up by personnel from Eco
Tech for transport to their facilities. Drill core is stored in core racks at
the locked, secure core shack. Rejects are kept at Eco Techs office, and pulps
are securely stored at New Golds field office. The samples are in the custody
of New Gold personnel or authorized designates from the drill to the lab.

- 57 -

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Mineral Resource and Mineral Reserve
Estimates

Scott Wilson RPA has prepared an
independent audit of an updated mineral resource block model prepared by the
Company in 2009. The New Afton mineral resource statement is based on a
copper-equivalent cut-off of 0.4% CuEq, as supported by the present financial
model for the mine. The Cu-equivalence calculation incorporates the value of the
Au in the overall value of the resource body. The following table summarizes the
New Afton mineral resource estimate effective December 31, 2009.

MINERAL RESOURCES  DECEMBER 31, 2009 New Gold Inc.  New
Afton Project, Canada(Reported in Metric units)

Tonnage & Grade
    Contained MetalCategory
    Tonnes (000s)
    Copper %
    Gold g/t
    Silver g/t
    Copper M lb
    Gold K oz
    Silver K ozMeasured
    35,100
    1.26
    0.91
    2,80
    975
    1,027
    3,160Indicated
    29,900
    0.85
    0.67
    2.20
    560
    644
    2,115Total M&I
    65,000
    1.07
    0.80
    2.52
    1,535
    1,671
    5,275Inferred
    25,200
    0.66
    0.54
    1.70
    1,377
    438
    367


|Notes:
|------
|1.    
|2.    
|3.    
|4.    
|5.    
|6.    

The Mineral Reserve estimate is
presented in the table below. The estimate is based on the resource block model
prepared by the Company and reviewed by Scott Wilson RPA.

MINERAL RESERVE ESTIMATE  DECEMBER 31, 2009 New Gold
Inc.  New Afton Project, Canada(Reported in Metric
units)

Tonnage & Grade
    Contained MetalCategory
    Tonnes (000s)
    Copper %
    Gold g/t
    Silver g/t
    Copper M lb
    Gold K oz
    Silver K ozProven
    -
    -
    -
    -
    -
    -
    -Probable
    47,400
    0.95
    0.69
    2.03
    3,094
    1,052
    993Total P&P
    47,400
    0.95
    0.69
    2.03
    3,094
    1,052
    993


|Notes:
|------
|1.    
|2.    
|3.    
|4.    

|5. | Mineral reserve estimate was confirmed by Mr. Dennis
      Bergen, Scott Wilson RPA, who is a Qualified Person as defined under NI
      43-101.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------

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Mining

The New Afton deposit is being
developed as a block cave mining operation to produce 4 Mtpa of copper-gold ore
for processing in a flotation plant for the recovery of copper in concentrates
and gold in concentrates. Underground development is underway using New Gold
crews which replaced the mining contractor crews and commenced development in
February 2009. There is supporting infrastructure at the site including access,
offices, staff, equipment, and a concrete batch plant. The new mill building has
been erected and the grinding mills are mechanically installed. The focus is
currently on underground development and project planning and engineering.

Engineering studies have
indicated that the New Afton deposit is amenable to block caving and the Mineral
Reserves have been estimated through the application of Gemcoms block cave
modelling software to determine the mine production schedules. The deposit has
been broken into three zones: B1, B2 and B3. The B1 and B2 blocks are closer to
surface and will provide the initial mine production. Both the B1 and B2 blocks
are expected to cave readily. The B3 block is deeper and the rock is more
competent so that caving is marginal, and it may be necessary to implement some
additional work to assist the cave development.

The B1 and B2 block undercut is
approximately 120 m above the B3 undercut. At each block an undercut will be
developed along with an extraction level. At the extraction level, drawpoints
will be developed on a 13 metre spacing. Ore will be mucked by load-haul-dump
(LHD) units and hauled to ore passes to drop to a tramming level 14 metres
below, from where the ore will be trammed by large LHDs to the crusher. Ore from
the B3 block will be hauled by 50-tonne truck to the crusher level. From the
crusher the ore will be conveyed to the mill via a 4.5 kilometre long conveyor
system.

The mine is accessed by two
portals for development, one in the open pit and the other being the conveyor
portal near the mill. With the subsidence due to caving, the drift from the open
pit will be lost and the secondary exit will be by conveyance in a ventilation
borehole.

Mineral Processing

The New Afton mill has been
designed to process 11,000 tpd, or 4 Mtpa, of ore at full capacity and recover
copper, gold, and silver. The mill will process a blend of primary, transition
and supergene ores. The process will utilize conventional crushing, grinding,
and concentration processes to separate valuable minerals from gangue into
concentrates at marketable grades. Mineral separation will be achieved by
gravity concentration and differential flotation. A regrinding stage will be
included in the flotation circuit.

The tailings handling system will
pump the combined tailings (from the rougher flotation circuit and the cleaner
scavenger circuit) to the cyclone plant, a set of primary cyclones located
adjacent to the tailings storage facility. The cyclone underflow product will be
delivered to a skid-mounted secondary cyclone pack located on the top of the
tailings dam. The sand or coarse fraction from these secondary cyclones will be
used to construct the tailings dam and the secondary cyclone overflow product
will be used to seal the wet side of that dam. A centreline construction method
will be used to establish the tailings dam structure. There will be three
seepage collection ponds below the dry side of the main tailings dam to recover
and return seepage back to the tailings storage facility.

Environmental Considerations

The New Afton Project lies within
the Interior Plateau subdivision of south-central British Columbia. The areas
complex geology, glacial history and continental, semi-arid climate have given
rise to many regional landscapes. The Project area lies at about 720 metres
above sea level and drains into Kamloops Lake, the second-largest water body
contained in the Thompson River watershed, a major tributary of the Fraser
River. Much of the Project area has been greatly altered such that natural
undulating grasslands have been replaced by level rock dumps, open pits, and
severely compacted borrow areas. The dominant water bodies are now related to
mining-related impoundments. The baseline environmental studies undertaken
considered both the natural and anthropogenic landscapes. Environmental baseline
studies were undertaken on the Project site between April and December 2006. All
baseline studies were implemented in accordance with provincial data collection
guidelines, where applicable, and generally accepted scientific
procedures.

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On October 31, 2007, the Ministry
of Energy, Mines and Petroleum Resources issued Mine Permit M229 approving the
work system and reclamation program in respect of the New Afton Project. The
Mine Permit obligates the New Gold to post reclamation security in the aggregate
amount of C$9.5 million. The initial installment of C$3.5 million has been
posted by the Company.

The decommissioning process for
the mine will involve three distinct phases, beginning in the final year of mine
operations. The decommissioning process will be undertaken by a number of
contractors with special skills or equipment and all reclaimed areas will
require ongoing monitoring and surveillance until vegetation is well
established. All of the land which will be disturbed for the Project will be
reclaimed, and the final reclamation plan will include wildlife considerations,
such as appropriate fencing and the development of shelter areas for various
birds and small animals.

Participation Agreement

Two First Nations, the Kamloops
Indian Band and the Skeetchestn Indian Band (the Bands), have asserted
aboriginal rights and interests in an area comprising the New Afton Project.
Discussions with these Bands commenced in February 2006, culminating in the
execution of a formal agreement between the Bands and New Gold dated March 20,
2008 (the Participation Agreement).

One of the principal objectives
of the Participation Agreement is to establish a cooperative and mutually
beneficial working relationship between the Bands and New Gold with respect to
the development and operation of the New Afton Project. The Participation
Agreement provides that the Bands consent to the New Afton Project and agree not
to challenge before a court of law any New Gold interests or permits related to
the Project. New Gold undertakes to provide the Bands with certain economic and
social benefits including preferential hiring, education, training and business
opportunities.

In accordance with the
Participation Agreement, in 2009 New Gold paid C$250,000 into a socioeconomic
trust created for the benefit of Band members. Going forward, each year in which
commercial production occurs at the mine, an amount of 0.5% NSR, or a minimum of
C$250,000 a year, shall be paid New Gold to the trust, with the minimum payment
to be increased to C$500,000 for a given year if copper prices in that year
exceed C$2.50 a pound. After the costs of developing, permitting, constructing,
and equipping the mine have been repaid to New Gold, the payment to the trust
will increase to the greater of C$1,000,000 a year, or 1% of net smelter returns
(NSR) in that year. If copper prices exceed C$2.50 a pound in a given year,
this payment will increase to 1.5% of NSR for that year, and if copper prices
exceed C$3.00 a pound in a given year, this payment will increase to 2% of NSR
for that year.

The Participation Agreement also
grants the Bands a right of first refusal to purchase that portion of the Afton
surface rights held by New Gold lying to the north of the Trans-Canada Highway
and south of Kamloops Lake in the event New Gold decides to sell these lands in
the future separately and distinctly from the New Afton Project.

Capital and Operating Costs

The remaining preproduction
capital budget for the Project is C$460.9 million in second quarter 2009. Sunk
costs are not included in the capital summary. Capital cost estimates have been
prepared by AMEC, the Company, and AMC Mining Consultants (Canada) (AMC) in
the course of the detailed engineering work which was being done by AMEC until
mid-2009.

Capital cost estimate revisions and
adjustments continue as Project optimization tasks are still underway.

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The mine capital costs are built up from first principles for
the mine development activities together with quotations for major equipment
items. The sustaining capital estimate for the life of the mine is C$172.3
million.

The life of mine operating cost
is estimated to be C$17.27 per tonne milled. The costs do not include
concentrate shipping or treatment, nor do they include corporate overheads.
Operating costs have been compiled by the Company and AMC. The costs for all
areas were built up from first principles with a high level of detail in the
cost build-up.

Taxes

The taxes applicable to the New
Afton Project include the BC net proceeds tax of 2% (against revenue less
certain operating costs), BC revenue tax of 13% (against gross proceeds less the
cumulative expenditure amount), BC income tax at a rate of 11% and federal
income tax at a rate of 15%. The provincial and federal income taxes are based
on income less applicable capital allowances.

Project Execution Plan

Development of the New Afton
Project is underway, with the underground development being undertaken by
company crews. A Project team is in place with administrative, technical
(geology, mine and mill) and mine development personnel on staff. There are also
engineering consultants supporting the group. The current Project schedule is
not in a finished form; this is an aspect of the Project planning which Scott
Wilson RPA has recommended be addressed to generate a comprehensive Project
development schedule including all of the changes in the Project since the 2007
Feasibility Study.

Mine development is scheduled to
continue until and after the commencement of production. The development of the
B3 zone has been deferred to reduce the upfront capital costs. Mill construction
is forecast to recommence at the start of 2011, with the mill planned to be in
commissioning mode in the second quarter of 2012 and operating at the start of
the third quarter of 2012. The Company will continue to use AMEC for engineering
and procurement, but will do construction management for the remaining mill
construction packages with its own team, led by a recently hired construction
manager.

El Morro Project, Chile

Except as otherwise stated, the following disclosure relating
to the El Morro Project is based on information derived from the technical
report entitled Feasibility NI 43-101 Technical Report for the El Morro
Copper-Gold Project, Region III, Chile, dated May 9, 2008, readdressed to New
Gold on August 26, 2009 and prepared by Richard Lambert, P.E., and Barton Stone, P.G. of Pincock, Allen & Holt (the El Morro Report). In preparing the El
Morro Report, previous technical reports authored by competent persons were used
as background information.

The following description of the
El Morro Project has been summarized from the El Morro Report and readers should
consult the El Morro Report to obtain further particulars about the El Morro
Project. The El Morro Report is available for review on the SEDAR website
located at www.sedar.com under the Companys profile.

Property Description and Location

The El Morro Project is located
approximately 650 kilometres north of Santiago and approximately 140 kilometres
by road east of the city of Vallenar in northern Chile, along one of the most
prolific copper belts in the world. Pursuant to an exploration agreement between
Metallica and Noranda Inc. (now Xstrata plc.), Xstrata earned a 70% interest in
the project.

The El Morro project is located
approximately 140 kilometres east of the city of Vallenar along the Main
Cordillera of the Copiapó Region (Region III) in northern Chile (Latitude
28o 38 South and Longitude 69o 53 West). The project is
situated near the water divide between the Huasco and Copiapó drainage systems.
Elevations range from 4,000 to 4,200 meters above sea level.

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Mineral Property Summary

The El Morro group of mineral properties consists of a
contiguous group of mineral mining and exploration concessions covering three
separate centers of porphyry style copper-gold±molybdenum mineralization,
referred to as the La Fortuna, El Negro and El Morro areas, namesake for the
project. The combined El Morro project mineral concession holdings total
approximately 417 square kilometres in the area. The La Fortuna copper-gold
deposit is the only porphyry center of the three within the outlines of the El
Morro holdings containing measured and indicated resources. The La Fortuna
property is a copper-gold mineral resource and reserve which has a completed
feasibility study and is currently proceeding with the application detailed
engineering to allow a production decision.

The nearest port facility is at
Huasco, some 230 kilometres west of the mine site, and will be accessed via a
new road to be constructed from the proposed mine through Algarrobal joining the
Pan-American highway to Vallenar.

Mineral rights in Chile are
granted in the form of mining concessions. The right over the concession, which
is independent from the ownership right to the surface land, is transferable and
may be subject to mortgage. The mining concession entitles its holder to exploit
any and all mineral resources contained within its boundaries.

Mining concessions in Chile are of two types:

| | 1. | An exploration concession, whereby the holder is legally
      entitled to explore for mineral substances in a certain area for a period
      of two years, at the expiration of which the concession may be extended
      for an additional two-year period if the area covered by the concession is
      reduced by half and provided the applicable annual tax is paid;
  and
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                    
| | 2. | An exploitation concession, whereby the holder is legally
      entitled to exploit mineral substances contained therein for an indefinite
      period of time subject to payment of the annual
tax.                                                                                                                                                                              

The El Morro project area
currently consists of 70,145 hectares which includes 201 exploration concessions
and 219 exploitation concessions. The project operator is responsible
for the protection and maintenance of all mining concessions at the project.

Surface rights for the El Morro
property are owned by the Los Huasco Altinos Community (Los Huasco Altinos), a
grazing and livestock cooperative. In 2005, Falconbridge was granted a 30-year
legal mining easement for 10,190 hectares that is intended to secure access to
the future mine pit and mine facilities.

Xstrata entered into a 30-year
legal mining easement with a land owner in 2006 that secures surface rights
access to the projected location for an access road from the North Pan-American
Highway to the project location, and the expected location of the power line and
processing facilities for the project.

Encumbrances, Liens and Royalties

At the El Morro project, 2,216
hectares of mining concessions are held through five purchase option agreements,
two of which were executed by the Company and three of which were executed as a
group by Falconbridge. Since September 1999, all payments pursuant to the
purchase option agreements have been made by Falconbridge or Xstrata pursuant to
the earn-in requirement under the El Morro Agreement. The option agreements are
summarized below.

1) Minera Metallica Limitada and BHP
Chile S.A. Purchase Option Agreement  BHP Option

In July 2003 the Company and
Falconbridge exercised an option to acquire certain mining exploitation
concessions from BHP for $1.7 million. The underlying concessions are referred
to as the BHP concessions and have a combined area of 1,849 hectares. BHP
retained a 2% NSR royalty on any mining that occurs on the BHP mining
concessions. In December 2004, the Company and Falconbridge acquired the 2% NSR
royalty from BHP for $2.0 million. The Company acquired a 30% interest in the
royalty for $0.6 million and Falconbridge acquired a 70% interest in the royalty
for $1.4 million.

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2) Minera Metallica Limitada and Rene
Martin Jure Purchase Option Agreement - Martin Option

In December 2001 the Company and
Falconbridge exercised an option to acquire certain mining exploitation
concessions from Rene Martin Jure, on behalf of Legal Mining Companies Cantarito
Uno de la Sierra Juntas de Cantarito de la Estancia Huasco Alto and Tronquito
uno de la Sierra Portezuelo de Cantarito de la Estancia Huasco Alto (Martin),
for $1.5 million. The underlying exploitation concessions are referred to as the
Cantarito and Tronquito mining properties and have a combined area of
approximately 305 hectares. Martin has retained a 2% NSR royalty on any mining
that occurs on the Cantarito and Tronquito mining concessions.

3) Falconbridge Chile Limitada and
Santiago del Carmen Cayo Salinas, Luis Alberto Cayo Salinas and Johnny Cayo
Salinas Purchase Option Agreements  Cayo Options

During 2001 and 2002,
Falconbridge exercised three option agreements with the shareholders of Santa
Julia Uno de la Sierra Fortuna, to acquire certain mining exploitation
concessions held by Santa Julia Uno de la Sierra Fortuna for $85,000. The
underlying concessions are referred to as the Santa Julia concessions and have a
combined area of 61 hectares. Payments of $133,333 are due to each of the three
shareholders of Santa Julia Uno de la Sierra Fortuna within two years of
commencement of mining on the Santa Julia concessions.

Environmental Permitting

The National Environmental
Committee (CONAMA) and Regional Environmental Committees (COREMAs) are the
regulatory agencies responsible for environmental compliance in Chile.
Environmental permit applications for both exploration and mine development
projects are assessed through the Environmental Impact Evaluation System (SEIA)
managed by CONAMA. The level of assessment required for a project can be either
an Environmental Impact Assessment (EIA) or an Environmental Impact Declaration
(DIA).

An EIA in Chile is broadly
comparable to an EIA issued under international guidelines. It is typically
required for a more advanced project if the project is expected to produce
certain specified environmental impacts. A DIA, on the other hand, is a document
that establishes that a project will comply with current norms and environmental
standards via a description of the project and its surrounding environment and
is typically required for a less advanced project.

The El Morro project will require
an EIA prior to commencement of project construction and development. It
typically takes up to a year to receive an EIA after the application is
submitted to CONAMA. The EIA, if approved, typically contains various
environmental conditions that must be met during the life of the mine. The El
Morro project will also require various site specific licenses and permits after
the EIA has been granted.

Water rights are a sensitive
issue in arid regions of Chile. The project operator has not yet acquired the water rights
that will be required for the project. Various options are being investigated
that include the purchase or lease of water rights, or the construction of a
desalination facility.

Accessibility, Climate, Local Resources, Infrastructure
and Physiography

Current access to the El Morro
Project is through the town of Vallenar, the nearest main town to the site.
Vallenar is situated at kilometre 663 of the Pan-American Highway, north of
Santiago. From Vallenar, the road access, at the current time, follows 72
kilometres of paved road to the east to Chanchoquin and then continues another
73 kilometres to the east-northeast via the Totoral gravel/dirt road. The site
is approximately 15 kilometres from the Argentine border. The proposed mine and
plant site has a median yearly temperature of 25o C. During winter time, values
around -1o C are reached, but extremes can reach -15oC. Precipitation is less
than 200mm a year and occurs primarily as snow during the Andean winter months.

The El Morro project site at an
elevation of 4,000 to 4,200 metres above sea level is a high altitude
Cordilleran desert environment, part of the Atacama Desert region, devoid of any
significant plant life. The site consists of modular buildings at the project
camp, a few machine and drill sheds and an extensive network of drill access
roads and drill pads over the La Fortuna porphyry system. A portal access and
associated support buildings surround an underground decline tunnel, driven into
the deposit to obtain metallurgical and geologic samples because the surface
geology is obscured by post-mineral gravel deposits. No significant mining has
occurred on the property although a small shaft is located above the portal
area of the decline tunnel and represents historic artisanal mining efforts
(1930s) developed on high grade copper oxides. Except for the current
exploration related facilities and the drill road network, no other improvements
are noted within observation range (good visibility on ridge lines) of the
property.

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Vallenar, like many towns in
northern Chile, has a resident historic mining expertise amongst portions of the
population. This is the result of miners moving into the region back in the
early 1800s and having worked on variably sized mining ventures through a number
of successive generations. Most new mining ventures in Chile have been able to
develop their operations staff and people from existing pools of experienced
mining labor. The recent growth of vineyards and wine making in Vallenar and the
countryside along the river systems going towards the La Fortuna deposits has
changed the balance of labor towards agrarian interests in the local area and
has increased the potential for competition for existing sources of groundwater.
This reality has caused the project operator to consider importing all of its
water from coastal based desalination plant to avoid negatively impacting local
agrarian interests in the development of the project.

A 1988 hydrogeological study of
the Algarrobal-Hacienda Castilla area has shown that the actual hydraulic
capacity of the aquifer would not be able to sustain the existing water rights,
even without the development of the El Morro deposit. Due to the shortage of
water in the proposed mine area, Xstrata concluded that a seawater desalination
plant would offer the most reliable water supply over the lifetime of the mine
operation.

As part of a development plan,
Xstrata proposed the construction of an entirely new access route to the project
from the Pan American highway to avoid the potential issues with local
agricultural interests located along both river valley systems (the Huasco and
the Algarrobal) that drain from the project area. This approach also minimizes
potential land ownership issues along the right-of-way because virtually the
entire route of the roadway is on land owned by a single group. The new
construction will require its own specific permits. This approach to developing
the El Morro project serves to mitigate the potential impact water resources and
their availability to existing communities and industry, and to the culture and
traditions of local indigenous communities.

Electric power required for the
project will be supplied by the Chilean central power grid from a new substation
to be installed at Algarrobal located 50 kilometres north of the existing
Maintencillo substation near Vallenar and 83 kilometres south of the Cardones
substation near Copiapó. Two overhead transmission lines will distribute power
from the Algarrobal substation to the El Morro mine site facilities.

The proposed development by
Xstrata focused on the building of a concentrate filtration plant near the Pan
American highway near the community of Las Cunas which is also on the proposed
new access road to the El Morro site.

At the La Fortuna site,
sufficient open ground is available for waste piles, stockpiles, tailings and
potential leach pads for the operation envisioned. Key technical issues for
developing the project will be local topography, ground support strength,
geotechnical characteristics, existing drainage systems and snowfall in the
winter.

It is noted that based on
previous experience in Chile at higher elevation operations, the impacts of
snowfall, ice and freezing conditions need to be an important consideration
during the design engineering for all surface structures and road access.

History

Regional development and history
has been primarily influenced by the mining industry. Urban centers developed
and faded away around the silver, copper, iron ore and other mining activities.
The region was originally populated by the Diaguitas group of Indigenous people.
The Spanish discoverer Diego de Almagro arrived in the Copiapó valley in 1536
and throughout colonial times the region was known as the Northern Frontier of
the country. The city of Copiapó was established in 1744 (as San Francisco de la
Selva), and Vallenar followed in 1789. After independence in 1832, Juan Godoy
discovered the Chanarcillo silver mines south of Copiapó, and the silver mining
rush extended afterwards in the 1850s to Chimberos and Tres Puntas north of
Copiapó in the same Coastal Range belt. To improve the transport of ores to
overseas smelters the first railroad in the country was built in 1850 to join
Copiapó and Caldera.

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During the second half of the
19th century, mining concentrated in the copper veins in the coastal area,
especially in the Carrizal district.

In 1916, mining began at the
Potrerillos porphyry copper deposit, which is now closed. The Potrerillos
smelter has continued to operate by receiving concentrates mainly from the
nearby El Salvador mine which is also in its final years of production. The
Potrerillos smelter has a capacity to treat 680,000 tpy of concentrates.

In the 1980s exploration
activities in the region concentrated in the epithermal gold-silver-copper
deposits of the Maricunga district in the Altiplano northeast of Copiapó,
leading to the commissioning of La Coipa, La Pepa and the operations of Minera
Can Can. During the same period in the 1980s and 90s along the Atacama Fault
Zone in the Coastal Cordillera, Candelaria and Manto Verde iron
oxide-copper-gold mines were developed, and old deposits in the Tierra Amarilla
district (Punta del Cobre, Carola, Ojos del Salado) were revamped, and
contributed to the feed of ENAMIs 315,000 tpy of concentrates smelter in
Paipote near Copiapó. Additional epithermal gold deposits were developed in the
1990s in the Altiplano east of Copiapó including Refugio and Marte deposits.

Since the 1940s, mining in the
Huasco province, where the El Morro project is located, concentrated on iron ore
mining along the southern extension of the Atacama Fault Zone near the coast
with the surviving operations being Compania Minera del Pacifico (CMP) at
Algarrobo and Los Colorados near Vallenar. In spite of the higher iron prices of
recent years, reserves depletion has lead to the decline of iron ore mining and
mining in general in the Huasco province. More recently, the economy of the
region saw the take-off of agriculture in the valleys, especially grape farming
and its resultant demand on local water resources.

Geological Setting

The El Morro project is located
along the Eocene-Oligocene porphyry copper belt of northern Chile, host to some
of Chiles most prolific mining districts. Major mines along the belt include
Collahuasi, Quebrada Blanca, Chuquicamata, La Escondida, El Salvador and
Potrerillos. The El Morro project is located along a southern extension of the
belt and represents one of the newest porphyry copper occurrences under
development in Chile today.

The El Morro property is situated
within a 15 kilometre wide by 30 kilometre long north - south trending
structural graben consisting of Paleozoic to Permo - Triassic basement rocks.
The western edge of the graben corresponds to the southern extension of the
Domeyko fault system, the main controlling structural feature for the prolific
Eocene  Oligocene copper porphyry belt of northern Chile. Within the graben,
basement rocks are principally covered by Mesozoic and Cenozoic stratified
sedimentary and volcanic rocks. The older sediments are assigned to the Quebrada
Monardes formation of Upper Jurassic  Lower Cretaceous age, whereas the
overlying volcanic - pyroclastic units are Paleocene  Eocene in age. At El
Morro, these units are intruded by a cluster of calc-alkalic granodioritic to
dioritic porphyry stocks and dikes that have been emplaced at the intersection
of two major NNE and WNW-trending regional fault systems. Younger Tertiary age
post-mineral volcanic rocks and gravels locally overlie all older rock types,
and may conceal additional prospective porphyry centers.

Mineral resources within the El
Morro project area have so far been defined in the La Fortuna and the namesake
El Morro areas. La Fortuna is a classic copper-gold porphyry deposit.
Mineralization occurs within and around a vertical cylinder-shaped igneous
intrusive body (porphyry stock) of granodioritic to dioritic
composition that has been emplaced at a major fault intersection within a
sequence of older volcanic and sedimentary rocks. Copper-gold mineralization
occurs within a well-developed system of cross-cutting veins
(stockwork) containing pyrite, magnetite and variable amounts of
copper-bearing sulfide minerals that include chalcopyrite, bornite, and
chalcocite. Molybdenum content at La Fortuna is negligible. The deposit consists
of an upper oxidized zone of barren to weak leached copper-gold
mineralization, an intermediate zone secondarily enriched copper sulfides
(supergene blanket) and associated gold mineralization, and a deep zone
of primary hypogene copper-gold sulfides. Potentially economic portions of the
La Fortuna mineral resource occur entirely within the secondary supergene and
primary hypogene sulfide zones.

The El Morro deposit consists of
disseminated and stockwork copper-gold sulfide mineralization hosted entirely
within a sequence of volcanoclastic sedimentary rocks. Although a porphyry
intrusive source to the mineralization is strongly suspected, drilling to date
has so far not identified one. The deposit consists of an upper oxidized and
barren leached cap, an intermediate supergene enrichment blanket of secondary
chalcocite and pyrite, and a lower zone of primary pyrite-chalcopyrite
mineralization.

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Exploration

The earliest known mining
activity in the El Morro area dates to 1931 when small scale mining of high
grade copper and gold veins is reported. In 1964, the Cayo Ardiles family
claimed the Santa Julia mineral rights, over what is now recognized as the La
Fortuna copper-gold deposit. In 1984 Messrs. Rene Martin and Osvaldo Frias
claimed the Cantarito and Tronquito mineral properties peripheral to the Santa
Julia property. In 1987 and 1988, Compania Minera del Pacifico (CMP) conducted
geological and geochemical exploration for precious metal epithermal deposits at
El Morro and La Fortuna.

During the period of 1992 through
1994 BHP acquired the mineral rights surrounding the Santa Julia and the
Cantarito-Tronquitos properties. The BHP exploration program involved
geophysics, geochemistry, geologic mapping and a combination of reverse
circulation and core drilling. BHPs drilling program included 3,567 meters at
La Fortuna, 1,376 meters at Cantarito and 100 meters in an area to the south
called El Negro. BHP shelved the project because the drill results did not
support its deposit size and grade objectives.

In 1997 Metallica acquired the
BHP properties under an option agreement with BHP, claimed adjacent exploration
ground to the west in the namesake El Morro area and in 1998 signed a purchase
option agreement with Sociedad Legal Minera Tronquito and Sociedad Legal Minera
Cantarito (Rene Martin-Osvaldo Frias), consolidating its control over a total
area of 3,354 hectares. During the two year period from 1997 to 1998 Metallica
conducted general reconnaissance, geochemical and geophysical studies to
identify prospective areas for drilling. In 1999 Metallica completed 3,213
meters of drilling in 18 holes divided among four areas within the El Morro
project holdings: El Morro (eightholes), La Fortuna (four holes), Cantarito
(four holes) and El Negro (two holes). This work resulted in the discovery of
porphyry-type copper-gold-molybdenum mineralization in the El Morro area where
the best reverse circulation hole RDM-2 and its twin core hole DDHM-1intersected
170 meters of mineralization averaging 0.83% copper, 0.26 g/t gold and 0.014%
molybdenum. Several unsuccessful attempts were made to negotiate the acquisition
of the small Santa Julia property which covered the area of the old mines. As a
result of the successful 1999 drilling campaign, Metallica expanded its holdings
on El Morro ground with additional exploration claims, its holdings eventually
totaling 14,300 hectares. During this two year period from 1997 to 1999,
Metallica drilled 3,213 meters of reverse circulation in 17 holes divided
between the four areas of El Morro (seven holes), La Fortuna (four holes),
Cantarito (four holes) and El Negro (two holes). Additionally one core hole was
drilled at El Morro to a depth of 500 meters.

In September 1999, Noranda Chile
Ltda. signed a Joint Venture agreement with Metallica that included the
underlying agreements with BHP and the Sociedad Legal Minera Cantarito &
Tronquito, and committed Noranda to fund the exploration effort on the property
going forward. The Santa Julia property was subsequently purchased and
integrated into the Joint Venture. Norandas exploration efforts concentrated on
expanding the El Morro discovery with diamond drilling on 200 m spacing.
Although consistent mineralization was intersected, no porphyry intrusive source
to the mineralization was identified and the attention turned to the La Fortuna
area where reconnaissance drilling in 2000 confirmed the presence of a
mineralized copper-gold bearing porphyry intrusive which has been the primary
focus of exploration and development activities by Noranda and its successor
companies Falconbridge Ltd. and Xstrata to date. During the period 2000 to 2006,
14 holes were drilled at El Morro: 146 holes (including 58,461m in 141 diamond
holes) at La Fortuna; 26 holes at El Negro, and two holes at Cerro Colorado.
Additionally magnetic and electrical geophysical surveys were conducted over all
the mineralized indications as well as geochemical soil sampling and chip
sampling. In 2003, Noranda estimated inferred resources for the El Morro deposit
at 45 Mt at 0.50 % copper and 0.18 g/t gold corresponding to the enriched
sulfide horizon beneath a 40-140m thick leached cap; with the mineralization
exhibiting strong structural control. The drilling at El Morro intersected
country rocks and dacitic dykes up to 30m wide possibly related to the
mineralizing event.

Exploration in 2007 focused on
infill drilling of 14 new drill holes to increase the knowledge and volume of
measured resources within the first five years of the mine and also to improve
the quality of the reserves within the pit design.

Several periods of surface
sampling, geologic mapping and geophysical surveys have been conducted on La
Fortuna property since 1987 by a variety of companies with successive
evaluations refining the level of information and the details of geochemistry
and geophysics. Metallicas acquisition of the properties associated with El Morro and La Fortuna began in 1997 and delineation drilling
has been increasing annually since 2003.

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Mineralization

The La Fortuna deposit is a
typical copper-gold porphyry system consisting of multiple phases of similar
composition intrusives, concentrated within a near vertical ovate cylinder of
alteration and mineralization. The porphyritic copper-bearing igneous rocks are
intrusive into host volcanic and sedimentary rocks which have also been altered
and mineralized with copper but to a much lesser degree, and the mineralization
falls off dramatically with distance from the host intrusives. Most porphyry
systems, La Fortuna included, consist of variable intensities of quartz veinlet
swarms, breccia zones and rarely large vein zones. PAH noted that no large veins
wider than 20 centimeters were observed in the core examined; the bulk of
mineralization was associated with intense vein stockworks of narrow
veinlets.

Three belts of eastward
younging Eocene-Oligocene intrusives occur in the El Morro District. The Western
Group crops out along the western border of the El Morro District as very
irregular medium-sized plutons that intrude Triassic and Cretaceous strata.
Further to the east the Central Late Eocene Group encompasses a cluster of
variably altered porphyritic stocks, dykes and sills associated with the
altered/mineralized zones of El Negro, La Fortuna, Cantaritos and El Morro;
those to the east of Quebrada Larga and Quebrada Piuquenes, near the center of
the El Morro District, are partially covered by Miocene rocks (Cantaritos
gravels). The Eastern Group includes a string of larger and essentially
unaltered shallow level dacitic sub volcanic bodies which intrude Cretaceous and
Eocene strata.

Drilling

Xstrata and predecessor companies
completed 98,575 meters of drilling in 273 drill holes on the El Morro property
as of the end of December 2007. This total includes RC holes completed prior to
2005 which have contributed to the geologic interpretation incorporated into the
current resource estimate; however, assay data from RC holes have not been used
in the estimation of metal grades for the La Fortuna mineral resource.

Exploration work on the El Morro
project has involved a combination of geological mapping, geochemical sampling
and geophysical surveys aimed at defining targets for follow-up exploratory
drilling. Later drilling programs have focused on testing the outer limits of
the La Fortuna deposit and elevating the resource classification to measured and
indicated status. Exploration drilling at El Morro has included programs
conducted by BHP in 1993 and 1994, by the Company 1999, by Falconbridge from
2000 to 2005, by Falconbridge  Xstrata in 2006, and Xstrata in 2007. These
programs are summarized in the below.

|El Morro Project  Summary of Exploration
      Drilling Programs
|-----------------------------------------------------------------
|TARGET
      AREA                                                
|                                                                 
|Company                                                          
|(year)                                                           
|                                                                 
|BHP                                                              
|(1993-1994)                                                      
|Metallica                                                        
|(1999)                                                           
|Falconbridge                                                     
|(2000)                                                           
|Falconbridge                                                     
|(2000-2001)                                                      
|Falconbridge                                                     
|(2002)                                                           
|Falconbridge                                                     
|(2005)                                                           
|Falconbridge                                                     
|(2006)                                                           

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|El Morro Project  Summary of Exploration
      Drilling Programs
|-----------------------------------------------------------------
|TARGET
      AREA                                                
|                                                                 
|Company                                                          
|(year)                                                           
|                                                                 
|Xstrata                                                          
|(2006-2007)                                                      
|                                                                 
|TOTAL                                                            
|Notes:                                                           
|                                                                 

All drill logs and assay data
sheets for all of the holes are stored in a secure location by the project
operator, and drill hole locations, sample intervals and assays have been
compiled into a digital computer database.

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The definition and delineation
drilling for the La Fortuna mineral resource centers on the La Fortuna porphyry
stock; a north-northeast oriented ovate intrusive body measuring approximately
800 meters long by 600 meters wide and extending to at least one kilometre in
vertical depth. The central portion of the deposit has been delineated at a
nominal drill hole spacing of 55 by 55 meters with most of the holes inclined
-65o to -70o either to the southwest or northeast (azimuth 30o or 210o) and
several holes drilled orthogonally to the drill grid. Within the volume
represented by the current mineral resource block model, drill hole depths
average 412 meters and range from a minimum of 84 meters to a maximum of 900
meters testing a vertical profile that extends between 4,100 to 3,200 meters
elevation. The La Fortuna mineral resource estimate excludes a deeper portion of
a 970 meter deep hole (DDHF-39) which was drilled to a total depth of 970 meters
and bottomed in mineralization at the 3,074 metres above sea level elevation.

The area covered by the 55 by 55
metre grid covers the central sulfide dominated portion of the deposit and
approximates the portion of the mineral resource that has been classified as a
Measured mineral resource and extends through a volume of approximately 450
metres east-west by 650 metres north-south by 450 metres deep. Surrounding this
area is a 200 metre ring of wider spaced drilling at a nominal 100 to 150 metre
spacing with drill hole orientations similar to those in the smaller grid
previously described above, and approximating the portion of the mineral
resource that has been classified as an Indicated mineral resource.

Following the completion of the
June 2006 drilling program, a major topographic validation program was completed
which resulted in the production of two digital aero-photographic restitutions
at 1:10,000 and 1:2,000 scales with 10 meter and 2 meter resolution respectively
using the UTM Projection (South American 1956 Datum, Zone 19 South). This
validation also included re-surveying of all collars had either been re-surveyed
by a second independent contractor and/or checked using high definition GPS
instrumentation. Elevations of surveyed collars and topographic data show good
correlation being predominantly within a difference of 0.5 meters.

The sulfide mineralization
contained within the secondary enrichment zone (supergene blanket) and the
underlying primary hypogene zone make up the bulk of the contained copper-gold
resource and have been well delineated by drilling to a depth of approximately
600 meters. Deeper portions of the copper-gold resource, occurring entirely in
primary hypogene mineralization, have been only partially delineated. Nine deep
holes drilled in October and November of 2006 show copper and gold grades
increasing at deeper levels without indications of any termination of grade at
the bottom of the holes.

Down Hole Surveys

Down-hole deviation directional
surveys were done on all diamond core holes using either a single shot Sperry
Sun instrument (50m down-hole intervals), a digital gyroscope, or a Maxibore
instrument (3m down-hole intervals). Single shot surveying was used for only a
few of the early exploration holes, while all delineation holes drilled after
2000 were surveyed with either the gyroscope or Maxi-bore instruments. Down-hole
surveys were done on some of the reverse circulation holes; however, assay data
from these holes have not been used for the estimation of mineral resource
grade.

The general cumulative down-hole
deviation of drill holes at La Fortuna averages one degree per 100 meters in all
core holes, representing a small amount of deviation. The risk of mislocated
drill hole placements or position is considered low because:

- The lack of vegetation in the project area permits nearly complete
  line-of-sight visibility to all points, lessening the possibility of surveying
  errors.
- All inclined drill holes were surveyed at a maximum interval of 50 meters
  down-hole, with the majority of holes surveyed at much closer intervals.

Three sizes of standard core
diameters have been used in all drilling at La Fortuna  PQ (83.1 millimetre
diameter), HQ3 (63.5 millimetre diameter) and NQ3 (47.6 millimetre diameter)
core sizes. Core was collected using standard wireline retrieval methods.

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Sampling and Analysis

Sampling diamond drill core is
conducted according to standard industry practices. Sampling technicians
followed specific sampling protocols under supervision by Xstrata. Drill core
was split and half preserved for reference in Xstrata offsite storage
facilities. Only core samples and their assays have been used for the
interpolation of metal grades in the current resource estimation.

Diamond drill core included three
sizes PQ (83.1 millimetre), HQ (63.5 millimetre) and NQ (47.6 millimetre) core
diameters. Except for two holes drilled prior to 2000, diamond drilling at the
project has been directed by Noranda and subsequently Falconbridge and most
recently by Xstrata, successor companies to each other. Drilling work has been
performed by independent contractors that have included Connors in 2000 and
2001, Ausdrill in 2002, and Connors again in 2005, 2006, and 2007. Core was
stored in wooden boxes and brought to the project core processing facility where
it was photographed, logged for geologic and geotechnical information, and
sampled for assay by taking half splits at regular 2-meter intervals.

All density and specific gravity
studies to date have been conducted on drill core samples. Beginning in 2002,
density samples were taken at regular 4-meter intervals for all diamond drill
holes drilled at La Fortuna. Bulk density determinations show a good
representation of major lithology, mineralization and alteration units relative
to the total number of meters drilled within each unit. The data also show good
spatial coverage throughout the La Fortuna mineral resource. The density data
have been further validated by sending approximately five percent of the
duplicate data to a second commercial laboratory. The results show a very good
correlation between the two data sets. Tonnage factors for resource estimation
were derived by calculating an average bulk density based on drill core density
data for each lithology and mineral zone combinations and then applied as a
global average to the block model lithology code.

Drill core recovery measurements
were collected for each hole as it was being drilled and has been done for all
diamond drilling. Core recovery averaged better than 80% for 95% of the core
intervals. The zones with low recovery are typically associated with the first
20 to 30 meters below the surface which corresponds with the leached-weathered
portion of the deposit.

In 2002, Noranda implemented
revised sampling and logging procedures for the El Morro project. Subsequent
Xstrata programs have continued the Noranda sampling and logging procedures.
Internal reviews and independent audits have confirmed the high quality of the
sampling and assaying QA/QC procedures employed during the Noranda-Falconbridge
drill programs which constitute the bulk of the drilling used in the preparation
of the current resource estimate.

Assay data from the diamond drill
holes for the El Morro project were controlled by sending 53 duplicate pulp
samples to ALS Laboratories in Vancouver, B.C. Canada to verify the original
assays done by Bondar Clegg laboratories in Coquimbo, Chile. An analysis of the
data by Charles Beaudry of Noranda concluded that copper assays are unbiased
whereas gold assays are 10 to 15 percent high relative to the check results.
There were, however, only nine pulp duplicates with gold grades greater than 0.2
g/t Au, and the absence of standards in the Beaudry study precludes any
resolution as to which laboratory is the more accurate.

After a round-robin exercise
comparing sample preparation and assays between five laboratories, ACME
Analytical Laboratory S.A. was selected by Xstrata for the 2005 definition
drilling program. ACME installed a sample preparation facility at the project
site and pulps were shipped to their analytical facilities in Santiago for
digestion and assay. ALS Chemex acted as the control laboratory during that
program. Prior to the 2006 Xstrata definition drill program, a second round
robin exercise was completed comparing sample preparation, assay preparation and
the results between the laboratories. Results of the program were reviewed and
revisions made to procedures for drill samples for the 2006 drill program. Dr.
Barry Smee of Smee and Associates Consulting Ltd., Vancouver, B.C. was
responsible for reviewing, revising and approving procedural changes for the
2006 drill program. Actlabs in La Serena, Chile was awarded the contract as the
primary laboratory for assaying drill samples from the 2006 and 2007 drill
program. ALS Chemex continued as the referee laboratory for 2006 and 2007.

Assay accuracy and precision of
routine analyses were assessed continuously throughout the various data
acquisition programs of the project (after Noranda) using a program of check
assays and analysis of in-house reference standards materials. The correlation
shown by check-assay pairs is generally very good, indicating good analytical precision for total copper. Round-robin assay
results used to characterize the standards indicate generally good performance
by the primary laboratory.

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According to the results of these
QA/QC programs the sample preparation and assaying have acceptable errors of
precision and no apparent bias can be observed. Precision at the 95 percent
Confidence Interval varies between 0.12 percent and 6.69 percent for the suite
of five standards that includes both copper and gold. The QA/QC program outlines
have been checked and validated by internal and external reviews, and both cases
have confirmed the observations previously stated above. PAH believes that the
assays from the drilling program and the associated QA/QC procedures meet the
standards required for reserve and resource calculations for a feasibility level
study.

Mineral Resource and Mineral Reserve Estimates

Exploration and development work
at El Morro has resulted in the delineation of a proven and probable mineral
reserve totaling 450 million tonnes averaging 0.58% copper and 0.46 g/t gold at
La Fortuna, which is contained within a larger measured and indicated mineral
resource totaling 558 million tonnes averaging 0.55% copper and 0.49 g/t gold at
a 0.3% copper-equivalent cutoff. Summaries of the La Fortuna mineral resource
and mineral reserve, based on a 100% project equity basis, are presented in the
tables below:

MINERAL RESOURCES New Gold Inc.  El
Morro Project, Chile(Reported in Metric units)

Tonnage & Grade 100% Basis
    Contained Metal 30% BasisCategory
    Tonnes (000s)
    Copper %
    Gold g/t
    Copper M lb
    Gold K ozMeasured
    211,164
    0.65
    0.54
    903
    1,108Indicated
    347,242
    0.49
    0.46
    1,115
    1,551Total
      M&I
    558,406
    0.55
    0.49
    2,018
    2,659Inferred
    62,335
    0.34
    0.18
    141
    110


|Notes:
|------
|1.    
|2.    
|3.    
|4.    
|5.    
|6.    

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MINERAL RESERVE ESTIMATENew Gold
Inc.  El Morro Project, Chile(Reported in Metric units)

Tonnage & Grade 100%
      Basis
    Contained Metal 30% BasisCategory
    Tonnes (000s)
    Copper %
    Gold g/t
    Copper M lb
    Gold K ozProven
    211,164
    0.65
    0.54
    903
    1,108Probable
    347,242
    0.49
    0.46
    1,115
    1,551Total P&P
    558,406
    0.55
    0.49
    2,018
    2,659


|Notes:
|------
|1.    
|2.    
|3.    
|4.    

The namesake El Morro deposit
inferred mineral resource estimate is based on 22 diamond and reverse
circulation drill holes totalling 6,090 meters that have been drilled on
approximately 200-meter centers over an area measuring approximately 1.2
kilometres by 1.2 kilometres in plan, and to a vertical depth of approximately
525 meters. The El Morro deposit is not fully delineated and remains open to the
west, northwest and east, and possibly at depth.

The El Morro Project is
envisioned as an open pit mine supplying material for crushing and processing in
a copper flotation mill producing a copper-gold concentrate. Production is
planned for 90,000 tonnes ore per day

The El Morro Report was based on
a mineral resource model and report developed by Xstrata and independently
audited by AMEC. Mineral reserves pit optimization and mine planning considered:

| | 1. | Pit Optimization                       
| | -- | ---------------------------------------
| | 2. | Mine Planning                          
| | 3. | Waste Facility Design                  
| | 4. | Equipment Fleet Specification          
| | 5. | Operating and Capital Cost
Calculations

The economic parameters applied
to calculate block values for pit optimization work based on a break-even profit
cutoff using $1.25 per pound copper and $500 per troy ounce gold which equates
to a cut-off grade of approximately 0.30 percent copper-equivalent.

Capital and Operating Costs

The project economic model, which
is based on the capital cost and operating parameters recreated and reviewed by
PAH, shows a positive after tax internal rate of return of 14.7% and a Net
Present Value $1.09 billion when discounted at a rate of 8% and using long-term
prices of $2.80/lb for copper and $625/oz for gold. Project payback occurs at
4.7 years.

Operating costs are estimated at
$10.55/tonne of ore and a mine site cash cost of $0.76/lb copper, after gold
credits and production taxes at a long-term gold price of $625/ounce. The
operating costs are considered to be accurate to within 15%.

Markets

Gold, silver, and copper markets
are mature global markets with reputable smelters and refiners located
throughout the world.

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Operations at the El Morro
Project are expected to produce an annual average of 556,000 dry tonnes per year
of copper concentrate, containing 361 million pounds of copper, and 331,000
ounces of gold. Annual average production of by-product silver is expected to be
532,000 ounces.

Environmental Considerations

The El Morro Report and
accompanying Environmental Impact Assessment (EIA) incorporate a basic closure
plan for the mine and related facilities in accordance with Xstrata Corporate
criteria and Chilean mining laws and regulations. In essence, the closure plan
involves:

- Dismantling of facilities
- Demolition and disposal of concrete structures and foundations
- Physical stabilization of facilities, slopes and surfaces exposed to
  erosion
- Geochemical stabilization
- Hydrologic stabilization  surface runoff diversion
- Surface contouring

Total closure costs are estimated
in the $40 to $50 million range prior to taking the salvage value of the assets
into account. Net closure costs are estimated to be around $26.3 million. Chile
does not require reclamation and closure bonding.

Based upon follow up monitoring
and testing results (i.e., geochemistry, and pit water hydrology and quality),
these activities and estimates may need to be adjusted to account for actual
site conditions at closure.

Taxes

The principal corporate taxes levied in Chile are:

- a general income tax levied on both legal entities and individuals; and
- a value-added tax (VAT) levied up to the consumer level.

Resident companies pay tax on
worldwide income; non-resident companies pay tax on Chilean-source income only.
Value-added tax (VAT) applies to most sales and to certain services and other
transactions. Registration is compulsory for businesses. Exemptions from VAT
include certain financial services, insurance, news services, technical
services, consultancy and transport. Exports are exempt, and exporters may
either claim a credit for input tax paid or apply for a special refund. For the
economic model, no VAT was applied as it is assumed that as an exporter the mine
owners would be exempt.

Update on El Morro Project

In November 2008, the project
entered into the permitting stages with delivery of the projects Environmental
Impact Statement to the Chilean Authorities. Permitting is expected to take from
12 to 18 months, after which development activities could proceed. In November
2008 the Company, through its subsidiary Datawave Sciences Inc., signed a formal
shareholders agreement with Xstrata which provided for the ongoing funding and
management of El Morro (the Shareholders Agreement). In December 2008 the
Company provided an election notice to Xstrata pursuant to the Shareholders
Agreement, to have Xstrata fund 70.0% of all program funding commitments of the Company until commercial production
commences.

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October 12, 2009 Barrick
announced that it had entered into an agreement with Xstrata to acquire its 70%
interest in El Morro. New Gold, as Xstratas then current 30% joint venture
partner in El Morro, held a right of first refusal over Xstratas 70% interest
and accordingly provided notice to Xstrata on January 7, 2010 of the exercise of
its right of first refusal. On February 16, 2010, the Company completed the
acquisition of Xstratas 70% interest in the El Morro property. Goldcorp loaned
$463.0 million to New Gold to fund the exercise of the right of first refusal.
After acquisition of the 70% interest by a New Gold subsidiary, New Gold sold
that subsidiary to Goldcorp.

Concurrent with the sale of the
New Gold subsidiary to Goldcorp, the Company received $50.0 million payment to
New Gold and the parties amended the terms of the Shareholders Agreement.
Goldcorp has agreed to fund 100% of the Companys share of the development and
construction capital for the project, which was estimated in the El Morro
feasibility study at approximately $2.5 billion. Under the former Xstrata
carried funding arrangements, the Company would have been required to fund
approximately $225.0 million or 9% of the project capital prior to completion of
the project.

On January 13, 2010, New Gold
received a Statement of Claim filed by Barrick in the Ontario Superior Court of
Justice, against New Gold, Goldcorp and affiliated subsidiaries. The claim
relates to New Golds exercise of its right of first refusal on the El Morro
copper-gold project. New Gold believes the claim is completely without merit and
intends to defend this action using all available legal avenues. See Legal
Proceedings and Regulatory Actions.

RISK FACTORS

The operations of the Company are
speculative due to the high-risk nature of its business, which is the
acquisition, financing, exploration, development and operation of mining
properties. These risk factors could materially affect the Companys future
operating results and could cause actual events to differ materially from those
described in forward-looking statements relating to the Company.

In addition to the other
information presented in this Annual Information Form, the following risk
factors should be given special consideration when evaluating trends, risks and
uncertainties relating to the Companys business. Any of the following risks
could have a material adverse effect upon the Company, its business and future
prospects. In addition, other risks and uncertainties not presently known by
management of the Company could impair the Company, its business and prospects
in the future.

Exploration, Development and Operating Risk

Although the Companys activities
are primarily directed towards mining operations and the development of mineral
deposits, its activities also include the exploration for and development of
mineral deposits.

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, silver and copper including unusual and unexpected geologic
formations, seismic activity, rock bursts, cave-ins, flooding and other
conditions involved in the drilling and removal of material, any of which could
result in damage to, or destruction of, mines and other producing facilities,
damage to life or property, environmental damage and possible legal liability.
Although appropriate precautions to mitigate risk are taken, 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.

The exploration for and
development of mineral deposits involves significant risks which even a
combination of careful evaluation, experience and knowledge may not eliminate.
While the discovery of an ore body may result in substantial rewards, few
properties that are explored are ultimately developed into producing mines.
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 joint venture
partners will result in a profitable commercial mining operation.

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

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 size, grade, metallurgy
and 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.

New Afton Development and Marketing Risk

The New Afton Project is
currently at the construction stage of its development. Construction and
development of the project is subject to numerous risks, including, but not
limited to, delays in obtaining equipment, material and services essential to
completing construction of the project in a timely manner; changes in
environmental or other government regulations; currency exchange rates;
financing risks; labour shortages; and fluctuation in metal prices. There can be
no assurance that the construction will continue in accordance with current
expectations or at all.

Commodity Price Risk

The Companys earnings and cash
flows are subject to price risk due to fluctuations in the market price of gold,
silver and copper. 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 crises;
- 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 holders;
- demand for jewelry containing gold; and
- investment activity, including speculation, in gold as a commodity.

As part of the Western Goldfields
acquisition, the Company acquired gold contracts which mitigate the effects of
price changes. The Company declared these contracts an accounting cash flow
hedge effective July 1, 2009. At December 31, 2009, the Company had remaining
gold forward sales contracts for 330,000 ounces of gold at a price of $801 per
ounce at a remaining commitment of 5,500 ounces per month for 60 months.

In 2009, the Companys revenues
and cash flows were impacted by the rising copper prices. There is a time lag
between the time of shipment for copper and final pricing, and changes in copper
pricing can significantly impact the Companys revenue and working capital
position. As of December 31, 2009, working capital includes copper concentrate
receivables totalling 1.1 million pounds. A $0.10 change in the copper price
would have an impact of $0.1 million on the Companys working capital
position.

The Company is also subject to
price risk for fluctuations in the cost of energy, principally electricity and
purchased petroleum products. The Companys production costs are also affected
by the prices of commodities it consumes or uses in its operations, such as
lime, reagents and explosives. The prices of such commodities are influenced by
supply and demand trends affecting the mining industry in general and other
factors outside the Companys control. The Company has entered into fuel
contracts to mitigate these price risks. At December 31, 2009, the Company had a
remaining commitment to purchase 3.0 million gallons of diesel over the next 12
months. The Company is financially settling 252,000 gallons of diesel per
month.

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There is no assurance that any
commodity-hedging program designed to reduce the risk associated with
fluctuations in metal prices will be successful. Hedging may not protect
adequately against declines in the price of the hedged metal. Although hedging
may protect New Gold from a decline in the price of the metal being hedged, it
may also prevent New Gold from benefiting fully from price increases.

Currency Fluctuations

Exchange rate fluctuations may
affect the costs that the Company incurs in its operations. Gold, silver and
copper are sold in US dollars and the Companys costs are incurred principally
in Canadian dollars, Australian dollars and Mexican pesos. The appreciation of
non-US dollar currencies against the US dollar can increase the cost of gold,
silver and copper production and capital expenditure in US dollar terms and the
depreciation of non-US dollar currencies against the US dollar can decrease the
cost of gold, silver and copper production and capital expenditure in US dollar
terms.

The Company has recorded future
income tax liabilities on mineral interests relating to the acquisitions of  Peak and Metallica. The future income tax liabilities and long-term debt
obligations are monetary items, which are revalued each period end at current
exchange rates, with the gain or loss recorded in income for the period.

The Company has assessed this risk and has not hedged its
exposure to currency fluctuations.

Permitting

The Companys operations in
Canada, Mexico, Chile, Australia, the United States and Brazil are subject to
receiving and maintaining permits from appropriate governmental authorities.
Although the Companys mining operations currently have all required permits for
their operations as currently conducted, there is no assurance that delays will
not occur in connection with obtaining all necessary renewals of such permits
for the existing operations, additional permits for any possible future changes
to operations, or additional permits associated with new legislation. Prior to
any development on any of its properties, the Company must receive permits from
appropriate governmental authorities. There can be no assurance that the Company
will continue to hold all permits necessary to develop or continue operating at
any particular property.

The Company is also involved with ongoing challenges relating
to its environmental impact statement for the Cerro San Pedro Mine. There is a
lack of certainty with respect to the Mexican and other 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. See Legal Proceedings
and Regulatory Actions.

Litigation

New Gold is party to material
legal proceedings, which, if decided adversely to New Gold, may have a material
adverse effect on the financial or business position or prospects of New Gold.
Shareholders are urged to read the description of the pending legal proceedings
set out under the heading Legal Proceedings and Regulatory Actions.

Acquisition Strategy

As part of New Golds business
strategy, it has sought and will continue to seek new mining and development
opportunities in the mining industry. In pursuit of such opportunities, New Gold
may fail to select appropriate acquisition candidates or negotiate acceptable
arrangements, including arrangements to finance acquisitions or integrate the
acquired businesses and their personnel into New Gold. The Company cannot assure
that it can complete any acquisition or business arrangement that it pursues, or
is pursuing, on favourable terms, or that any acquisitions or business
arrangements completed will ultimately benefit New Golds business.

During the past two financial
years, the Company has completed business combinations with Metallica and Peak (in 2008) and with Western Goldfields (in 2009). There can be no assurances
that the benefits anticipated from these acquisitions will be realized.

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Government Regulations

The mining, processing,
development and exploration activities of the Company are subject to various
laws governing prospecting, development, production, taxes, labour standards and
occupational health, mine safety, toxic substances, 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.

Foreign Operations

The Companys operations are
currently conducted in the United States, Australia, Mexico, Canada, Chile and
Brazil, and as such the Companys operations are exposed to various levels of
political, economic and other risks and uncertainties. These risks and
uncertainties vary for each country and include, but are not limited to: extreme
fluctuations in currency exchange rates; high rates of inflation; labour unrest;
renegotiation or nullification of existing concessions, licenses, permits and
contracts; illegal mining; corruption; unstable legal system; changes in
taxation policies; restrictions on foreign exchange and repatriation; and
changing political conditions, social unrest, currency controls and governmental
regulations that favour or require the awarding of contracts to local
contractors or require foreign contractors to employ citizens of or purchase
supplies from a particular jurisdiction.

Changes, if any, in mining or
investment policies or shifts in political attitude in these countries could
adversely affect the Companys operations or profitability. Operations may be
affected in varying degrees by government regulations with respect to, but not
limited to, restrictions on production, price controls, export controls,
currency remittance, income taxes, expropriation of property, foreign
investment, maintenance of claims, environmental legislation, land use, land
claims of local people, water use and mine safety.

Failure to comply strictly with
applicable laws, regulations and local practices relating to mineral right
applications and tenure, could result in loss, reduction or expropriation of
entitlements.

The occurrence of these various
factors and uncertainties cannot be accurately predicted and could have an
adverse effect on the Companys operations or profitability.

Environmental Risks and Hazards

All phases of the Companys operations are subject to
environmental regulation in the various jurisdictions in which it operates.
These regulations mandate, among other things, the maintenance of air and water
quality standards and land reclamation. They also contain limitations on the
generation, transportation, storage and containment, 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. There is no assurance that future
changes in environmental regulation, if any, will not adversely affect the
Companys operations. The Company is also involved with ongoing challenges
relating to its environmental impact statement for the Cerro San Pedro Mine.
There is a lack of certainty with respect to the Mexican and other 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.

Government approvals and permits
are currently, and may in the future be, required in connection with the
Companys operations. To the extent that such approvals are required and not
obtained, the Company may be curtailed or prohibited from continuing its mining
operations or from proceeding with planned exploration or development of mineral
properties.

Failure to comply with applicable
laws, regulations and permitting requirements or unanticipated judicial
interpretation of same, may result in enforcement actions, including orders
issued by regulatory or judicial authorities causing operations to cease or be
curtailed, and may include corrective measures requiring capital expenditures,
installation of additional equipment, or remedial actions. Parties engaged in
mining operations or in the exploration or development of mineral properties may
be required to compensate those suffering loss or damage by reason of the mining
activities and may have civil or criminal fines or penalties imposed for
violations of applicable laws or regulations.

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Amendments to current laws,
regulations and permits governing operations and activities of mining and
exploration companies, or their more stringent implementation, could have a
material adverse impact on the Company and cause increases in exploration
expenses, capital expenditures or production costs or reduction in levels of
production at producing properties or require abandonment or delays in
development of new mining properties.

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 then the Company may become subject to liability for cleanup work that
may not be insured. While appropriate steps will be taken to prevent discharges
of pollutants into the ground water and the environment, the Company may become
subject to liability for hazards that it may not be insured against.

Climate Change Risks

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

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

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

Resource shortages: The
Companys facilities depend on regular supplies of consumables (diesel, tires,
etc.) and reagents to operate efficiently. In the event that the effects of
climate change cause prolonged disruption to the delivery of essential
commodities, the Companys production efficiency is likely to be reduced.

New Gold will continue to assess
energy efficiency opportunities across all of its operations with the goal of
reducing both costs and greenhouse gas emissions. The Company will also continue
to address the potential physical risks of climate change by including extreme
weather conditions in emergency response plans as required.

Current Global Financial Condition

Current global financial
conditions have been subject to increased volatility, although markedly improved
since last year. High levels of volatility and market turmoil could adversely
impact planned growth and the trading price of the Companys securities.

Uncertainty in the Estimation of Mineral Reserves and
Mineral Resources

The figures for mineral reserves
and mineral resources contained in this Annual Information Form 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 could be mined or processed profitably. 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 reserve or resource estimate is a
function of the quantity and quality of available data and of the assumptions
made and judgments used in engineering and geological interpretation. Short-term
operating factors relating to the mineral reserves, such as the need for orderly
development of the ore bodies or the processing of new or different ore grades,
may cause the mining operation to be unprofitable in any particular accounting
period. In addition, there can be no assurance that gold, silver or copper
recoveries in small scale laboratory tests will be duplicated in larger scale
tests under on-site conditions or during production.

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Fluctuation in gold and copper
prices, results of drilling, metallurgical testing and production and the
evaluation of mine plans subsequent to the date of any estimate may require
revision of such estimate. 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, could have a material
adverse effect on the Companys results of operations and financial
condition.

Exploration, Development and Resource and Reserve
Estimates

The exploration and development
of natural resources involve a high degree of risk and few properties which are
explored are ultimately developed into producing properties. Although the
mineral resource and reserve figures set out herein have been carefully prepared
and reviewed or verified by independent mining experts, these amounts are
estimates only and no assurance can be given that an identified mineral resource
will ever qualify as a commercially mineable (or viable) ore body which can be
legally and economically exploited. In addition, the grade of mineralization
ultimately mined may differ from that indicated by drilling results and such
differences could be material. Production can be affected by such factors as
permitting regulations and requirements, weather, environmental factors,
unforeseen technical difficulties, unusual or unexpected geological formations
and work interruptions.

Short-term factors, such as the
need for orderly development of deposits or the processing of new or different
grades, may have an adverse effect on mining operations and on the results of
operations. There can be no assurance that minerals recovered in small scale
laboratory tests will be duplicated in large scale tests under on-site
conditions or in production scale operations. Material changes in reserves or
resources, grades, dilution estimates or recovery rates may affect the economic
viability of a project. The estimated reserves and resources described in this
Annual Information Form should not be interpreted as assurances of mine life or
of the profitability of future operations. The long term profitability of the
Companys operations will be in part directly related to the cost and success of
its exploration programs, which may be affected by a number of factors.

Substantial expenditures are
required to establish mineral resources through drilling, to develop processes
to extract the resources and, in the case of new properties, to develop the
extraction and processing facilities and infrastructure at any site chosen for
extraction. Although substantial benefits may be derived from the discovery of a
major deposit, no assurance can be given that resources will be discovered in
sufficient quantities to justify commercial operations or that the funds
required for development can be obtained on a timely basis.

Uncertainty Relating to Inferred Mineral
Resources

Inferred mineral resources that
are not mineral reserves do not have demonstrated economic viability. Due to the
uncertainty which may attach to inferred mineral resources, there is no
assurance that inferred mineral resources will be upgraded to proven and
probable mineral reserves as a result of continued exploration.

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 failures, cave-ins, changes in
the regulatory environment and natural phenomena such as inclement weather
conditions, floods, hurricanes and earthquakes. Such occurrences could result in
damage to mineral properties or production facilities, personal injury or death,
environmental damage to New Golds properties or the properties of others,
delays in mining, monetary losses and possible legal liability.

Although New Gold maintains insurance to protect against
certain risks in such amounts as it considers to be reasonable, its insurance
will not cover all the potential risks associated with a mining companys
operations. New Gold may also be unable to maintain insurance to cover these
risks at economically feasible premiums. Insurance coverage may not continue to
be available 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 and production is not
generally available to New Gold or to other companies in the mining industry on
acceptable terms. New Gold might 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.

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Losses from these events may cause the Company to incur
significant costs that could have a material adverse effect upon its financial
performance and results of operations.

Credit risk

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

The Company closely monitors its
financial assets and does not have any significant concentration of credit risk.
The Company sells its gold exclusively to large international organizations with
strong credit ratings. The Companys revenue is comprised of gold sales to
primarily five customers. The historical level of customer defaults is minimal
and, as a result, the credit risk associated with gold and copper concentrate
trade receivables at December 31, 2009 is not considered to be high.

A significant portion of the Companys cash and cash
equivalents are held in large Canadian financial institutions. Short-term
investments are composed of financial instruments issued by Canadian banks with
high investment-grade ratings and the governments of Canada and the U.S.

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 at December 31, 2009 the
Company had working capital of $301.7 million and considers that, together with
cash flows from operations, this will be sufficient to support the Companys
normal operating requirements through its current reporting period. However, the
Company is continuing to review expenditures in order to ensure adequate
liquidity and flexibility to support its growth strategy while maintaining
production levels at its current operations.

The Company believes that
external financing (which may include bank borrowings and future debt and equity
offerings) will not be required to complete its major development projects. A
period of continuous low copper prices may necessitate the deferral of capital
expenditures which may impact production from mining operations. In addition,
the Company believes it will not need external financing to repay its long-term
debt in 2017.

Interest rate risk

Interest rate risk is the risk that the fair value of the
future cash flows of a financial instrument will fluctuate because of changes in
market interest rates. The Company is exposed to interest rate risk on its
outstanding borrowings and short-term investments.

Where possible and depending on
market conditions, the Company follows the policy of issuing fixed interest rate
debt to avoid future fluctuations in its debt service costs.

Asset Backed Notes

As at December 31, 2009, the
non-bank asset backed commercial paper (ABCP) market had been the subject of a
restructuring process with the express intention of replacing the ABCP with a
number of long-term floating rate notes or asset backed notes. The restructuring
plan was completed on January 21, 2009 and the AB

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Notes were issued in replacement of ABCP. This process pooled
all of the underlying assets from all the ABCP trusts with the exception of
those assets designated as ineligible for pooling (Ineligible Assets) and
those series of assets backed exclusively by traditional financial assets
(Traditional Series). ABCP relating to the pooled assets was replaced with
four classes of notes named A-1, A-2, B and C in declining order of seniority.
ABCP relating to ineligible assets and traditional series were replaced with new
tracking notes whose characteristics were designed to track the performance of
the particular assets of the series to which they correspond.

The Company has estimated the
fair value of the remaining AB Notes at December 31, 2009 using the following
methodology and assumptions:

- Where the Company still retains AB Notes of the same class as were sold in
  the fourth quarter (including A-1 and A-2 AB Notes), the retained AB Notes
  were valued at the last transaction price of the partial sale in December
  2009. All of these notes were subsequently sold in 2010 for prices higher than
  their December 31, 2009 fair value.
- The other remaining notes, with a face value of C$20.9 million and fair
  value of less than C$0.8 million, were valued at market bid prices provided by
  banks and traders active in the AB Notes market.

While the Company believes that
it has utilized an appropriate methodology to estimate fair value, given the
current state and ongoing volatility of global credit markets, there can be no
assurance that managements estimate of potential recovery as at December 31,
2009 is accurate. Subsequent adjustments, either materially higher or lower, may
be required in future reporting periods. However, the Company sold all of its
remaining A-1 and A-2 notes in January 2010.

The secondary market for the
Companys remaining AB Notes (after the first quarter 2010 divestitures) is
relatively illiquid; however, the Company will continue to monitor market
developments in order to maximize value.

Financing Risks

The Companys mining, processing,
development and exploration activities may require additional external
financing. Failure to obtain sufficient financing could result in the delay or
indefinite postponement of exploration, development or production on any or all
of our projects. There can be no assurance that additional capital or other
types of financing will be available if needed or that, if available, the terms
of such financing will be favourable. At current metal prices, it is expected
that the Companys existing assets coupled with the cash flow from current
operations will be sufficient to fund the construction of the New Afton and El
Morro projects. However there can be no assurance that the construction will
continue in accordance with current expectations or at all.

Title To Some Of the Companys Mineral Properties May Be
Challenged Or Defective

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 or claims,
including aboriginal land claims, and title may be affected by, among other
things, undetected defects. As a result, we may be constrained in our ability to
operate our properties or unable to enforce our rights with respect to our
properties. An impairment to or defect in our title to our properties could have
a material adverse effect on our business, financial condition or results of
operations.

Labour and Employment Matters

While New Gold has good relations
with both its unionized and non-unionized employees, production at New Golds
mining operations is dependent upon the efforts of the Companys employees. In
addition, relations between New Gold and its employees may be impacted by
changes in the scheme of labour relations which may be introduced by the
relevant governmental authorities in whose jurisdictions the Company carries on
business. Adverse changes in such legislation or in the relationship between New
Gold and its employees may have a material adverse effect on New Golds business, results of operations
and financial condition.

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Retention of Key Personnel

The Companys business is
dependent on retaining the services of a small number of key personnel of the
appropriate calibre as the business develops. The success of the Company is, and
will continue to be to a significant extent, dependent on the expertise and
experience of the directors and senior management and the loss of one or more
could have a materially adverse effect on the Company.

Need for Additional Mineral Reserves and Mineral
Resources

New Gold must continually explore
to replace and expand its Mineral Reserves and Mineral Resources. The
life-of-mine estimates included in this Annual Information Form for each of New
Golds operating mines are based on New Golds best estimate given the
information available to the Company. These estimates may not be correct. New
Golds ability to maintain or increase its annual production of gold, silver and
copper depends in significant part on its ability to find new Mineral Reserves
and Mineral Resources and bring new mines into production, and to expand Mineral
Reserves and Mineral Resources at existing mines.

Competition

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

Infrastructure

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

Market Price of the Companys Securities

The common shares and the
Warrants, Notes and Debentures of the Company are listed on the TSX and the
NYSE-AMEX. Securities
of mining companies have experienced substantial volatility in the past, often
based on factors unrelated to the financial performance or prospects of the
companies involved. These factors include macroeconomic developments in North
America and globally and market perceptions of the attractiveness of particular
industries. The price of the common shares, Warrants, Notes and Debentures are
also likely to be significantly affected by short-term changes in gold, silver
or copper prices or in its financial condition or results of operations as
reflected in its quarterly earnings reports.

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

Future Sales of Common Shares by Existing
Shareholders

Sales of a large number of common
shares in the public markets, or the potential for such sales, could decrease
the trading price of the common shares and could impair New Golds ability to
raise capital through future sales of common shares. New Gold has previously
completed private placements at prices per share which are lower than the
current market price of the common shares. Accordingly, a significant number of
shareholders of New Gold have an investment profit in the common shares that
they may seek to liquidate. Substantially all of the common shares can be resold
without material restriction either in the United States, in Canada or both.

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NOTES AND DEBENTURES

Notes

In June and July 2007, the
Company issued an aggregate of 237,000 Series D units for an aggregate principal
amount of C$237 million. Each Unit consists of a C$1,000 principal amount note
(the Note) and 100 common share purchase warrants (the Warrants). Each
Warrant is exercisable to purchase one common share of the Company at a price of
C$15 per share until June 28, 2017. The Notes and Warrants are listed for
trading on the Toronto Stock Exchange (TSX).

The Notes and the Warrants were
issued under a note indenture (the Note Indenture) and a warrant indenture
(the Warrant Indenture), respectively, dated as of June 28, 2007 between the
Company and Computershare Trust Company of Canada (the Trustee). On April 17,
2008 the Company and Computershare entered into an amended and restated note
indenture (the Amended Note Indenture). The Amended Note Indenture converts
the Notes from subordinated unsecured notes to senior secured notes. The Notes
are secured by a charge (the New Afton Security Interest) on the assets (the
New Afton Project Assets) comprising and relating to the New Afton Project
near Kamloops, British Columbia. Subject to Permitted Encumbrances (as defined
in the Amended Note Indenture), the New Afton Security Interest constitutes a
first ranking charge on the New Afton Project Assets. The Amended Note Indenture
contains restrictions on (i) incurring indebtedness, (ii) granting or permitting
to exist any encumbrances on any New Afton Project Assets, other than Permitted
Encumbrances, (iii) transferring or otherwise disposing of any New Afton Project
Assets, other than in the ordinary course of business, (iv) the use of the net
cash flow (the New Afton Cash Flow) from the sale of production from the New
Afton Project, (v) redeeming or purchasing shares or other equity securities of
the Company, (vi) paying any dividends or distributions in respect of any shares
of the Company, (vii) paying any indebtedness, other than the Notes and certain
other specified permitted indebtedness, and (viii) carrying on any business,
other than mining or a business reasonably related thereto. As well, under a
supplemental warrant indenture to the original Warrant Indenture, holders of the
notes were granted an additional 4,150,000 warrants (the Consent Fee Warrants)
on completion of the Peak/Metallica Business Combination on the same terms as
the original Warrants.

The Notes mature and become due
and payable on June 28, 2017 and bear interest at the rate of 10% per annum.
Interest is payable in arrears in equal semi-annual installments on January 1
and July 1 in each year, starting January 1, 2008. The Company has the right to
redeem the Notes in whole or in part at any time and from time to time from June
28, 2007 to June 27, 2017 at a price ranging from 120% to 100% (decreasing based
on the length of time the Notes are outstanding) of the principal amount of the
Notes to be redeemed.

The Amended Note Indenture
provides that in the event of a change of control of the Company or in the
ownership of the New Afton Project, the Company may or must offer, depending on
the circumstances, to redeem the Notes at prices ranging from 120% to 100%
(decreasing based on the length of time the Notes are outstanding and the
circumstances surrounding the change of control) of the principal amount of the
Notes to be redeemed. In addition, if 50% of the New Afton Cash Flow (the "New
Afton Excess Cash Flow") for any fiscal year exceeds $10 million the Company
must make an offer to redeem the Notes in an aggregate principal amount equal to
the New Afton Excess Cash Flow on a pro rata basis.

The Notes are direct, secured
senior debt obligations of the Company ranking pari passu with one
another and, except as prescribed by law, senior to the Debentures described
below and all other present and future unsecured indebtedness of the
Company.

In January 2009, the Company
acquired C$50.0 million face value of its Notes for C$30.0 million from
noteholders. This will result in reductions of principal of C$50.0 million and
interest of approximately C$5.0 million per year.

The Note Indenture requires the
Company to comply with certain reporting and other covenants.

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Subordinated Convertible Debentures

Pursuant to the Offering, the
Company issued 55,000 5% subordinated convertible debentures (the Debentures)
for an aggregate principal amount of C$55 million. The Debentures were issued
pursuant to a debenture indenture dated June 28, 2007 between the Company and
the Trustee (the Debenture Indenture). The Debentures are listed for trading
on the TSX.

Each Debenture has a principal
amount of C$1,000, bears interest at a rate of 5% per annum and is convertible
by the holders into shares of the Company at any time up to June 28, 2014 at a
conversion price of C$9.35 per share. Interest is payable in arrears in equal
semi-annual installments on January 1 and July 1 in each year, starting January
1, 2008. The Debentures mature and become due and payable on June 28, 2014.

The Debentures do not allow
forced conversion by the Company before January 1, 2012, but after that date the
Company may redeem the Debentures if the market price of the Companys shares is
at least 125% of the conversion price. The Note Indenture provides that the
Company will not prepay the Debentures in cash. The Debentures are classified as
compound financial instruments for accounting purposes because of the holder
conversion option.

The Debenture Indenture provides
that in the event of a change of control of the Company, as defined therein,
where 10% or more of the aggregate purchase consideration is cash, the Company
must offer to either (i) redeem the outstanding Debentures at a redemption price
equal to 100% of the principal amount, plus accrued and unpaid interest up to
but excluding the date of redemption, or (ii) convert the outstanding Debentures
into shares at a conversion price ranging from C$7.48 to C$9.35, based on a time
formula specified in the Debenture Indenture.

The Debentures are direct debt
obligations of the Company, are not secured by any mortgage, pledge or charge
and will be subordinate to any secured indebtedness of the Company and the
Notes. The Debenture Indenture does not restrict the Company from incurring
further indebtedness or from mortgaging, pledging or charging its property or
assets to secure any indebtedness of the Company.

The Debenture Indenture requires the Company to comply with
certain reporting and other covenants.

DIVIDENDS

To date, New Gold has not paid
dividends on its shares. The Company currently intends to retain future
earnings, if any, for use in its business and does not anticipate paying
dividends on its shares in the foreseeable future. Any determination to pay any
future dividends will remain at the discretion of the Companys board of
directors and will be made taking into account its financial condition and other
factors deemed relevant by the board.

DESCRIPTION OF CAPITAL STRUCTURE

Common Shares

The Company is authorized to
issue an unlimited number of common shares without par value, of which
389,209,276 common shares were issued and outstanding at March 24, 2010. Holders
of common shares are entitled to receive notice of any meetings of shareholders
of the Company, to attend and to cast one vote per common share at all such
meetings. Holders of common shares do not have cumulative voting rights with
respect to the election of directors and, accordingly, holders of a majority of
the common shares entitled to vote in any election of directors may elect all
directors standing for election. Holders of common shares are entitled to
receive on a pro-rata basis such dividends, if any, as and when declared by the
Companys board of directors at its discretion from funds legally available
therefore and upon the liquidation, dissolution or winding up of the Company are
entitled to receive on a pro-rata basis the net assets of the Company after
payment of debts and other liabilities, in each case subject to the rights,
privileges, restrictions and conditions attaching to any other series or class
of shares ranking senior in priority to or on a pro-rata basis with the holders
of common shares with respect to dividends or liquidation. The common shares do
not carry any pre-emptive, subscription, redemption or conversion rights.

- 84 -

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TRADING PRICE AND VOLUME

Common Shares

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

2009
    High (C$)
    Low (C$)
    VolumeJanuary
    2.83
    1.50
    31,049,300February
    3.25
    2.26
    37,578,100March
    2.63
    1.85
    46,507,100April
    2.57
    1.86
    43,906,900May
    3.46
    2.13
    56,013,300June
    3.50
    2.80
    64,985,500July
    3.30
    2.67
    29,123,500August
    4.09
    3.14
    50,084,700September
    4.41
    3.51
    84,325,500October
    4.76
    3.61
    94,578,700November
    4.64
    3.61
    99,525,000December
    4.39
    3.37
    67,864,200


The price of the common shares as
quoted by the TSX at the close of business on December 31, 2009 was C$3.80 and
on March 24, 2010 was C$4.37.

Series A Warrants

The Companys Series A Warrants
are listed and posted for trading on the TSX under the symbol NGD.WT.A.
Holders are entitled to purchase one common share for C$15.00 for each warrant
held. These warrants expire June 28, 2017. The
following table contains information relating to the trading of the Companys
Series A Warrants in Canadian dollars on the TSX for the months indicated.

2009
    High (C$)
    Low (C$)
    VolumeJanuary
    0.35
    0.17
    1,316,100February
    0.57
    0.29
    1,086,800March
    0.47
    0.35
    855,700April
    0.42
    0.30
    1,393,700May
    0.45
    0.30
    1,700,900June
    0.48
    0.340
    1,632,700July
    0.40
    0.28
    2,262,600August
    0.45
    0.33
    1,271,600September
    0.60
    0.38
    2,345,400October
    0.57
    0.45
    2,323,600November
    0.58
    0.43
    2,105,700


|December | 0.53 | 0.43 | 1,156,500
|-------- | ---- | ---- | ---------

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The price of the Series A
Warrants as quoted by the TSX at the close of business on December 31, 2009 was
C$0.49 and on March 24, 2010 was C$0.76.

Series B Warrants

The Companys Series B Warrants
are listed and posted for trading on the TSX under the symbol NGD.WT.B.
Holders are entitled to purchase one common share for C$15.00 for each 10
warrants held. These warrants expire April 3, 2012. The
following table contains information relating to the trading of the Companys
Series B Warrants in Canadian dollars on the TSX for the months indicated.

2009
    High (C$)
    Low (C$)
    VolumeJanuary
    0.03
    0.02
    17,476,100February
    0.04
    0.02
    17,174,300March
    0.04
    0.02
    5,002,600April
    0.04
    0.02
    3,460,100May
    0.05
    0.02
    4,751,600June
    0.05
    0.03
    3,800,200July
    0.04
    0.03
    5,423,500August
    0.04
    0.03
    5,577,600September
    0.05
    0.03
    12,543,000October
    0.05
    0.04
    3,271,900November
    0.04
    0.02
    10,620,000December
    0.04
    0.03
    3,356,200


The price of the Series B
Warrants as quoted by the TSX at the close of business on December 31, 2009 was
C$0.04 and on March 24, 2010 was C$0.035.

Series C Warrants

The Companys Series C Warrants
are listed and posted for trading on the TSX under the symbol NGD.WT.C.
Holders are entitled to purchase one common share for C$9.00 for each 10
warrants held. These warrants expire November 28, 2012. The
following table contains information relating to the trading of the Companys
Series C Warrants in Canadian dollars on the TSX for the months indicated.

2009
    High (C$)
    Low (C$)
    VolumeJanuary
    0.18
    0.08
    647,000February
    0.18
    0.12
    4,006,500March
    0.13
    0.07
    2,379,700April
    0.11
    0.08
    137,700May
    0.18
    0.10
    546,900June
    0.18
    0.11
    300,000July
    0.16
    0.11
    3,511,200August
    0.16
    0.11
    315,500September
    0.15
    0.11
    10,450,700October
    0.17
    0.13
    838,300


|November | 0.17 | 0.10 | 12,092,900
|-------- | ---- | ---- | ----------
|December | 0.16 | 0.11 | 894,800   

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The price of the Series C
Warrants as quoted by the TSX at the close of business on December 31, 2009 was
C$0.14 and on March 24, 2010 was C$0.11

Notes

The Notes are listed and posted
for trading on the TSX under the symbol NGD.NT. The following table sets forth
information relating to the trading of the Notes in Canadian dollars on the TSX
for the months indicated.

2009
    High ($)
    Low ($)
    VolumeJanuary
    70.00
    62.00
    29,900February
    80.00
    70.50
    78,390March
    85.00
    72.00
    118,610April
    87.50
    84.00
    54,260May
    90.00
    86.00
    9,310June
    92.00
    88.50
    20,700July
    93.00
    89.00
    41,100August
    98.00
    93.00
    24,120September
    103.00
    98.00
    15,330October
    105.00
    101.60
    23,250November
    104.00
    100.30
    9,330December
    102.50
    101.00
    9,190


The price of the Notes as quoted
by the TSX at the close of business on December 31, 2009 was C$102.00 and on
March 24, 2010 was C$108.

Debentures

The Debentures are listed and
posted for trading on the TSX under the symbol NGD.DB. The following table
sets forth information relating to the trading of the Debentures in Canadian
dollars on the TSX for the months indicated.

2009
    High ($)
    Low ($)
    VolumeJanuary
    0.00
    0.00
    NILFebruary
    99.50
    99.00
    7,650March
    99.00
    99.00
    380April
    99.00
    98.90
    4,500May
    98.90
    98.90
    2,000June
    99.00
    92.00
    7,620July
    95.00
    93.20
    1,110August
    96.00
    91.00
    10,600


|September | 101.00 | 94.50  | 7,100 
|--------- | ------ | ------ | ------
|October   | 101.00 | 100.45 | 9,660 
|November  | 104.00 | 102.00 | 14,020
|December  | 101.00 | 100.00 | 2,900 

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The price of the Debentures as
quoted by the TSX at the close of business on December 31, 2009 was C$100.00 and
on March 24, 2010 was C$100.5.

DIRECTORS AND OFFICERS

The names, positions or offices
held with the Company, province/state and country of residence, and principal
occupation of the directors and executive officers of the Company as at March
24, 2010 are as follows:

Name, Province/State and
      Country of Residence
    Position(s) with the
      Company
    Principal OccupationRandall Oliphant Ontario, Canada
    Executive Chairman and Director since
      June 1, 2009
    Executive Chairman of New Gold, President and
      Chief Executive Officer of Silver Bear Resources Inc.Robert Gallagher British Columbia, Canada
    President, Chief Executive Officer and a
      Director (director since June 2008)
    President and Chief Executive Officer of New
      GoldJames Estey (2)(4)Ontario, Canada
    Director since July 2008
    Corporate DirectorVahan Kololian (2)(3)(5)Ontario, Canada
    Director since June 1, 2009
    Managing Partner of TerraNova Partners LPMartyn Konig (2)(4)Ontario, Canada
    Director since June 1, 2009
    Executive Chairman and President of European
      Goldfields LimitedPierre Lassonde (3)Ontario, Canada
    Director since June 2008
    Chairman of the Board of Franco-Nevada
      Corporation.Craig J. Nelsen (5)Colorado, United States
    Director (Director since June 2008)
    President & Chief Executive
    Officer
 of Avanti Mining Inc.Ian W. Telfer (3)(4)British Columbia,
      Canada
    Director since June 2008
    Chairman of GoldcorpRaymond Threlkeld (5)California, United
      States
    Director since June 1, 2009
    President and Chief Executive Officer of Rainy
      River Resources Ltd.Brian Penny Ontario, Canada
    Executive Vice President and Chief
      Financial Officer since June 1, 2009
    Executive Vice President and Chief Financial
      Officer of New GoldJames Currie British Columbia, Canada
    Executive Vice President and Chief
      Operating Officer
    Executive Vice President and Chief Operating
      Officer of New Gold


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Name, Province/State and
      Country of Residence
    Position(s) with the
      Company
    Principal OccupationRon Allum British Columbia, Canada
    Vice President, Operations (Canada)
    Vice President, Operations (Canada) of New GoldMelanie Hennessey British Columbia, Canada
    Vice President, Investor Relations
    Vice President, Investor Relations of New GoldJohn Marshall British Columbia, Canada
    Vice President, Human Resources
    Vice President, Human Resources of New GoldChristian Milau Ontario, Canada
    Vice President, Finance
    Vice President, Finance of New GoldBarry OShea Ontario, Canada
    Vice President, Corporate Controller
    Vice President, Corporate Controller of New
      GoldMark Petersen, Colorado, United States
    Vice President, Exploration
    Vice President, Exploration of New GoldHannes Portmann Ontario, Canada
    Vice President, Corporate Development
    Vice President, Corporate Development of New
      GoldSusan Toews British Columbia, Canada
    Vice President, Legal Affairs, and
      Corporate Secretary
    Vice President, Legal Affairs, and Corporate
      Secretary of New Gold


|____________________________
|----------------------------
|(1)                         
|(2)                         
|(3)                         
|(4)                         
|(5)                         

The principal occupations of each
of the Companys directors and executive officers within the past five years are
disclosed in the following brief biographies.

Randall Oliphant, Executive
Chairman and Director.Mr Oliphant is the Executive Chairman and a
director of the Company. He is also a director and the President and Chief
Executive Officer of Silver Bear Resources Inc. Mr. Oliphant is on the Advisory
Board of Metalmark Capital LLC (formerly Morgan Stanley Capital Partners), and
serves on the boards of WesternZagros Resources Ltd. and Franco-Nevada
Corporation. Since 2003, Mr. Oliphant has served on the boards of a number of
public and private companies and not-for-profit organizations. From 1999 to
2003, he was the President and Chief Executive Officer of Barrick Gold
Corporation. From 2006 to 2009, he was Chairman of Western Goldfileds. Mr.
Oliphant is a Chartered Accountant.

Robert Gallagher,
President, Chief Executive Officer and Director.Mr. Gallagher has
worked in the mining industry for over 32 years and spent 15 years with Placer
Dome Inc. and seven years with Newmont Mining Corporation, most recently as Vice
President Operations, Asia Pacific.  Prior to the merger of Peak Gold, Metallica and New
Gold, Robert Gallagher was the President and Chief Executive Officer of Peak
Gold from February 2008. Mr. Gallagher holds a Bachelor of Applied Science in
Mineral Processing.

James Estey, Director.Mr. Estey is the  retired Chairman of UBS Securities Canada Inc.
and has more than 30 years of experience in the financial markets. Mr. Estey
joined Alfred Bunting and Company as an institutional equity salesperson in 1980 after working at A.E.
Ames & Co. for seven years. In 1994, Mr. Estey became the head of the
Canadian Equities business, and in 2002 he was appointed President and Chief
Executive Officer of UBS Securities Canada. In January 2008 Mr. Estey assumed
the role of Chairman. He serves on the boards of Pure Trading, and Range
Royalty. He also serves on the boards of The Estey Centre for Law and Economics
in International Trade, The National Ballet School and St. Clements School.

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Vahan Kololian, Director.Mr. Kololian is the founder and Managing Partner of TerraNova Partners
LP, which invests in the industrial, services and resource sectors. Since 2002
Mr. Kololian has been Chairman of Precinda Corporation, a private manufacturing
company. Mr. Kololian started his career in investment banking in 1980 with
Burns Fry Limited (now BMO Nesbitt Burns). Since 1990 he has held leadership
positions in private equity partnerships. Mr. Kololian also serves on the board
of Manicouagan Minerals Inc., a public exploration Company focusing primarily on
gold projects. Mr. Kololian holds BA and LL.B. degrees.

Martyn Konig,
Director. Mr. Konig has  29 years experience in
investment banking and the commodity markets. He is Executive Chairman and
President of AIM and TSX listed European Goldfields Limited (EGU:CN) and was
Chief Executive Officer of the Blackfish Capital Group from 2005 until August
2009. He has extensive experience in the natural resource sector, which includes
senior management responsibility in resource finance and commodity trading
operations at various international investment banks. Mr. Konig was a main Board
Director of NM Rothschild and Sons Ltd. for 15 years and held senior positions
at Goldman Sachs and UBS. Mr. Konig is a Barrister and Fellow of the Chartered
Institute of Bankers..

Pierre Lassonde, Director.Mr. Lassonde is currently the Chairman of Franco Nevada Corporation. He
formerly served as President of Newmont Mining Corporation from 2002 to 2006 and
resigned as a director and Vice-Chairman of Newmont effective as of November 30,
2007. Previously Mr. Lassonde served as a director and President (1982 to 2002)
and Co-Chief Executive Officer (1999 to 2002) of the former Franco-Nevada.

Craig J. Nelsen,
Director. Mr. Nelsen was previously the Chairman and Director of
Metallica Resources Inc. He is currently the President, Chief Executive Officer,
and Director of Avanti Mining Corporation since 2007. He previously served as
Chief Executive Officer of that company from 1994 to 1999. Mr. Nelsen also
served as the Executive Vice-President, Exploration, for Gold Fields Limited
from 1999 to 2007.

Ian W. Telfer, Director.Mr. Telfer is Chairman of Goldcorp and previously served as President
and Chief Executive Officer of Goldcorp from February 2005 until its merger with
Glamis Gold Ltd. in November 2006. Mr. Telfer was previously Chairman and Chief
Executive Officer of Wheaton River since September 2001 and has over 26 years of
experience in the precious metals business.

Raymond Threlkeld,
Director.Mr Threlkeld has over 32 years of mineral industry experience. Since 2005, Mr. Threlkeld has been the Chief
Operating Officer of Silver Bear Resources Inc. From 1996 to 2005 Mr. Threlkeld
held various senior management positions in precious metal mine development with
Barrick Gold Corporation and Coeur dAlene Mines Corporation including the
development of the Pierina Mine in Peru, the Bulyanhulu Mine in Tanzania and the
Veladero Mine in Argentina. Mr. Threlkeld has had exploration acquisition
success in the Western United States in addition to the management and project
development experience.

Brian Penny, Executive Vice
President and Chief Financial Officer.Mr. Penny has over 22 years of
experience in mine finance and accounting. He has been the Executive Vice
President and Chief Financial Officer of the Company since June 2009. He was the
Chief Financial Officer of Western Goldfields from 2006 to 2009. Since 2005, Mr.
Penny has also been the Chief Financial Officer of Silver Bear Resources Inc.
Since 2004, Mr. Penny has been a Director of, and chairs the Audit Committee of
Equinox Minerals Limited. Mr. Penny was the Chief Financial Officer of Kinross
Gold Corporation 1993  2004. Mr. Penny is a Certified Management
Accountant.

James (Jim) Currie,
Executive Vice President and Chief Operating Officer.Mr. Currie is a
mining engineer with over 30 years of experience in the mining industry, having
worked on projects in North and South America, Asia and Africa. Mr. Currie was
previously the Vice President Operations of New Gold and Vice President
Operations for Miramar Mining Corp. in Vancouver and was responsible for the
development of Miramars 10 million ounce gold resource at Hope Bay in the
Canadian Arctic. Prior to that, Mr. Currie held the position of General Manager
of Mauritanian Copper Mines SA.

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Ron Allum, Vice President
Operation (Canada).Mr. Allum has a Bachelor of Science in Mining
Engineering and more than 31 years underground operational experience, including
28 years in block cave mining operations at the San Manuel Mine in Arizona, and
the Questa Mine in New Mexico. He worked at the San Manuel Mine for more than 25
years in progressively more senior positions including General Mine Foreman,
Construction Manager, Mine Manager and ultimately Vice President Operations,
initially for Magma Copper Company and subsequently for BHP Copper NA. During
his time at the San Manuel Mine, he led the Lower K Project that developed the
deepest mining horizon at the San Manuel Mine.

Mélanie Hennessey, Vice
President, Investor Relations.Mrs. Hennessey was formerly the Vice
President Investor Relations for Peak Gold Ltd. Previously she was the Director
of Investor Relations for Goldcorp Inc. She has extensive mergers and
acquisitions experience. Mrs. Hennessey has a Masters of Business Administration from the
University of Ottawa.

John Marshall, Vice
President, Human Resources.Mr. Marshall has over 22 years experience in
human resources spanning the energy, semiconductor and banking industries. He
was previously the Director of Worldwide Human Resource Operations for
PMC-Sierra Inc. where he managed human resources operations for employees in
over 10 countries. Prior to PMC-Sierra, Mr. Marshall held various human
resources roles at Duke Energy, Westcoast Energy and NatWest Group plc.

Christian Milau, Vice
President Finance. Mr. Milau has over 15 years of financial advisory
experience in North America and Europe. Previously he was a Vice President with
Deloitte & Touche LLP Corporate Finance and BNP Paribas Corporate Finance in
the U.K. where he originated and executed public and private company mergers and
acquisitions. Prior to BNP Paribas, Mr. Milau held roles in the assurance
practices of PricewaterhouseCoopers in Switzerland and Deloitte & Touche LLP
in Vancouver. Mr. Milau is a Canadian Chartered Accountant and Certified Public
Accountant (Illinois).

Barry OShea, Vice
President, Corporate Controller.Mr. OShea has over 13 years of finance
and accounting experience across multiple industries and countries. He most
recently served as the Division Chief Financial Officer of Gate Gourmet North
America, progressing to that role from the Corporate Controller position.
Previously, he spent 8 years with The Lincoln Electric Company in Canada, the
Netherlands and the U.K. moving to progressively senior finance positions. Mr.
OShea is a Chartered Management Accountant.

Mark Petersen, Vice
President, Exploration.Mr. Petersen is an economic geologist with over
27 years of mining industry experience in the Americas. Mr.
Petersen held the position of Vice President of Exploration for Metallica
Resources Inc., where he was responsible for leading the exploration and
development of the Cerro San Pedro project in Mexico, acting as the companys
technical liaison for the El Morro joint venture project in Chile, developing
and managing a portfolio of earlier stage exploration projects in Chile, Brazil,
and Alaska, and directing generative exploration work throughout the Americas.
Prior to his term with Metallica, Mr. Petersen held positions as an exploration
geologist with Lac Minerals Inc. and predecessor companies Bond Gold Inc. and
St. Joe Gold Inc.

Hannes Portman, Vice
President, Corporate Development.Mr. Portmann has been working with
mining companies in a financial capacity since his career began. Previously he
was an Associate in the Merrill Lynch Investment Banking Mining Group, where he
worked in an advisory role on merger and acquisition mandates as well as equity
and debt offerings. Prior to Merrill Lynch, Mr. Portmann held roles in both the
assurance and advisory practices of PricewaterhouseCoopers LLP. Mr. Portmann
holds a Bachelor of Science in Mining Engineering from Queens University, a
Masters of Management and Professional Accounting from the Rotman School of
Management, University of Toronto and is a Canadian Chartered Accountant.

Susan Toews, Vice
President, Legal Affairs, and Corporate Secretary. Ms. Toews has over 17
years corporate, securities legal experience and was previously Corporate
Secretary of Peak Gold Ltd. She was also previously General Counsel at egX
Canada, an emerging marketplace working toward the securitization of real estate
assets and Senior Legal Counsel with the British Columbia Securities Commission
(BCSC). She was the BCSC representative on the Canadian Securities Administrators
committee that developed the national rule on disclosure of corporate
governance, corporate governance guidelines and the national rule on auditor
oversight. Ms. Toews holds a Bachelor of Arts (Hons.) from the University of
Victoria and a Bachelor of Laws from the University of Saskatchewan.

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As of March 24, 2010, directors
and executive officers of the Company, as a group, beneficially owned, directly
or indirectly, or exercised control or direction over 16,176,915 common shares
of the Company, representing approximately 4.16% of its issued and
outstanding shares.

There are currently four standing
committees of the Board; namely, the Audit Committee, the Compensation
Committee; the Corporate Governance and Nominating Committee and the Health,
Safety, Environment & Sustainability Committee. The following table
identifies the members of each of these Committees:

Audit Committee
    James Estey (Chair) , Martyn Konig, Vahan
      KololianCompensation Committee
    Vahan Kololian (Chair), Pierre Lassonde, Ian
      TelferCorporate Governance and Nominating Committee
    Jim Estey (Chair), Martyn Konig, Ian TelferHealth, Safety, Environment and Sustainability
      Committee
    Craig Nelsen (Chair), Vahan Kololian, Raymond
      Threlkeld


Corporate Cease Trade Orders, Bankruptcies, Penalties or
Sanctions

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

No director or executive officer
of the Company, or a shareholder holding a sufficient number of securities of
the Company to affect materially the control of the Company, (i) is, or within
ten years prior to the date hereof has been, a director or executive officer of
any company (including New Gold) that, while that person was acting in that
capacity, or within a year of that person ceasing to act in that capacity,
became bankrupt, made a proposal under any legislation relating to bankruptcy or
insolvency or was subject to or instituted any proceedings, arrangement or
compromise with creditors or had a receiver, receiver manager or trustee
appointed to hold its assets, other than Ian Telfer, who was Vice Chairman of a
technology company when it made an assignment in bankruptcy on July 31, 2001; or
(ii) has, within ten years prior to the date hereof, become bankrupt, made a
proposal under any legislation relating to bankruptcy or insolvency, or become
subject to or instituted any proceedings, arrangement or compromise with
creditors, or had a receiver, receiver manager or trustee appointed to hold the
assets of the director, executive officer or shareholder.

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

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Conflicts of Interest

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

AUDIT COMMITTEE

The Audit Committees Charter

The Audit Committees Charter is set
out in full in Schedule A.

Composition of the Audit Committee

The following directors are members of
the Audit Committee as at March 24, 2009:

James Estey - Chair
    Independent (1)
    Financially literate (2)Martyn Konig
    Independent (1)
    Financially literate (2)Vahan Kololian
    Independent (1)
    Financially literate (2)


|(1) | A member of an Audit Committee is independent if the
      member has no direct or indirect material relationship with the Company
      which could, in the view of the Board of Directors, reasonably interfere
      with the exercise of a members independent judgment.                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | An individual is financially literate if he has the
      ability to read and understand a set of financial statements that present
      a breadth of complexity of accounting issues that are generally comparable
      to the breadth and complexity of the issues that can reasonably be
      expected to be raised by the Companys financial
  statements.

Relevant Education and Experience

The education and experience of
each Audit Committee member that is relevant to the performance of his
responsibilities as a member of the Audit Committee are as follows:

James Estey, the Chairman of the
Audit Committee, has more than 30 years of experience in the financial markets.
Mr. Estey joined Alfred Bunting and Company as an institutional equity
salesperson in 1980 after working at A.E. Ames & Co. for seven years. In
1994, Mr. Estey became the head of the Canadian Equities business, and in 2002
he was appointed President and CEO of UBS Securities Canada. In January 2008 Mr.
Estey assumed the role of Chairman and retired later that year. He serves on the boards of Pure Trading, and
Range Royalty. He also serves on the boards of The Estey Centre for Law and
Economics in International Trade, The National Ballet School and St. Clements
School.

Martyn Konig Martyn Konig has 29
years experience in investment banking and the commodity markets. He is
Executive Chairman and President of AIM and TSX listed European Goldfields
Limited (EGU:CN) and was Chief Executive Officer of the Blackfish Capital Group
from 2005 until August 2009. He has extensive experience in the natural resource
sector, which includes senior management responsibility in resource finance and
commodity trading operations at various international investment banks. Mr.
Konig was a main Board Director of NM Rothschild and Sons Ltd. for 15 years and
held senior positions at Goldman Sachs and UBS. Mr. Konig is a Barrister and
Fellow of the Chartered Institute of Bankers..

Vahan Kololian is the founder and
Managing Partner of TerraNova Partners LP, which invests in the industrial,
services and resource sectors. Since 2002 Mr. Kololian has been Chairman of
Precinda Corporation, a private manufacturing company. Mr. Kololian started his
career in investment banking in 1980 with Burns Fry Limited (now BMO Nesbitt
Burns). Since 1990 he has held leadership positions in private equity
partnerships. Mr. Kololian also serves on the board of Manicouagan Minerals
Inc., a public exploration company focusing primarily on gold projects. Mr.
Kololian holds BA and LL.B. degrees.

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Pre-Approval Policies and Procedures

The Committee is responsible for
the pre-approval of all audit, audit-related and non-audit services provided by
the independent auditor. The Chairman of the Committee is responsible for proper
implementation of and compliance with this policy. In accordance with this
policy, all external auditor services described below were pre-approved by the
Audit Committee.

The Committee has delegated to
the Chairman the authority to pre-approve the following and to report such
approvals to the Committee as a whole at the next Committee meeting:

- all services, not previously approved, up to $10,000; and
- proposals for non-audit related services to be provided by the Companys
  auditors up to a value of C$100,000.

External Auditor Service Fees (By Category)

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

Financial Year Ending December 31,
    Audit Fees
    Audit Related Fees(2)
    Tax Fees(3)
    All Other Fees(4)2009
    C$1,658,000
    C$224,800
    C$188,000
    C$nil2008(1)
    C$1,587,260
    C$130,670
    C$122,053
    C$190,952


|(1) | Amounts billed for 2008 include payments made to the
      previous auditor for the period January 1, 2008 to June 30, 2008 and
      payments made to Deloitte & Touche LLP, the current auditor, for the
      period July 1, 2008 to December 31, 2008.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The aggregate fees billed for assurance and related
      services that are reasonably related to the performance of the audit or
      review of the Companys financial statements which are not included under
      the heading Audit Fees.         
|(3) | The aggregate fees billed for professional services
      rendered for tax compliance, tax advice and tax planning.                                                                                                                                       
|(4) | The aggregate fees billed for services other than as set
      out under Audit Fees, Audit Related Fees, or Tax
Fees.                                                                                                                                     

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

The Company is, from time to
time, involved in various claims, legal proceedings and complaints arising in
the ordinary course of business. The Company cannot reasonably predict the
likelihood or outcome of these actions. New Gold does not believe that adverse
decisions in any other pending or threatened proceedings related to any matter,
or any amount which may be required to be paid by reason therein, will have a
material effect on the financial condition or future results of operations.
Legal proceedings that are pending against the Company or unasserted claims that
may result in such proceedings or other regulatory actions are described
below.

The Company and MSX are currently
parties to various legal proceedings in Mexico in respect of the operations of
the Cerro San Pedro Mine. In November 2009, the Company was notified it was
required to suspend mining operations at its Cerro San Pedro Mine. Although
mining had been suspended, gold recovery operations of existing inventory on the
leach pads continued. The mining suspension followed a ruling by the Federal
Court of Fiscal and Administrative Justice, to SEMARNAT, the Mexican government's
environmental protection agency nullifying the mine's Environmental Impact
Statement EIS which was issued in 2006. PROFEPA, the Mexican environmental
enforcement agency, issued the order requiring Cerro San Pedro Mine to suspend
mining as a consequence of the nullification of the EIS. In December, 2009, the
Company was granted an injunction related to the suspension of operations at its
Cerro San Pedro Mine. The court ruling temporarily overturns the Mexican
environmental enforcement agency's order to suspend mining operations at the
Cerro San Pedro Mine. Subsequent to December 31, 2009, the Company was scheduled
to face a hearing in the Fourth District Court in San Luis Potosi, related to a
challenge by opposition to the mine to the annual renewal of the explosives
permit at Cerro San Pedro. Additional blasting at Cerro San Pedro was suspended
while the Company vigorously defended against this challenge. On March 17, 2010
the Company announced that the restrictions explosives permit had been removed which allowed full operations to resume.
This relates to a ruling by a Federal District Court in San Luis Potosi that
overturned the earlier court order prohibiting the use of explosives at the
mine.

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On January 13, 2010, the Company
received a Statement of Claim filed by Barrick in the Ontario Superior Court of
Justice, against New Gold, Goldcorp and their affiliated subsidiaries, relating
to the exercise of the right of first of refusal by New Gold in respect of the
Xstrata Interest in the El Morro Copper Project, as described above under the
heading General Development of the Business  Post-Western Goldfields Business
Combination. New Gold believes that the claim is completely without merit and
intends to defend this action using all available legal avenues.

The Company has terminated and
may continue to terminate various employment, consulting and service agreements
as a result of slowing development activities at the New Afton Project and
placing the Amapari Mine on temporary care and maintenance. Certain of the
affected parties have or may make legal claims in response to such terminations.
The Company cannot reasonably predict the likelihood or outcome of any such
actions, but would vigorously defend against them.

The Company has received notice
that legal claims have been filed in Brazilian courts against the Companys
subsidiary, Mineração Pedra Branca do Amapari Ltda (MPBA). The claims allege
that MPBA has adversely impacted the quality of William Creek causing economic
loss and health concerns. The Company believes that these claims are unfounded
and intends to vigorously defend against them.

The Company has been notified of
infraction notices on the Amapari Mine for which it intends to take action to
revoke or reduce. Also, claims have been filed in Brazilian courts against MPBA
alleging rents are payable for the occupation of land where the Amapari Mine was
developed. The Company is defending against these claims.

The Company has received notice
that legal claims alleging environmental damage at the Amapari Mine site have
been filed in Brazilian courts against MPBA. The Company is defending against
these claims. In addition a tax claim has been received by MPBA. The Company has
lodged an appeal.

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL
TRANSACTIONS

Other than as described in this
Annual Information Form, since January 1, 2007 no director, executive officer or
10% shareholder of the Company or any associate or affiliate of any such person
or company, has or had any material interest, direct or indirect, in any
transaction that has materially affected or will materially affect the Company
or any of its subsidiaries.

TRANSFER AGENT AND REGISTRAR

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

MATERIAL CONTRACTS

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

|1. | Business Combination Agreement between New Gold Inc. and
      Western Goldfields Inc., dated March 3, 2009, described under the heading
      General Development of the Business  Western Goldfields Business
      Combination, as amended by a letter agreement dated April 8, 2009 and by
      a letter agreement dated May 22, 2009.                                                                                                                     
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|2. | Underwriting Agreement dated August 27, 2009 between New
      Gold Inc., BMO Nesbitt Burns Inc., GMP Securities L.P., Canaccord Capital
      Corporation, RBC Dominion Securities Inc. Scotia Capital Inc., TD
      Securities Inc., National Bank Financial Inc., Paradigm Capital Inc. and
      Wellington West Capital Markets Inc., described under the heading General Development of the
      Business  Post-Western Goldfields Business Combination.

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3. | Amendment and Restatement Agreement dated October 7, 2009
      between Western Mesquite Mines, Inc., Western Goldfields Inc., Western
      Goldfields (USA) Inc., Investec Bank plc, Commonwealth Bank of Australia,
      the Bank of Nova Scotia, Nedbank Limited, London Branch and Natixis,
      described under the heading General Development of the Business 
      Post-Western Goldfields Business Combination.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                
|4. | Acquisition and Funding Agreement dated January 6, 2010
      between New Gold Inc., Datawave Sciences Inc., Inversiones El Morro
      Limitada and Goldcorp Inc., described under the heading General
      Development of the Business  Post-Western Goldfields Business
      Combination.                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                
|5. | Agreement dated January 27, 2010 between New Gold Inc.,
      Mineracao Pedra Branca do Amapari Ltda. and Beadell Resources Ltd.,
      described under the heading General Development of the Business 
      Post-Western Goldfields Business Combination.                                                                                                                                                                

INTERESTS OF EXPERTS

The following table sets out the
individuals who are the qualified persons as defined by NI 43-101 in connection
with the Mineral Reserve and Mineral Resource estimates for the Companys
mineral projects on a property material to the Company set out opposite their
name(s) and contained in this Annual Information Form:

Mineral Property
    Qualified Person(s)Mesquite Mine
    Mr. Wayne W. Valliant, P. Geo., and Principal
      Geologist for Scott Wilson Roscoe Postle Associates Inc.Mr. Holger Krutzelmann, P. Eng., and Principle
      Metallurgist for Scott Wilson Roscoe Postle Associates Inc.Mr. Richard J. Lambert, P.E., and Principal
      Mining Consultant for Scott Wilson Roscoe Postle Associates Inc.Cerro San Pedro Mine
    Mr. Holger Krutzelmann, P. Eng., and Principle
      Metallurgist for Scott Wilson Roscoe Postle Associates Inc.Mr. Christopher Moreton, Ph.D. and P. Geo., and
      Senior Consulting Geologist for Scott Wilson Roscoe Postle Associates
      Inc.Mr. Richard J. Lambert, P.E., and Principal
      Mining Consultant for Scott Wilson Roscoe Postle Associates Inc.Peak Gold Mines
    Mr. Peter Lloyd, FAusIMM, BESc (Mining), and
    Mining Engineer for New Gold Inc.Mr. Rex Berthelsen, FAusIMM, CPGeo., and
    Principal Geologist for New Gold Inc.Mr. Eric Strom P. Eng., and Professional Engineer
    for New Gold Inc.Mr. Sean Pearce MAusIMM, and Mine Superintendant
    for New Gold Inc.New Afton Project
    Mr. David Rennie, P. Eng., and Principal
      Geologist for Scott Wilson Roscoe Postle Associates Inc.Mr. R. Dennis Bergen, P. Eng., and Associate
      Principal Mining Engineer for Scott Wilson Roscoe Postle Associates
      Inc


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Mr. Kevin C. Scott, P. Eng, and Principal
      Metallurgist for Scott Wilson Roscoe Postle Associates Inc.El Morro Project
    Mr. Richard J. Lambert, P.E., and currently
      Principal Mining Consultant for Scott Wilson Roscoe Postle Associates
      Inc. (formerly Principal Mining Engineer for Pincock, Allen & Holt
      Inc.).Barton G. Stone, P. Geo. and Chief Geologist
      for Pincock, Allen & Holt Inc.Amapari Resources
    Mr. Rex Berthelsen, FAusIMM, CPGeo and
      Principal Geologist for New Gold Inc.


Other than Peter Lloyd, Eric
Strom, Sean Pearce and Rex Berthelsen, who are employees of the Company, none of
the aforementioned firms or persons held any securities of the Company or of any
associate or affiliate of the Company when they prepared the reports referred to
above or following the preparation of such reports nor did they receive any
direct or indirect interest in any securities of the Company or of any associate
or affiliate of the Company in connection with the preparation of such
reports.

Other than Peter Lloyd, Eric
Strom, Sean Pearce and Rex Berthelsen, who are employees of the Company, none of
the aforementioned firms or persons, nor any directors, officers or employees of
such firms, are currently expected to be elected, appointed or employed as a
director, officer or employee of the Company or of any associate or affiliate of
the Company.

The following are the technical
reports prepared in accordance with NI 43-101 from which certain technical
information relating to the Companys mineral projects on a property material to
the Company contained in this Annual Information Form has been derived:

|1. | Mesquite Mine  Technical Report on the Mesquite Mine,
      Brawley, California dated February 26, 2010.                                                                                    
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                
|2. | Cerro San Pedro Mine  Technical Report on the Cerro San
      Pedro Mine, San Luis Potosí, Mexico dated February 16, 2010 and amended
      March 22, 2010.                                 
|   |                                                                                                                                                                                                
|3. | Peak Gold Mines  Peak Gold Mines Pty Ltd Technical
      Report on Peak Gold Mines, New South Wales, Australia, dated January 1,
      2009, as amended and restated on June 12, 2009.      
|   |                                                                                                                                                                                                
|4. | New Afton Project  Technical Report on the New Afton
      Project, British Columbia, Canada, dated December 31, 2009.                                                                      
|   |                                                                                                                                                                                                
|5. | El Morro Project  Feasibility NI 43-101 Technical
      Report for the El Morro Copper-Gold Project, Region III, Chile, dated May
      9, 2008, readdressed to New Gold on August 26, 2009.

Each of these reports are
available on SEDAR at www.sedar.com and a summary of the reports
is contained in this Annual Information Form under Description of the Business
 Mineral Properties.

Deloitte & Touche LLP are the
independent registered chartered accountants of the Company.

ADDITIONAL INFORMATION

Additional information relating
to the Company can be found on SEDAR at www.sedar.com. Additional information,
including directors and officers remuneration and indebtedness, principal
holders of the Companys securities and securities authorized for issuance under
equity compensation plans is contained in the management information circular of
the Company filed for its most recent annual meeting of shareholders. Additional
financial information is provided in the Companys audited Consolidated
Financial Statements and the MD&A for the financial year ended December 31,
2009.

- 97 -

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|SCHEDULE A           
|-----------------------
|AUDIT COMMITTEE CHARTER
|                       
|                       
|                       



Audit Committee Charter (Charter)

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

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

The Committee shall have the authority and funding to retain
independent legal, accounting and other consultants to advise the Committee. The
Company shall provide for appropriate funding, as determined by the Committee,
for payment of compensation to any advisers employed by the Committee and to the
independent auditor employed by the Company for the purpose of rendering or
issuing an audit report or performing other audit, review or attest services and
ordinary administrative expenses of the audit committee that are necessary or
appropriate in carrying out its duties.

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

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

The Committee has the duty to determine whether the Company's
financial disclosures are complete, accurate, are in accordance with generally
accepted accounting principles and fairly present the financial position and
risks of the organization. The Committee should, where it deems appropriate,
resolve disagreements, if any, between management and the outside auditor, and
review compliance with laws and regulations and the Company's own policies.

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

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

The Committee shall consist of at least three independent
Directors who shall serve on behalf of the Board. The members shall be appointed
annually by the Board and shall meet the independence, financial literacy and experience requirements of the applicable exchanges,
Multilateral Instrument 52-110, the U.S. Sarbanes-Oxley Act of 2002 and other
regulatory agencies as required.

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Financial literacy requires that all members of the Committee
shall have the ability to read and understand a set of financial statements that
present the breadth and level of complexity of accounting issues that are
generally comparable to the breadth and complexity of issues that can reasonably
be expected to be raised by the Companys financial statements. At least one
member of the Committee shall be able to analyze and interpret a full set of
financial statements, including the notes attached thereto, in accordance with
Canadian generally accepted accounting principles and at least one member of the
Committee shall qualify and be designated as the Audit Committee Financial
Expert as determined in the judgment of the Board with reference to applicable
law and AMEX rules.

A majority of Members will constitute a quorum for a meeting of
the Committee.

The Board will appoint one Member to act as the Chair of the
Committee. In his absence, the Committee may appoint another person provided a
quorum is present. The Chair will appoint a Secretary of the meeting, who need
not be a member of the committee and who will maintain the minutes of the
meeting.

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

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

The Committee shall meet regularly and at least on a quarterly
basis.

The Committee shall hold in camera sessions without the
presence of management at each meeting.

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

The duties and responsibilities of the Committee shall be as
follows:

|4.1 | Financial Reporting and Disclosure
|--- | ----------------------------------
|    |                                   
|    | a.                                
|    |                                   
|    |                                   
|    |                                   
|    |                                   
|    |                                   
|    |                                   
|    |                                   
|    |                                   
|    |                                   
|    |                                   
|    |                                   
|    | b.                                

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|    | c.               | Review, discuss with management the annual reports, the
      quarterly reports, the Management Discussion and Analysis ("MD&A"),
      Annual Information Form, 40-F, prospectus, financial press releases and
      other disclosures and, if thought advisable, recommend the acceptance of
      such documents to the Board for approval.                                                                                                                                             
|--- | ---------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | d.               | Review and discuss with management any guidance being
      provided to shareholders on the expected future results and financial
      performance of the Company and provide their recommendations on such
      documents to the Board.                                                                                                                                                                                                                                                 
|    |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | e.               | Inquire of the auditors the quality and acceptability of
      the Company's accounting principles, including the clarity of financial
      disclosure and the degree of conservatism or aggressiveness of the
      accounting policies and estimates.                                                                                                                                                                                                                                   
|    |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | f.               | Review the Company's compliance with any policies and
      reports received from regulators. Discuss with management and the
      independent auditor the effect on the Company's financial statements of
      significant regulatory initiatives.                                                                                                                                                                                                                                      
|    |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | g.               | Meet with the outside auditor and management in separate
      executive sessions, as necessary or appropriate, to discuss any matters
      that the Committee or any of these groups believe should be discussed
      privately with the Audit Committee.                                                                                                                                                                                                                               
|    |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | h.               | Ensure that management has the proper system and
      procedures are in place so that the Company's financial statements,
      financial reports and other financial information including all Company
      disclosure of financial information extracted or derived from the
      Companys financial statements, and that they satisfy all legal and
      regulatory requirements. The Audit Committee shall periodically assess the
      adequacy of such procedures.             
|    |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | i.               | Review with the Company's counsel, management and the
      independent auditors any legal or regulatory matter, including reports or
      correspondence, which could have a material impact on the Company's
      financial statements or compliance policies.                                                                                                                                                                                                                         
|    |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | j.               | Based on discussions with the independent auditor
      concerning the audit, the financial statement review and such other
      matters as the Committee deems appropriate, recommend to the Board the
      filing of the audited annual and unaudited quarterly financial statements
      and MD&A on SEDAR and the inclusion of the audited financial
      statements in the Annual Report on Form 40-F.                                                                            
|    |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|4.2 | External Auditor
|    |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | a.               | Be responsible for the recommendation to Board and the
      shareholders for the appointment of the Company's independent auditor and
      for the compensation, retention and oversight of the work of the
      independent auditor employed by the Company. The independent auditor shall
      report directly to the Committee. The Audit Committee shall be responsible
      to resolve any disagreements between management and the auditors regarding
      financial reporting.
|    |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | b.               | Consider, in consultation with the outside auditor, the
      audit scope and plan of the outside auditor.                                                                                                                                                                                                                                                                                                                                                                                 
|    |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | c.               | Approve the outside auditor to be nominated, the cost of
      their services and review the performance of the auditor, including the
      lead partner of the external auditor.                                                                                                                                                                                                                                                                                                         
|    |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | d.               | Confirm with the outside auditor and receive written
      confirmation at least once per year as to the outside auditor's internal
      processes and quality control and disclosure of any investigations or
      government enquiries, reviews or investigations of the outside
    auditor.                                                                                                                                                                                          

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| | e. | Take reasonable steps to confirm at least annually the
      independence of the outside auditor, which shall include:
| | -- | ----------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                       
| |    | i.                                                                                                                    
| |    |                                                                                                                       
| |    | ii.                                                                                                                   
| |    |                                                                                                                       
| |    | iii.                                                                                                                  
| |    |                                                                                                                       
| | f. |                                                                                                                       
| |    |                                                                                                                       
| | g. |                                                                                                                       

|4.3 | Internal Controls and Audit
|--- | ---------------------------
|    |                            
|    | a.                         
|    |                            
|    | b.                         
|    |                            
|    | c.                         
|    |                            
|    | d.                         
|    |                            
|4.4 | General                    
|    |                            
|    | a.                         
|    |                            
|    | b.                         

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| |    |                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. | The Committee shall have the power to conduct or
      authorize investigations into any matter within the scope of this Charter.
      It may request any officer or employee of the Company, its outside legal
      counsel or outside auditor to attend a meeting of the Committee or to meet
      with any member(s) of the Committee.
| |    |                                                                                                                                                                                                                                                                                                                                             
| | d. | Review the qualifications of the accounting and financial
      personnel.                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                             
| | e. | Perform any other activities consistent with this
      Charter, the Company's Articles and governing law, as the Committee or the
      Board deems necessary or appropriate.                                                                                                                                                              

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

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

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

The Chair of the Committee:

| | a. | provides leadership to the Committee with respect to its
      functions as described in this Charter and as otherwise may be
      appropriate, including overseeing the logistics of the operations of the
      Committee;                                                                                                                                                                                                                                                      
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | b. | chairs meetings of the Committee, unless not present,
      including in camera sessions, and reports to the Board of Directors
      following each meeting of the Committee on the findings, activities and
      any recommendations of the Committee;                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | c. | ensures that the Committee meets on a regular basis and
      at least quarterly;                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | d. | in consultation with the Chair of the Board and the
      Committee members, establishes a calendar for holding meetings of the
      Committee;                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | e. | establishes the agenda for each meeting of the Committee,
      with input from other Committee members, the Chair of the Board, and any
      other parties as applicable;                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | f. | acts as liaison and maintains communication with the
      Chair of the Board and the Board to optimize and co-ordinate input from
      Board members, and to optimize the effectiveness of the Committee. This
      includes reporting to the full Board on all proceedings and deliberations
      of the Committee at the first meeting of the Board after each Committee
      meeting and at such other times and in such manner as the Committee
      considers advisable;

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| | g. | reports annually to the Board on the role of the
      Committee and the effectiveness of the Committee role in contributing to
      the objectives and responsibilities of the Board as a whole;            
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                               
| | h. | ensures that the members of the Committee understand and
      discharge their duties and obligations;                                                                                                        
| |    |                                                                                                                                                                                                               
| | i. | fosters ethical and responsible decision making by the
      Committee and its individual members;                                                                                                            
| |    |                                                                                                                                                                                                               
| | j. | together with the Corporate Governance and Nominating
      Committee, oversees the structure, composition, membership and activities
      delegated to the Committee from time to time;                     
| |    |                                                                                                                                                                                                               
| | k. | ensures that resources and expertise are available to the
      Committee so that it may conduct its work effectively and efficiently and
      pre-approves work to be done for the Committee by consultants;
| |    |                                                                                                                                                                                                               
| | l. | facilitates effective communication between members of
      the Committee and management;                                                                                                                    
| |    |                                                                                                                                                                                                               
| | m. | addresses all concerns communicated to him under the
      Companys Whistleblower Policy and Code of Ethics;                                                                                                 
| |    |                                                                                                                                                                                                               
| | n. | performs such other duties and responsibilities as may be
      delegated to the Chair by the Board of Directors from time to
  time.                                                                         

The Audit Committee will annually review and reassess the
adequacy of this policy and submit any recommended changes to the Board for
approval.

Reviewed and ratified by the Board on March 12, 2009 and March
3, 2010 Adopted by the Board on July 8, 2008

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