Document:

Exhibit 4.5

 

 

 

 

  

  

  

 

 

Management’s Discussion and Analysis

For the three months ended March 31, 2013

New Gold Inc.

 

TABLE OF CONTENTS

	
1

	
EXECUTIVE SUMMARY

	
2

	
FINANCIAL AND OPERATING HIGHLIGHTS

	
3

	  	
Financial highlights

	
4

	  	
Operating highlights

	
5

	  	
Development and exploration highlights

	
5

	  	
Corporate developments

	
5

	
OUTLOOK FOR 2013

	
6

	
KEY PERFORMANCE DRIVERS AND ECONOMIC OUTLOOK

	
6

	  	
Key performance drivers

	
7

	  	
Economic outlook

	
8

	
CORPORATE SOCIAL RESPONSIBILITY

	
9

	
FINANCIAL AND OPERATING RESULTS

	
9

	
Summary of quarterly and year to date financial and operating results

	
12

	
Review of operating mines

	
17

	
DEVELOPMENT AND EXPLORATION REVIEW

	
20

	
FINANCIAL CONDITION REVIEW

	
20

	  	
Balance sheet review

	
22

	  	
Liquidity and cash flow

	
22

	  	
Commitments

	
22

	  	
Contingencies

	
23

	  	
Contractual obligations

	
23

	  	
Related party transactions

	
23

	  	
Off-balance sheet arrangements

	
23

	  	
Outstanding shares

	  
	
23

	
NON-GAAP FINANCIAL PERFORMANCE MEASURES

	
26

	
ENTERPRISE RISK MANAGEMENT

	
26

	  	
General risks

	  
	
26

	  	
Financial risk management

	
30

	
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND ACCOUNTING CHANGES

	
34

	
CONTROLS AND PROCEDURES

	
35

	
CAUTIONARY NOTES

 

  

  

  

 

 

Management’s Discussion and Analysis

 

For the three months ended March 31, 2013

 

The following Management’s Discussion and Analysis (“MD&A”) provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of New Gold Inc. and its subsidiaries (“New Gold” or the “Company”), including its predecessor entities. This MD&A should be read in conjunction with New Gold’s unaudited condensed consolidated financial statements for the three months ended March 31, 2013 and 2012 and related notes which are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). This MD&A contains forward-looking statements that are subject to risk factors set out in a cautionary note contained in this MD&A. The reader is cautioned not to place undue reliance on forward-looking statements. All figures are in United States dollars and tabular amounts are in millions, unless otherwise noted. This MD&A has been prepared as at May 1, 2013. Additional information relating to the Company, including the Company’s Annual Information Form, is available on SEDAR at www.sedar.com.

 

 

 

EXECUTIVE SUMMARY

 

New Gold is an intermediate gold producer with operating mines in Canada, Mexico, the United States and Australia and development projects in Canada and Chile. With a strong liquidity position, simplified balance sheet and an experienced management and board of directors, the Company has a solid platform to continue to execute its growth strategy. During the first quarter of 2013, the New Afton Mine in Canada (“New Afton”), the Cerro San Pedro Mine in Mexico (“Cerro San Pedro”), the Mesquite Mine in the United States (“Mesquite”) and the Peak Mines in Australia (“Peak Mines”) combined to produce 94,695 ounces of gold.

 

New Gold’s production costs remain very competitive when compared to the broader gold mining industry and provide the Company with strong margins. In the first quarter of 2013, New Gold achieved total cash costs(1) of  $485 per ounce of gold sold and an average realized gold price(1) of $1,494 per ounce, resulting in a margin(1) per ounce of $1,009 . This compares to a margin per ounce of  $1,032 in the first quarter of 2012. New Gold has been able to maintain its costs well below the industry average as the Company also produces silver and copper as by-product metals, which have historically moved in line with, and acted as an offset to, some of the input cost pressures faced by the mining industry.  Consistent with New Gold’s plan, operations are expected to have progressively stronger quarters throughout 2013 leading to increased gold production and operating cash flow, with steadily declining cash costs.  New Gold remains in line to meet production and cash cost guidance for 2013.

 

Subsequent to quarter-end, on April 4, 2013, New Gold announced a Mineral Resource update at its Blackwater Project.  This Blackwater resource update, which will be used for the project’s Feasibility Study, has been updated to include 89 additional holes totaling 22,220 metres, including further infill drilling and more refined geologic and geostatistical modeling.  Key highlights of the update are:

 

	
·

	
Measured and Indicated(2) gold resources for direct processing increased to 8.6 million ounces at 0.88 grams per tonne

	
·

	
Measured gold resources increased by 44% to 3.9 million ounces at 1.04 grams per tonne

 

During the quarter, a Mineral Resource update was also announced at New Afton as part of the year-end resource update which resulted in the New Afton mine life being extended by two years from 12 to 14 years. In addition, the C-Zone resource, which lies immediately down plunge of the block of mineralization currently being mined, has been updated at May 1, 2013, to incorporate the drilling that was completed through the end of February 2013. The C-Zone update reflects positive increases to the gold and copper resource at more favourable grades.  The objective of the C-Zone exploration drilling is to add to the mine’s life while, at the same time, New Gold continues to evaluate opportunities to increase the throughput rate beyond the nameplate capacity of 11,000 tonnes per day.

 

New Gold continues to build on its successful portfolio which now consists of four operating mines and two development projects, all located in jurisdictions that are considered favourable to mining activities.

 

 

	
1.

	
We use certain non-GAAP financial performance measures throughout our MD&A. For a detailed description of each of the non-GAAP measures used in this MD&A, please see the discussion under “Non-GAAP Financial Performance Measures” of this MD&A.

	
2.

	
Notes to Mineral Resources Estimates are on page 18 of this MD&A.

 

 

 

1

 

 

 

 

FINANCIAL AND OPERATING HIGHLIGHTS

 

	  	
Three months ended March 31

	
(in millions of U.S. dollars, except where noted)

	  	  	
2013

	
2012

	
Operating information:

	  	  	  	  
	
Gold (ounces):

	  	  	  	  
	
   Produced (1)

	  	  	
 94,695

	
 99,274

	
   Sold (1)

	  	  	
 95,181

	
 93,676

	
Silver (ounces):

	  	  	  	  
	
   Produced (1)

	  	  	
 358,905

	
 456,584

	
   Sold (1)

	  	  	
 360,913

	
 439,141

	
Copper (thousands of pounds):

	  	  	  	  
	
   Produced (1)

	  	  	
 15,998

	
 3,683

	
   Sold (1)

	  	  	
 15,867

	
 1,780

	
Average realized price (2):

	  	  	  	  
	
   Gold ($/ounce)

	  	  	
 1,494

	
 1,575

	
   Silver ($/ounce)

	  	  	
 29.51

	
 32.70

	
   Copper ($/pound)

	  	  	
 3.44

	
 4.14

	
Total cash costs per gold ounce sold (2) (3)

	  	  	
 485

	
 543

	
Average realized margin (2) ($/ounce)

	  	  	
 1,009

	
 1,032

	  	  	  	  	  
	
Financial Information:

	  	  	  	  
	
Revenues

	  	  	
 201.8

	
 168.8

	
Earnings from mine operations

	  	  	
 57.8

	
 77.7

	
Net earnings

	  	  	
 36.3

	
 33.5

	
Adjusted net earnings (1)

	  	  	
 20.6

	
 44.2

	
Cash generated from operations

	  	  	
 68.2

	
 66.1

	
Net cash generated from continuing operations

	  	  	
 58.5

	
 36.7

	
Capital expenditures

	  	  	
 76.4

	
 110.1

	
Total assets

	  	  	
 4,302.2

	
3,293.0

	
Cash and cash equivalents

	  	  	
 672.4

	
235.7

	
Long-term debt

	  	  	
 854.3

	
262.3

	  	  	  	  	  
	
Share Data:

	  	  	  	  
	
Earnings per share from continuing operations:

	  	  	  	  
	
   Basic

	  	  	
 0.08

	
 0.07

	
   Diluted

	  	  	
 0.08

	
 0.07

	
Adjusted net earnings per basic share (1)

	  	  	
 0.04

	
 0.10

	
Share price as at March 31 (TSX – Canadian dollars)

	  	  	
9.24

	
9.85

	
Weighted average outstanding shares (basic) (millions)

	  	  	
 476

	
 461

	
1.

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

	
2.

	
We use certain non-GAAP financial performance measures throughout our MD&A. Total cash costs per gold ounce sold, average realized price, average realized margin, operating margin, adjusted net earnings, adjusted net earnings per share and cash generated from operations, excluding working capital changes and income taxes paid, are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

	
3.

	
The calculation of total cash costs per gold ounce sold is net of by-product silver and copper revenues. If silver and copper revenues were treated as co-products, co-product total cash costs for the three months ended March 31, 2013 would be $793 per ounce of gold (2012 - $672), $16.45 per ounce of silver (2012 - $13.97); and $1.96 per pound of copper (2012 - $2.09).

  

2

  

 

FINANCIAL HIGHLIGHTS

 

 

•   Revenues were $201.8 million for the first quarter of 2013, an increase of 20% over $168.8 million in the prior year. The increase was driven primarily by higher sales of gold and copper compared to the prior year, positively impacted by a full quarter of commercial production at New Afton. The benefit from increased sales volume was offset by a decrease in the average realized price of gold, silver and copper. The average realized price for gold in the first quarter of 2013 was $1,494 per ounce of gold compared to $1,575 per ounce in the prior year. The average realized price of copper and silver decreased from $4.14 per pound of copper and $32.70 per ounce of silver in 2012 to $3.44 per pound of copper and $29.51 per ounce of silver in 2013.

 

•   Net cash generated from operations in the first quarter of 2013 was $58.5 million, a 59% increase compared to $36.7 million in the prior year.  This increase was primarily driven by New Afton now being a meaningful contributor to the Company’s cash flow generation and lower income taxes paid than in the prior year period.  In the first quarter of 2012, the New Gold made $7.1 million in income tax payments that related to 2011.  There were no similar payments made in 2013.

 

•   Earnings from mine operations were $57.8 million for the first quarter of 2013 compared to $77.7 million in the same prior year period.  The benefits of increased earnings from mine operations from New Afton and the Peak Mines were more than offset by decreases at Cerro San Pedro and Mesquite due to planned mining of lower grade ore at the Company’s two open pit operations.  Additionally, non-cash depreciation and depletion expense increased to $37.9 million in the first quarter of 2013 from $18.8 million in the first quarter of 2012, reflecting the addition of the New Afton initial capital cost to the depreciable pools of assets.

 

•   Net earnings from continuing operations for the first quarter of 2013 were $36.3 million or $0.08 per basic share, compared to $33.5 million or $0.07 per basic share in the same period in 2012. The increase is primarily due to the impact of non-operating “Other gains and losses”, where a gain of $15.8 million was recorded for the first quarter of 2013 relative to a loss of $12.1 million in 2012. The gain includes a non-cash gain on non-hedged derivatives of $22.6 million which related fully to the mark to market of the share purchase warrant liability. This benefit was offset by lower earnings from mine operations resulting from the planned mining of lower grade ore at Mesquite and Cerro San Pedro.

 

•   Adjusted net earnings for the first quarter of 2013 were $20.6 million or $0.04 per basic share, relative to $44.2 million or $0.10 per basic share in the prior year period. In addition to the planned mining of lower grade ore, adjusted net earnings were impacted by a combination of a $19.1 million increase in non-cash depreciation and depletion expense as well as a $9.4 million increase in interest expense.

 

•   Cash and cash equivalents were $672.4 million at March 31, 2013 compared to $687.8 million at December 31, 2012.

 

 

 

 

	
3.

	
We use certain non-GAAP financial performance measures throughout our MD&A. For a detailed description of each of the non-GAAP measures used in this MD&A, please see the discussion under “Non-GAAP Financial Performance Measures” of this MD&A.

 

  

3

  

 

OPERATING HIGHLIGHTS

 

•   Total cash costs per ounce sold for the first quarter of 2013, net of by-product sales, were $485 per ounce, a decrease of $58 per ounce compared to $543 per ounce in the same period in 2012.  The decrease in the Company’s cash costs was primarily driven by increased copper sales volumes which were partially offset by a combination of lower realized copper prices, lower silver sales volumes and realized prices as well as the scheduled mining of lower grade ore.  New Gold’s total cash costs per ounce are expected to steadily decline throughout the remainder of 2013.

 

•   Gold production for the first quarter of 2013 was 94,695 ounces, compared to 99,274 ounces in the same prior year period. Production increases from New Afton now being part of New Gold’s operating portfolio and higher gold grades at the Peak Mines were offset by lower production at Cerro San Pedro and Mesquite due to planned mining of lower grade ore.  Per the Company’s plan, gold grades and production are expected to increase during the remainder of the year.

 

•   Copper production for the first quarter of 2013 was 16.0 million pounds, an increase of 332% compared to 3.7 million pounds in the same prior year period.  This increase was due to the addition of New Afton in the first quarter of 2013 and a 14% increase in copper production at Peak Mines, reflecting an increase in ore tonnes processed and copper recoveries.

 

•   Gold sales in the first quarter of 2013 were 95,181 ounces, up 2% from 93,676 ounces in the same period in 2012. Though production levels were lower than in the prior year period, gold sales were benefitted through a reduction in inventory in 2013 relative to an increase in 2012. 

 

•   The average realized margin for the first quarter of 2013 was $1,009 per ounce, consistent with $1,032 in the same prior year period.

 

  

4

  

 

 

DEVELOPMENT AND EXPLORATION HIGHLIGHTS

•   Subsequent to quarter-end, New Gold updated its mineral resource estimate for Blackwater which resulted in an increase in the Measured and Indicated gold Mineral Resource to 9.5 million ounces from 8.1 million ounces at the end of 2012. The updated Mineral Resource includes 0.9 million gold ounces of lower grade Measured and Indicated Resources suitable for stockpiling and processing toward the end of the project’s currently envisioned mine life.  The Mineral Resource estimate will be incorporated into the feasibility study currently in progress and scheduled for completion in late 2013. Notes to the Mineral Resource Estimates are on page 18 of this MD&A.

 

•   Subsequent to quarter-end, an update to the New Afton C-Zone mineral resource estimate reflects an over 300% increase in gold ounces and copper pounds at improved grade. Measured and Indicated gold and copper Resources increased to 0.3 million ounces and 211 million pounds respectively.  Measured and Indicated gold and copper grades increased to 0.77 grams per tonne gold and 0.77% copper from 0.62 grams per tonne and 0.68% copper. The Inferred gold and copper Resources increased by over 30% to 0.4 million ounces and 301 million pounds.

 

CORPORATE DEVELOPMENTS

 

The Company continues to pursue disciplined growth both through organic initiatives and potential mergers and acquisitions. The Company came together through two accretive business combinations in mid-2008 and mid-2009. Since the middle of 2009, New Gold has been successful in enhancing the value of its portfolio of assets, while also continuously looking for compelling external growth opportunities. The Company continues to evaluate assets in favourable jurisdictions and where the asset has the potential to provide New Gold shareholders with meaningful gold production, cash flow and exploration potential, while ensuring that any potential acquisition is accretive on key per share metrics. The Company strives to maintain a strong financial position by continually reviewing strategic alternatives with the view to maximizing shareholder value. In short, New Gold strives to pursue corporate development initiatives that will leave the Company and its shareholders in a fundamentally stronger position.

 

 

 

OUTLOOK FOR 2013

 

New Gold is pleased to reiterate its guidance for 2013 which is scheduled to provide shareholders with increased gold production at lower cost when compared to 2012:

 

2013 PRODUCTION AND COST GUIDANCE

 

	  	
Gold

	
Silver

	
Copper

	
Total cash costs

	  	
(thousands of ounces)

	
(millions of ounces)

	
(millions of pounds)

	
(per ounce)

	
Mesquite

	
130 - 140

	
-

	
-

	
$830 - $850

	
Cerro San Pedro

	
140 - 150

	
1.4 - 1.6

	
-

	
$375 - $395

	
Peak Mines

	
95 - 105

	
 -

	
12 - 14

	
$670 - $690

	
New Afton

	
75 - 85

	
-

	
66 - 74

	
$(1,410) - $(1,390)

	
Total

	
440-480

	
1.4 - 1.6

	
78 - 88

	
$265 - $285

New Gold’s copper and silver by-product revenue continues to provide an effective natural hedge against the various cost pressures being faced by the broader industry which allows the Company to deliver lower costs.

 

Assumptions used in the 2013 guidance include gold, silver and copper prices of $1,600 per ounce, $30.00 per ounce and $3.50 per pound and Canadian dollar, Australian dollar and Mexican peso exchange rates of $1.00, $1.00 and $13.00 to the U.S. dollar. The diesel price assumed for 2013 is $3.70 per gallon. Realized commodity prices and average foreign exchange rates were in line with these assumptions during the first quarter, however, prices of gold, silver and copper have declined below the assumed levels in recent weeks. Though the Company’s cash costs would be negatively impacted should copper and silver prices remain below the assumed prices, other cost-related factors, such as declining oil prices, lower explosive and cyanide costs as well as the depreciation of the Canadian dollar, would benefit costs.

 

  

5

  

 

 

KEY PERFORMANCE DRIVERS AND ECONOMIC OUTLOOK

 

 

KEY PERFORMANCE DRIVERS

 

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

 

Production Volumes and Costs

 

New Gold has demonstrated a history of achieving guidance with respect to production volumes and costs. New Gold’s portfolio of operating mines achieved another solid production quarter, with 94,695 ounces of gold production in the first quarter of 2013.

 

Total cash costs per ounce sold for the quarter, net of by-products sales, of $485 are below the industry average.

 

New Gold’s outlook is to increase gold production in 2013 by approximately 12% and total cash costs per ounce sold are forecast to decrease by approximately $145 per ounce compared to the 2012 level at budgeted prices.

 

Commodity Prices

 

Gold prices

The price of gold is the largest single factor affecting New Gold’s profitability and operating cash flows. As such, the current and future financial performance of the Company will be closely related to the prevailing price of gold.

 

The gold price ended the quarter almost 5% lower than at the end of 2012. In April 2013 the gold price fell more significantly to a low of $1,322 per ounce on concerns that governments facing economic difficulties may consider selling part of their gold reserves, before recovering to some extent to above $1,400 per ounce as physical demand and renewed investor interest resulted in a rebound. In spite of the recent decline in prices, interest rates continue at historically low rates and are likely to remain so for the foreseeable future in the face of slow-moving economic recovery, and there are numerous political and economic risks on the horizon, all of which are traditionally positive factors for gold.

 

During the first quarter of 2013, the London PM fix gold price averaged $1,630 per ounce compared to $1,689 per ounce during the first quarter of 2012.

 

  

6

  

 

Copper and silver prices

Copper declined during the quarter by approximately 5%, and then fell further during the first part of April as part of the commodity sell-off that also affected gold and silver. The copper London Metals Exchange price averaged $3.60 per pound during the quarter compared to $3.77 per pound during the first quarter of 2012.

 

During the first quarter of 2013, silver had an average London PM fix price of  $30.08 per ounce,  compared to the first quarter of 2012 during which silver averaged  $32.62 per ounce..

 

Foreign Exchange Rates

The Company operates in Canada, Mexico, the United States, Australia and Chile. As a result, the Company has foreign currency exposure with respect to items not denominated in U.S. dollars.

 

New Gold’s operating results and cash flows are influenced by changes in various exchange rates against the U.S. dollar. We have exposure to the Canadian dollar through New Afton and Blackwater, as well as through our corporate administration costs. We also have exposure to the Mexican peso through Cerro San Pedro, and to the Australian dollar through our Peak Mines operations.

 

The Canadian dollar fell from slightly above parity at the end of 2012 to end the first quarter approximately 2.5% lower. A weaker Canadian dollar reduces costs in U.S. dollar terms at the Company’s Canadian operations.

 

The Mexican peso increased in strength during the quarter compared with the U.S. dollar. A significant proportion of costs at Cerro San Pedro are incurred in U.S. dollars and, as such, the movement in the Mexican peso exchange rate was not a significant driver of U.S. dollar-denominated costs.

 

The Australian dollar stayed above parity for the duration of the quarter, initially declining before regaining most of its strength before the end of the period.

 

For an analysis of the impact of foreign exchange fluctuations on operating costs in 2013 relative to 2012, refer to the ‘Review of Operating Mines’ sections for New Afton, Cerro San Pedro and Peak Mines for details.

 

ECONOMIC OUTLOOK

 

In early 2013 equity indices continued to do well for the most part, with the MSCI All-Country World Index climbing by almost 6% and the S&P 500 Index reaching new highs and ending the quarter up by more than 10%. However the global recovery continued to be hampered by uncoordinated policy decisions and by unexpected economic events. Global focus shifted to Cyprus, responsible for approximately 0.2% of Eurozone GDP but sufficient to threaten the destabilization of the rest of the currency union as efforts were made to bail out the country’s overextended banking sector while balancing various creditor interests. Ultimately this led to a sell-off in gold early in the second quarter of 2013 as concerns grew that struggling governments would instruct their central banks to sell gold to generate funds.

 

However, buying interest has emerged at these new lower gold price levels, and uncertainty, volatility and an ongoing ultra-low interest rate environment should provide positive encouragement for gold investors.

 

Economic events can have significant effects on the gold price, via currency rate fluctuations, the relative strength of the U.S. dollar, supply of and demand for gold and macroeconomic factors such as the level of interest rates and inflation expectations. Management anticipates that the long term economic environment should remain positive with respect to precious metals and for gold in particular, and believes the prospects for the business are favourable. The Company has not hedged foreign exchange rates and metal prices with the exception of the gold hedge mandated by Mesquite’s 2008 project financing. New Gold’s growth plan is focused on organic and acquisition-led growth, and the Company plans to remain flexible in the current environment to be able to respond to opportunities as they arise.

 

  

7

  

 

CORPORATE SOCIAL RESPONSIBILITY

 

New Gold is committed to excellence in corporate social responsibility. We consider our ability to make a lasting and positive contribution toward sustainable development through the protection of the health and well-being of our people and our host communities, environmental stewardship and community engagement and development, a key driver to achieving a productive and profitable business.

 

As a partner of the United Nations Global Compact, New Gold’s policies and practices are guided by its principles on Human Rights, Labour, Environment and Anti-corruption. As a member of the Mining Association of Canada (“MAC”), our Canadian operations adhere closely to the principles of MAC’s Towards Sustainable Mining program.

 

New Gold’s corporate social responsibility objectives include promoting and protecting the welfare of our employees through safety-first work practices, upholding fair employment practices and encouraging a diverse workforce, where people are treated with respect and are supported to realize their full potential. At New Gold, we believe that our people are our most valued assets regardless of gender, race, cultural background, age or religion. We strive to create a culture of inclusiveness that begins at the top and which is reflected in our hiring, promotion and overall human resources practices. We encourage tolerance and acceptance in worker-to-worker relationships. In each of our host communities we are recognized as an employer of choice as a result of our competitive wages, competitive benefits and our policies of recognizing and rewarding employee performance and promoting from within.

 

We are committed to preserving the long-term health and viability of the natural environments affected by our operations. Wherever New Gold operates – in all stages of mining activity, from early exploration and planning, to commercial mining operations through to eventual closure – we are committed to excellence in environmental management. From the earliest site investigations, we carry out comprehensive environmental studies to establish baseline measurements for flora, fauna, land, air and water. During operations we promote the efficient use of resources, work to minimize environmental impacts and maintain robust monitoring programs, including groundwater and air quality. We implement progressive reclamation and re-vegetation activities throughout the life of our operations. After mining activities are complete, our objective is to restore the land to a level of productivity equivalent to its pre-mining capacity. We continually seek new strategies for enhancing our environmental performance including programs to improve energy efficiency, reduce our carbon footprint and minimize our use of water and other resources.

 

We are committed to establishing relationships based on mutual benefit and active participation with our host communities to contribute to healthy communities and sustainable community development. Wherever our operations interact with indigenous peoples, we endeavor to understand and respect traditional values, customs and culture. We take meaningful action to serve their development needs and priorities through collaborative agreements aimed at creating jobs, training and lasting socio-economic benefits. We foster open communication with local residents and community leaders and strive to be a full partner in the long-term sustainability of the communities and regions in which we operate. We believe that only by thoroughly understanding the people, their histories, and their needs and plans, can we engage in a meaningful development process that will contribute to their cultural and economic health and welfare.

 

 

 

 

  

8

  

 

 

FINANCIAL AND OPERATING RESULTS

 

 

Production

New Gold’s consolidated gold production during the first quarter of 2013 was 94,695 ounces compared to 99,274 ounces in 2012. Despite the contribution from New Afton, which was still in the development stage throughout the first half of 2012, and increased gold production at the Peak Mines, production increases were largely offset by the decreases at the Mesquite Mine and Cerro San Pedro.  Peak Mine’s gold production increased 33% reflecting increases in ore grade and improved mill recoveries.  At Cerro San Pedro and Mesquite, planned mine sequencing resulted in below reserve grade ore being placed on the leach pads which led to production being below that of the first quarter of 2012 when grades closer to reserve grade were mined. Per the Company’s plans, gold grades and production are scheduled to increase during the balance of the year. In addition, at Mesquite, the two haul trucks the Company had planned to add to the fleet are now in operation. These trucks should enable Mesquite to increase the mining rate and ore tonnes placed on the leach pad.

 

New Gold’s consolidated copper production during the first quarter increased to 16.0 million pounds from 3.7 million pounds in the same period of the prior year. The increase was largely attributable to a full quarter of production from New Afton, though Peak Mines also increased copper production during the quarter. The increased production at Peak Mines was due to continued mill recovery improvements, which were partially offset by lower copper grades.

 

As expected, silver production at Cerro San Pedro decreased during the first quarter with 358,905 ounces in 2013 relative to 456,584 ounces in 2012, due primarily to planned mining of lower silver grades.

 

Revenues

Revenues were $201.8 million for the first quarter of 2013, an increase of 20% compared to $168.8 million in the same period in 2012. The $33.0 million revenue increase is driven primarily by higher gold and copper sales volumes relative to the same prior year period.  Gold sales in the first quarter of 2013 were 95,181 ounces, relative to 93,676 ounces in the first quarter of 2012, as inventory movements impacted the relative periods. Copper sales were 15.9 million pounds, relative to 1.8 million pounds in the same prior year period as New Afton was still in the development stage in the first quarter of 2012. Sales of silver decreased to 360,913 ounces from 439,141 ounces in the same prior year period, in line with production. These increases in sales volumes were partly offset by lower average realized prices across all metals.

 

Operating expenses

Operating expenses increased from $72.3 million in the first quarter of 2012 to $106.1 million in 2013, impacted largely by New Afton’s full quarter of production.  Gross operating costs for New Afton in the first quarter of 2013 were $26.6 million, for which there is no prior year comparative as New Afton was still in the development stage in the first half of 2012.

 

Depreciation and depletion

Depreciation and depletion for the first quarter of 2013 was $37.9 million compared to $18.8 million for the same prior year period, again primarily as a result of New Afton’s full quarter of commercial production. Depreciation and depletion for New Afton was $18.4 million, for which there is no prior year comparative as New Afton was still in the development stage in the first half of 2012.

 

  

9

  

 

Earnings from mine operations

For the three months ended March 31, 2013, New Gold had earnings from mine operations of $57.8 million compared with $77.7 million in the same prior year period.  The benefits of increased earnings from mine operations from New Afton and the Peak Mines were more than offset by decreases at Cerro San Pedro and Mesquite due to planned mining of lower grade ore.  In addition, with New Afton now forming part of the Company’s depreciable asset base, the non-cash depreciation and depletion expense increased by $19.1 million when compared to the same period of the prior year.

 

Corporate administration costs

Corporate administration costs were $7.3 million in the first quarter of 2013 compared to $6.7 million incurred in the same prior year period.

 

Share-based compensation costs

Share-based compensation costs were $2.5 million and $2.4 million in the first quarter of 2013 and 2012, respectively.

 

Exploration and business development

Exploration costs were $4.0 million in the first quarter of 2013 compared with $2.8 million for the same prior year period.  New Afton incurred $1.9 million in exploration expense for the quarter, compared to $nil in the prior period, as the C-Zone exploration program continued in the first quarter of 2013, with the objective of adding to the Mineral Resource immediately at the base of the current Reserve block and further delineating the C-Zone which lies immediately down plunge of the current New Afton Reserve.

 

Hedging

For the quarter ended March 31, 2013, Mesquite had realized losses of $10.8 million within revenues for settlement of gold hedge contracts during the quarter totalling 16,500 ounces. As a result of the decrease in the spot price of gold from $1,658 per ounce to $1,598 per ounce between December 31, 2012 and March 31, 2013, Mesquite recognized $9.1 million of pre-tax unrealized gains in the mark-to-market of remaining contracts within other comprehensive income.

 

Other gains and losses

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

 

Non-hedged derivatives

For the quarter ended March 31, 2013, the Company recorded a gain of $22.6 million relating to the share purchase warrants. This compares to a loss of $7.6 million in the same prior year quarter. As the share purchase warrants are denominated in Canadian dollars, but the Company’s functional currency is the U.S. dollar, it is a requirement under IFRS to account for them as a liability. The fair value of this liability is assessed at each reporting period. As the traded value of the New Gold share purchase warrants increases or decreases, a related loss or gain on the mark-to-market of the liability is reflected on the financial statements.

 

In the first quarter of 2012, the Company recorded a gain of $2.7 million relating to the equity conversion option of its previously held Debentures, as well as a loss of $3.7 million relating to the change in fair value of the early redemption option embedded in the Company's previously held Senior Secured Notes. As both the Debentures and Senior Secured Notes were redeemed in 2012, there is no figure for the first quarter of 2013.

 

Foreign exchange

The Company recognized a foreign exchange loss of $5.6 million for the quarter ended March 31, 2013 compared to a loss of $1.5 million in the same prior year quarter. Foreign exchange gains and losses arise due to the fact that the Company operates in Canada, Australia, Mexico, Chile and the United States and, as a result, has foreign currency exposure with respect to items not denominated in U.S. dollars.

 

Ineffectiveness of hedge instruments

For the quarter ended March 31, 2013, a loss of $0.5 million was recorded reflecting the ineffective portion of the gold hedge. This compares to a loss of $0.2 million for the same prior year period.

 

Income tax

Income and mining tax expense in the first quarter of 2013 was $12.4 million compared to $18.3 million in the same prior year period, reflecting an effective tax rate of 25% for the first quarter of 2013 compared to 35% in 2012.

 

On an adjusted net earnings basis, the adjusted effective tax rate in the first quarter of 2013 was 37% compared to 31% in the same prior year period.  The adjusted effective tax rates exclude the impact of changes in the recognition of deferred tax assets, specifically fair value changes in share purchase warrants and convertible debentures, as well as the impact of adjustments to uncertain tax positions. The adjusted effective tax rate has increased compared to the same prior year period due to the geographic mix as a higher proportion of profits earned in the first quarter of 2013 are in higher tax jurisdictions. The profit mix will change as the year progresses and the annual adjusted effective tax rate is expected to be lower than the first quarter rate.

 

  

10

  

 

Net earnings from continuing operations

For the quarter ended March 31, 2013, New Gold had net earnings from continuing operations of $36.3 million, or $0.08 per basic share. This compares with net earnings from continuing operations of $33.5 million, or $0.07 per basic share in the same prior year period.

 

Adjusted net earnings 

For the three months ended March 31, 2013, adjusted net earnings from continuing operations were $20.6 million or $0.04 per basic share, a decrease from $44.2 million or $0.10 per basic share in the prior year period.

 

 

Net earnings have been adjusted, including the associated tax impact, for the group of costs in “Other gains and losses” on the condensed consolidated income statement.  Key entries in this grouping are the fair value changes for share purchase warrants and convertible debt. Additionally, foreign exchange gain or loss and other non-recurring items are adjusted. Adjusting for these items provides an additional measure to evaluate the underlying operating performance of the Company as a whole for the reporting periods presented. The prior period tax is also adjusted for the foreign exchange impact of deferred tax on non-monetary assets.

 

See “Non-GAAP Financial Performance Measures” for reconciliation of net earnings to adjusted net earnings.

 

Quarterly financial and operating information

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

 

QUARTERLY FINANCIAL AND OPERATING INFORMATION

 

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

	  	  	  	  	  	  	  	  	  
	
Q1 2013

	
Q4 2012

	
Q3 2012

	
Q2 2012

	
Q1 2012

	
Q4 2011

	
Q3 2011

	
Q2 2011

	
Q1 2011

	
Gold sales (ounces)

	
 95,181

	
 109,766

	
 95,166

	
 96,928

	
 93,676

	
 99,612

	
 93,028

	
 95,039

	
 104,211

	  	  	  	  	  	  	  	  	  	  
	
Revenues

	
 201.8

	
 250.9

	
 195.5

	
 176.1

	
 168.8

	
 177.6

	
 175.5

	
 171.6

	
 171.2

	  	  	  	  	  	  	  	  	  	  
	
Net earnings (loss) from continuing operations

	
 36.3

	
 123.9

	
 17.8

	
 23.7

	
 33.5

	
 35.0

	
 40.7

	
 78.6

	
 24.7

	
Per share:

	  	  	  	  	  	  	  	  	  
	
   Basic

	
 0.08

	
 0.26

	
 0.04

	
 0.05

	
 0.07

	
 0.08

	
 0.09

	
 0.19

	
 0.06

	
   Diluted

	
 0.08

	
 0.26

	
 0.03

	
 0.05

	
 0.07

	
 0.07

	
 0.09

	
 0.16

	
 0.06

	  	  	  	  	  	  	  	  	  	  
	
Net earnings (loss)

	
 36.3

	
 123.9

	
 17.8

	
 23.7

	
 33.5

	
 35.0

	
 40.7

	
 78.6

	
 24.7

	
Per share:

	  	  	  	  	  	  	  	  	  
	
   Basic

	
 0.08

	
 0.26

	
 0.04

	
 0.05

	
 0.07

	
 0.08

	
 0.09

	
 0.19

	
 0.06

	
   Diluted

	
 0.08

	
 0.26

	
 0.03

	
 0.05

	
 0.07

	
 0.07

	
 0.09

	
 0.16

	
 0.06

	  	  	  	  	  	  	  	  	  	  
	
Adjusted net earnings

	
 20.6

	
 49.7

	
 42.6

	
 45.8

	
 44.2

	
 42.2

	
 49.5

	
 49.8

	
 47.9

	
Per share:

	  	  	  	  	  	  	  	  	  
	
   Basic

	
 0.04

	
 0.11

	
 0.09

	
 0.10

	
 0.10

	
 0.09

	
 0.11

	
 0.12

	
 0.12

	
   Diluted

	
 0.04

	
 0.11

	
 0.09

	
 0.10

	
 0.09

	
 0.09

	
 0.11

	
 0.12

	
 0.12

  

11

  

 

REVIEW OF OPERATING MINES

 

NEW AFTON MINE, BRITISH COLUMBIA, CANADA

A summary of New Afton’s operating results is provided below:

 

	  	
Three months ended March 31

	
(in millions of U.S. dollars, except where noted)

	  	  	  	
2013

	
2012

	
Operating information (1):

	  	  	  	  	  
	
Ore mined (thousands of tonnes)

	  	  	  	
 754

	
 -

	
Ore processed (thousands of tonnes)

	  	  	  	
 834

	
 -

	
Average grade:

	  	  	  	  	  
	
   Gold (grams/tonne)

	  	  	  	
 0.67

	
 -

	
   Copper (%)

	  	  	  	
 0.79

	
 -

	
Recovery rate (%):

	  	  	  	  	  
	
   Gold

	  	  	  	
 83.2

	
 -

	
   Copper

	  	  	  	
 81.3

	
 -

	
Gold (ounces)

	  	  	  	  	  
	
   Produced (2)

	  	  	  	
 14,936

	
 -

	
   Sold (2)

	  	  	  	
 15,577

	
 -

	
Copper (thousands of pounds)

	  	  	  	  	  
	
   Produced (2)

	  	  	  	
 11,809

	
 -

	
   Sold (2)

	  	  	  	
 12,069

	
 -

	
Average realized price (3):

	  	  	  	  	  
	
   Gold ($/ounce)

	  	  	  	
 1,591

	
 -

	
   Copper ($/pound)

	  	  	  	
 3.44

	
 -

	
Total cash costs per gold ounce sold (3)(4)

	  	  	  	
 (770)

	
 -

	  	  	  	  	  	  
	
Financial Information (1):

	  	  	  	  	  
	
Revenues

	  	  	  	
 63.4

	
 -

	
Earnings from mine operations

	  	  	  	
 18.4

	
 -

	
Capital expenditures

	  	  	  	
 42.0

	
 74.4

	
1.

	
There are no comparative figures for the first quarter of 2012 as New Afton reached commercial production on July 31, 2012.

	
2.

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

	
3.

	
We use certain non-GAAP financial performance measures throughout our MD&A. Total cash costs per gold ounce sold, average realized price, average realized margin, adjusted net earnings, adjusted net earnings per share and cash generated from operations, excluding working capital changes and income taxes paid are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

	
4.

	
The calculation of total cash costs per ounce of gold is net of by-product copper revenue. If copper revenues were treated as a co-product, the average total cash costs at New Afton for the three months ended March 31, 2013 would be $721 per ounce of gold and $1.56 per pound of copper.

Quarterly and Year to Date Operating Results

 

Production

 

In the first quarter of 2013, New Afton produced 14,936 ounces of gold and 11.8 million pounds of copper. There are no prior year comparatives as New Afton was still in the development stage throughout the first half of 2012.  New Afton’s production increased in each consecutive month of the first quarter with further increases being seen in April. Production in early 2013 was impacted by the better-than-planned ramp up of the New Afton mill in the second half of 2012. As a result, the vast majority of New Afton’s ore stockpile was milled in 2012.  Thus, the Company supplemented underground ore feed in January with remnant lower grade ore from the historical Afton open pit which also reduced the overall mill recoveries for the quarter. As planned, in late January, the installation of the permanent underground crusher was completed.  This resulted in the underground mining rate steadily increasing to an average of 11,000 tonnes per day in March which compares to an average mining rate of 7,200 tonnes per day in the fourth quarter of 2012. As the New Afton mine and mill are now running at equivalent throughput rates, consistent with the operation’s 11,000 tonne per day nameplate capacity, and at planned gold and copper grades, the Company anticipates a steady increase in gold and copper production as the year progresses.

 

Revenue

Revenue in the first quarter of 2013 was $63.4 million compared to $nil in the prior year period.  The average realized prices were $1,591 per ounce of gold and $3.44 per pound of copper. This is slightly lower than the average London PM fix gold price of $1,630 for the first quarter of 2013. The average London Metals Exchange copper price was $3.60 for the first quarter of 2013.  Average realized prices were impacted by timing of sales.

 

  

12

  

 

Total cash costs

Total cash costs per ounce of gold sold, net of by-product sales is negative $770 per ounce for the first quarter of 2013.  Consistent with planned increases in gold and copper production during the remaining quarters of 2013, New Afton’s cash costs are expected to decline over the balance of the year.

 

Earnings from mine operations

New Afton contributed $18.4 million to the Company’s earnings from mine operations for the three months ended March 31, 2013.

 

Capital expenditures

 

Capital expenditures for the first quarter of 2013 totaled $42.0 million relative to $74.4 million for the first quarter of 2012. Capital expenditures were significantly reduced in 2013 as New Afton entered into commercial production and reduced its development capital expenditure.  Capital expenditures in 2013 are in excess of life of mine sustaining capital expenditure annual averages as the east cave is being developed and draw bell development remains accelerated in 2013.  New Afton expects to develop an additional 37 draw bells in 2013. Additionally, some final construction expenditures were incurred in the first quarter of 2013, particularly related to the completion of the permanent underground crusher.

Exploration Project Review

In July 2012, New Gold initiated an exploration core drilling program to test the potential to expand the Main B-Zone Reserve currently being mined along strike and to expand the deeper C-Zone Mineral Resource located immediately below the B-Zone Reserve block. Total surface and underground exploration drilling during 2012 amounted to 17,072 metres in 34 holes. Seven of these 34 holes were incorporated into updated Mineral Resource and Reserve estimates completed on December 31, 2012 and reported previously.

 

Subsequent to quarter-end, the Company completed an updated Mineral Resource estimate for the C-Zone. The new Mineral Resource estimate incorporates the results for drilling which was completed in late 2012 and not included in the December 31, 2012 Mineral Resource estimate, as well as drilling completed through the end of February 2013.. The update reflects an increase by over 300% in gold ounces and copper pounds at improved grade. Measured and Indicated gold and copper Resources increased to 0.3 million ounces and 211 million pounds, respectively.  Measured and Indicated gold and copper grades increased to 0.77 grams per tonne gold and 0.77% copper from 0.62 grams per tonne and 0.68% copper.  The Inferred gold and copper Resources increased by over 30% to 0.4 million ounces and 301 million pounds.

 

The Company currently has three drills actively exploring the C-Zone and continues to target the completion of 30,000 metres of drilling in 2013. The Company also recently initiated a 17,000 metre program targeting extensions to the main reserve, with two surface core drills and one underground drill currently active.  The objective of the C-Zone exploration drilling is to add to the mine’s life while, at the same time, New Gold continues to evaluate opportunities to increase the throughput rate beyond the nameplate capacity of 11,000 tonnes per day.

 

	
 

New Afton C-Zone Mineral Resource Update – May 1, 2013

	
Resource Category

	
 

Tonnes & Grade

	
 

Contained Metal

	  	
Tonnes

000’s

	
Gold

g/t

	
Silver

g/t

	
Copper

%

	
Gold

Koz

	
Silver

Koz

	
Copper

Mlbs

	  
	
Measured

	
1,282

	
0.75

	
1.35

	
0.79

	
31

	
56

	
22

	
Indicated

	
11,205

	
0.78

	
1.52

	
0.77

	
280

	
548

	
189

	
Total M&I

	
12,486

	
0.77

	
1.50

	
0.77

	
311

	
602

	
211

	
Inferred

	
20,221

	
0.62

	
1.42

	
0.68

	
401

	
923

	
301

	
 

New Afton C-Zone Mineral Resource – December 31, 2012

	
Resource Category

	
 

Tonnes & Grade

	
 

Contained Metal

	  	
Tonnes

000’s

	
Gold

g/t

	
Silver

g/t

	
Copper

%

	
Gold

Koz

	
Silver

Koz

	
Copper

Mlbs

	  
	
Measured

	
400

	
0.60

	
1.30

	
0.73

	
8

	
20

	
6

	
Indicated

	
2,900

	
0.63

	
1.30

	
0.68

	
58

	
120

	
43

	
Total M&I

	
3,300

	
0.62

	
1.30

	
0.68

	
66

	
140

	
49

	
Inferred

	
13,600

	
0.70

	
1.50

	
0.76

	
307

	
670

	
228

	
1.

	
Mineral resources are reported above a 0.40% copper-equivalent cut-off grade based on metal prices of $1,400/ounce gold, $28.00/ounce silver and $3.25/pound copper, average metallurgical recoveries of 87.7% for gold, 73.5% for silver and 86.4% for copper and related smelter and refining charges.

	
2.

	
Total contained metal calculated on the basis of tonnes multiplied by gold or silver grade divided by 31.10348 grams per troy ounce, and tonnes multiplied by copper percent grade and 2.2046

	
3.

	
Additional technical details regarding the New Afton project are available in the NI 43-101 Technical Report dated December 31, 2009 published on SEDAR.

	
4.

	
As it is currently defined by exploration drilling, the C-Zone has a sub-vertical dip of 80° and a moderate southwesterly plunge. The zone measures approximately 800 metres along its lateral strike, 550 metres in the vertical dimension, and ranges from 10 to 100 metres in true width, averaging 50 metres in true width overall.

  

13

  

 

CERRO SAN PEDRO MINE, SAN LUIS POTOSÍ, MEXICO 

A summary of Cerro San Pedro’s operating results is provided below:

 

	
Three months ended March 31

	
(in millions of U.S. dollars, except where noted)

	  	  	  	
2013

	
2012

	
Operating information:

	  	  	  	  	  
	
Ore mined (thousands of tonnes)

	  	  	  	
 3,434

	
 4,016

	
Waste mined (thousands of tonnes)

	  	  	  	
 3,532

	
 4,530

	
Ratio of waste to ore

	  	  	  	
 1.03

	
 1.13

	
Ore to leach pad (thousands of tonnes)

	  	  	  	
 3,434

	
 4,016

	
Average grade:

	  	  	  	  	  
	
   Gold (grams/tonne)

	  	  	  	
 0.32

	
 0.46

	
   Silver (grams/tonne)

	  	  	  	
 18.15

	
 26.69

	
Gold (ounces)

	  	  	  	  	  
	
   Produced (1) (2)

	  	  	  	
 26,387

	
 33,984

	
   Sold (1)

	  	  	  	
 26,468

	
 32,771

	
Silver (ounces)

	  	  	  	  	  
	
   Produced (1) (2)

	  	  	  	
 358,905

	
 456,584

	
   Sold (1)

	  	  	  	
 360,913

	
 439,141

	
Average realized price (3):

	  	  	  	  	  
	
   Gold ($/ounce)

	  	  	  	
 1,619

	
 1,693

	
   Silver ($/ounce)

	  	  	  	
 29.51

	
 32.70

	
Total cash costs per gold ounce sold (3)(4)

	  	  	  	
 495

	
 233

	  	  	  	  	  	  
	
Financial Information:

	  	  	  	  	  
	
Revenues

	  	  	  	
 53.5

	
 69.9

	
Earnings from mine operations

	  	  	  	
 22.6

	
 40.0

	
Capital expenditures

	  	  	  	
 3.1

	
 2.9

	
1.

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

	
2.

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

	
3.

	
We use certain non-GAAP financial performance measures throughout our MD&A. Total cash costs per gold ounce sold, average realized price, average realized margin, operating margin, adjusted net earnings, adjusted net earnings per share and cash generated from operations, excluding working capital changes and income taxes paid, are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Performance Measures” section of this MD&A.

	
4.

	
The calculation of total cash costs per ounce of gold is net of by-product silver revenue. If the silver revenues were treated as a co-product, the average total cash costs at Cerro San Pedro for the three months ended March 31, 2013, would be $719 per ounce of gold (2012 - $533 ) and $13.10 per ounce of silver (2012 - $10.30 ).

 

Quarterly and Year to Date Operating Results

 

Production

Gold production for the first quarter of 2013 was 26,387 ounces compared to 33,984 ounces produced in the same period in 2012. Silver production for the quarter was 358,905 ounces compared to 456,584 ounces produced in the same period in 2012. The decrease in gold and silver production is due to a combination of lower tonnes processed and planned mining of lower ore grades.  The production profile of Cerro San Pedro in 2013 reflects improving gold and silver grades through the remainder of the year.

 

Revenue

Revenue for the first quarter of 2013 were $53.5 million compared to $69.9 million in the same prior year period due to lower ounces sold and lower average realized prices for both gold and silver. Consistent with production, gold sales for the first quarter of 2013 were 26,468 ounces relative to 32,771 ounces in the same prior year period. Silver sales also decreased, from 439,141 ounces in the first quarter of 2012 to 360,913 ounces in the same period in 2013. The average realized gold price during the first quarter of 2013 and 2012 was $1,619 and $1,693 per ounce, respectively which compares to the average London PM fix gold price of $1,630 and $1,689 per ounce, respectively. The average realized silver price per ounce during the first quarter of 2013 and 2012 were $29.51 and $32.70 per ounce, respectively. This compares to the average London fix silver price of  $30.08 and $32.62 per ounce, respectively.

 

Total cash costs

Total cash costs per ounce of gold sold for the first quarter of 2013 of $495 per ounce were consistent with the Company’s quarterly plans and compared to $233 per ounce in the same prior year quarter. The increase in total cash costs when compared to the same period of 2012 is primarily driven by lower silver sales and prices negatively impacting by-product revenue, as well as the appreciation of the Mexican Peso and planned lower gold production.  Per the 2013 mine plan, improving gold and silver ore grades should drive lower cash costs for the remainder of the year.

 

  

14

  

Earnings from mine operations

Cerro San Pedro generated $22.6 million in earnings from mine operations in the first quarter of 2013 compared to $40.0 million in the same period of the prior year.

 

Capital expenditures

Capital expenditures totalled $3.1 million and $2.9 million for the quarters ended March 31, 2013 and 2012, respectively. The projects in progress during the first quarter of 2013 are primarily targeting accelerated silver leaching.

 

 

Impact of Foreign Exchange on Operations

Cerro San Pedro was impacted by changes in the value of the Mexican peso against the U.S. dollar. The value of the Mexican peso increased from an average of 12.97 to the U.S. dollar in the first quarter of 2012 to 12.65 to the U.S. dollar in 2013. This had a positive impact of  $15 per ounce of gold sold, which further contributed to the impact of the other factors described above.

 

MESQUITE MINE, CALIFORNIA, USA

A summary of Mesquite’s operating results is provided below:

 

	
Three months ended March 31

	
(in millions of U.S. dollars, except where noted)

	  	  	  	
2013

	
2012

	
Operating information:

	  	  	  	  	  
	
Ore mined (thousands of tonnes)

	  	  	  	
 3,505

	
 3,672

	
Waste mined (thousands of tonnes)

	  	  	  	
 8,890

	
 7,228

	
Ratio of waste to ore

	  	  	  	
 2.54

	
 1.97

	
Ore to leach pad (thousands of tonnes)

	  	  	  	
 3,505

	
 3,672

	
Average grade:

	  	  	  	  	  
	
   Gold (grams/tonne)

	  	  	  	
 0.32

	
 0.59

	
Gold (ounces)

	  	  	  	  	  
	
   Produced (1) (2)

	  	  	  	
 25,504

	
 44,400

	
   Sold (1)

	  	  	  	
 25,708

	
 43,617

	
Average realized price (3):

	  	  	  	  	  
	
   Gold ($/ounce) (4)

	  	  	  	
 1,201

	
 1,423

	
Total cash costs per gold ounce sold (3)

	  	  	  	
 879

	
 628

	  	  	  	  	  	  
	
Financial Information:

	  	  	  	  	  
	
Revenues

	  	  	  	
 30.9

	
 62.0

	
Earnings from mine operations

	  	  	  	
 3.1

	
 27.5

	
Capital expenditures

	  	  	  	
 3.4

	
 1.6

	
1.

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

	
2.

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

	
3.

	
We use certain non-GAAP financial performance measures throughout our MD&A. Total cash costs per gold ounce sold, average realized price, average realized margin, operating margin, adjusted net earnings, adjusted net earnings per share and cash generated from operations, excluding working capital changes and income taxes paid, are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

	
4.

	
Average realized price per gold ounce for Mesquite includes realized gains and losses from gold hedge settlements.

 

Quarterly and Year to Date Operating Results

 

Production

Gold production for the quarter ended March 31, 2013 was 25,504 ounces compared to 44,400 ounces produced in the same period in 2012. Production was lower in 2013 due to the mine plan moving through a phase of ore that was below reserve grade, or 0.32 grams per tonne. This compares to the first quarter of 2012 when ore grade was considerably higher at 0.59 grams per tonne.  Similar to Cerro San Pedro, ore grade is expected to progressively improve through the remainder of 2013 resulting in increased production in later quarters of 2013.

 

Revenue

Revenue for the quarter ended March 31, 2013 was $30.9 million compared to $62.0 million in the same period last year due to negative variances in both volume and price. Consistent with production, gold ounces sold in the first quarter of 2013 were 25,708 ounces relative to 43,617 ounces in the prior year period, representing a point when Mesquite was mining above reserve grade ore.  The average realized gold price during the first quarter of 2013 of $1,201 per ounce, including hedged gold ounce settlements at $801 per ounce, compared to $1,423 per ounce of gold sold in the same prior year period.

 

  

15

  

 

Total cash costs

Total cash costs per ounce of gold sold for the quarter ended March 31, 2013 were $879 per ounce, compared to $628 per ounce in the same prior year period.  Mesquite’s total gross operating costs remained consistent with the prior year period with the mine benefitting from lower fuel and explosive costs. As such, the increase in total cash costs per ounce sold was primarily driven by the planned mining of lower grade ore resulting in costs being spread over a lower production base.

Earnings from mine operations

As a result of a lower average realized gold price and fewer ounces sold, Mesquite generated $3.1 million in earnings from mine operations for the quarter ended March 31, 2013, compared to $27.5 million in the same period in 2012.

 

Capital expenditures

Capital expenditures totalled $3.4 million and $1.6 million, for the quarters ended March 31, 2013 and 2012, respectively. The increase in 2013 was due to the scheduled component replacements on heavy equipment.

 

PEAK MINES, NEW SOUTH WALES, AUSTRALIA 

A summary of Peak Mines’ operating results is provided below:

 

	
Three months ended March 31

	
(in millions of U.S. dollars, except where noted)

	  	  	  	
2013

	
2012

	
Operating information:

	  	  	  	  	  
	
Ore mined (thousands of tonnes)

	  	  	  	
 156

	
 172

	
Ore processed (thousands of tonnes)

	  	  	  	
 201

	
 184

	
Average grade:

	  	  	  	  	  
	
   Gold (grams/tonne)

	  	  	  	
 4.72

	
 3.90

	
   Copper (%)

	  	  	  	
 1.03

	
 1.10

	
Recovery rate (%):

	  	  	  	  	  
	
   Gold

	  	  	  	
 91.5

	
 91.0

	
   Copper

	  	  	  	
 91.9

	
 83.0

	
Gold (ounces)

	  	  	  	  	  
	
   Produced (1)

	  	  	  	
 27,868

	
 20,890

	
   Sold (1)

	  	  	  	
 27,428

	
 17,288

	
Copper (thousands of pounds)

	  	  	  	  	  
	
   Produced (1)

	  	  	  	
 4,189

	
 3,683

	
   Sold (1)

	  	  	  	
 3,798

	
 1,780

	
Average realized price (2):

	  	  	  	  	  
	
   Gold ($/ounce)

	  	  	  	
 1,592

	
 1,737

	
   Copper ($/pound)

	  	  	  	
 3.43

	
 4.14

	
Total cash costs per gold ounce sold (2)(3)

	  	  	  	
 819

	
 915

	  	  	  	  	  	  
	
Financial Information:

	  	  	  	  	  
	
Revenues

	  	  	  	
 54.0

	
 36.9

	
Earnings from mine operations

	  	  	  	
 13.7

	
 10.2

	
Capital expenditures

	  	  	  	
 13.4

	
 9.2

 

	
1.

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

	
2.

	
We use certain non-GAAP financial performance measures throughout our MD&A. Total cash costs per gold ounce sold, average realized price, average realized margin, adjusted net earnings, adjusted net earnings per share and cash generated from operations, excluding working capital changes and income taxes paid are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

	
3.

	
The calculation of total cash costs per ounce of gold is net of by-product copper revenue. If copper revenues were treated as a co-product, the average total cash costs at Peak Mines for the three months ended March 31, 2013 would be $990 per ounce of gold (2012 - $1,059 ) and $2.27 per pound of copper (2012 - $2.81 ).

 

Quarterly and Year to Date Operating Results

 

Production

Peak Mines produced 27,868 ounces of gold and 4.2 million pounds of copper during first quarter of 2013 compared to 20,890 ounces of gold and 3.7 million pounds of copper for the same prior year period.  Gold production benefitted from higher grade and improved recovery rates in the first quarter of 2013 relative to the prior year period, coupled with higher ore tonnes processed.

 

Revenue

Revenue for the three months ended March 31, 2013 was $54.0 million compared to $36.9 million in the same period in 2012. Although Peak Mines sold more gold ounces and copper pounds, these volume increases was partially offset by a decrease in both gold and copper average realized price relative to 2012. Gold ounces sold increased from 17,288 in 2012 to 27,428 in the current year, however, the average realized gold price was $1,592 per ounce compared to $1,737 per ounce in the same prior year period. This compares to the average London PM fix gold price of $1,630 and $1,689 per ounce for the three months ended March 31, 2013 and 2012, respectively. Copper sales were 3.8 million pounds compared to 1.8 million pounds in the prior year, however, copper prices were  $3.43 per pound compared to $4.14 per pound in the prior year.  The average London Metals Exchange copper price was $3.60 for three months ended March 31, 2013 and $3.77 for the same period in 2012.

  

16

  

 

Total cash costs

Total cash costs per ounce of gold sold for the first quarter of 2013 were $819 compared to $915 in the same period of 2012.  This decrease in total cash costs was attributable to a combination of high copper by-product revenue, the depreciation of the Australian dollar and higher gold production.

 

Earnings from mine operations

For the first quarter of 2013, the higher sales volume of gold and copper resulted in Peak Mines generating $13.7 million in earnings from operations compared to $10.2 million in the same prior year period.

 

Capital expenditures

 

Capital expenditures totalled $13.4 million and $9.2 million for the quarter ended March 31, 2013 and 2012, respectively. Capital expenditures in the first quarter of 2013 were primarily associated with mine development and mobile fleet replacement, with the increase on prior year specifically related to scheduled loader and truck replacements.

 

Impact of Foreign Exchange on Operations

Peak Mines’ operations continue to be impacted by fluctuations in the valuation of the Australian dollar against the U.S. dollar. The value of the Australian dollar in the first quarter of 2013 averaged 0.96 against the U.S. dollar compared to 0.95 in the first quarter of 2012 resulting in a negative impact on cash costs of $33 per gold ounce sold.

 

Exploration Project Review

During the first quarter of 2013, the Company conducted 15,246 metres of underground exploration drilling to delineate additional Mineral Resources and Reserves at its Peak Mines operations. Approximately 50% of this total was drilled in the Perseverance deposit, 40% in the New Cobar deposit, and 10% in the Comstock exploration target zone. Additionally, a surface drilling program commenced at the Great Cobar deposit where a total of 1,723 metres of diamond drilling targeting extensions to the main lodes was completed. The Great Cobar mine was a significant historic producer of copper and gold in the region. Exploration to define new drill targets on Peak’s regional claim holdings also continued during the first quarter.

 

 

DEVELOPMENT AND EXPLORATION REVIEW

 

BLACKWATER PROJECT, BRITISH COLUMBIA, CANADA 

 

Blackwater is a bulk-tonnage gold project located approximately 160 kilometres southwest of Prince George, a city of approximately 80,000, in central British Columbia, Canada, where New Gold already has an established presence through New Afton. The project property position covers over 1,000 km2 and is located near infrastructure. As at March 31, 2013, Blackwater had a resource estimate of 9.5 million ounces of Measured and Indicated gold Resources and an additional 0.38 million ounces of Inferred gold Resources. New Gold also owns a 100% interest in the Capoose mineral prospect, located approximately 25 kilometres from the Blackwater deposit. As at December 31, 2012 Mineral Resources at Capoose included 0.2 million ounces of gold at 0.43 grams per tonne and 9.5 million ounces of silver at 20.8 grams per tonne in the Indicated category and 0.6 million ounces gold at 0.29 grams per tonne and 47.8 million ounces silver at 23.2 grams per tonne in the Inferred category.

 

Project Review

The Blackwater project was further advanced during the first quarter. In addition to completing the previously announced Mineral Resource update, the team focused on progressing the environmental assessment reports, completing required condemnation drilling for proposed infrastructure sites and preparing for the regional exploration program on the Company’s 1,000 square kilometre land package.

 

Exploration activity at Blackwater during the first quarter of 2013 included the completion of 41 holes totaling 19,434 metres drilled. This total included 7,425 metres in 12 holes to explore potential extensions to the Blackwater resource at depth to further prove and potentially extend the high grade zones in the west and north-central portions of the deposit. Additionally, 2,131 metres in 5 holes were drilled for project engineering studies and 9,878 metres in 24 holes to test the mineral potential of areas selected for future operations facilities and infrastructure. The completion of these drilling campaigns concludes the resource delineation and development drilling work to be incorporated into the project feasibility study scheduled for completion in late 2013.

 

  

17

  

 

Project spending at Blackwater, including exploration and infrastructure-related expenditures, for the three months ended March 31, 2013 was $15.0 million compared to $27.5 for the prior year period.

 

Subsequent to quarter-end, the Company completed an updated Mineral Resource estimate for Blackwater (‘March 2013 Resource’) which will serve as the basis for the project’s feasibility study currently in progress. The Mineral Resource incorporates the results of an additional 89 infill holes totaling 21,959 metres completed during the latter half of the fourth quarter of 2012 in combination with more refined geologic and geostatistical modeling. The estimate is based on 1,002 core holes totaling 309,509 metres. Consistent with the Company’s plans to develop the project, the resource statement reflects the segregation of mineralized material that should be processed directly from which the Company plans to stockpile and process toward the end of the project’s currently envisioned mine life. The Company has utilized a dual cut-off strategy to reflect this segregation. All material grading above a gold-equivalent grade of 0.40 grams per tonne is considered for direct processing, while all material grading between a gold-equivalent cut-off of 0.30 and 0.40 grams per tonne is considered for stockpiling.

 

Highlights of the updated Mineral Resource estimate include:

 

	  	
·

	
Measured and Indicated gold resources for direct processing increased to 8.6 million ounces of gold at 0.88 grams per tonne and 57.5 million ounces of silver at 5.8 grams per tonne.

	  
	  	
·

	
Measured gold resources increased by 44% to 3.9 million ounces at 1.04 grams per tonne.

 

	  
	
 

Blackwater March 2013 Mineral Resource Statement – March 31, 2013

	
Resource Category

	  Tonnes & Grade	  Contained Metal
	  	
Tonnes

000’s

	
Gold

g/t

	
Silver

g/t

	
   Gold

  Moz

	
Silver

Koz

	
Measured & Indicated Resources

	  	  	  	  	  
	
 Direct processing material

    Measured

	
116,955

	
1.04

	
5.6

	
3.90

	
21.06

	
    Indicated

	
189,044

	
0.78

	
6.0

	
4.73

	
36.47

	
 M&I (direct processing)

	
305,999

	
0.88

	
5.8

	
8.62

	
57.52

	
 Stockpile material

	  	  	  	  	  
	
    Measured

	
 26,521

	
0.30

	
4.1

	
0.26

	
3.50

	
    Indicated

	
 64,382

	
0.30

	
4.4

	
0.62

	
9.11

	
 M&I (stockpile)

	
 90,904

	
0.30

	
4.3

	
0.87

	
12.60

	
Total M&I

	
396,903

	
0.74

	
5.5

	
9.50

	
70.13

	  	  	  	  	  	  
	
Inferred resources

	  	  	  	  	  
	
    Inferred (direct processing)

	
 13,815

	
0.76

	
4.1

	
0.34

	
1.82

	
    Inferred (stockpile)

	
   3,785

	
0.31

	
3.6

	
0.04

	
0.44

	
Total Inferred

	
 17,600

	
0.66

	
4.0

	
0.38

	
2.26

	 	 	 	 	 	 

 

	
1.

	
Mineral resources are reported within a conceptual open pit shell based on metal prices of $1,400/oz gold and $28.00/oz silver and average metallurgical

recoveries of 88.0% gold and 64.0% silver for oxide mineralization, 85.0% gold and 58.0% silver for transitional oxide/sulfide mineralization and 85.0% gold and 44.0% silver for sulfide mineralization.

	
2.

	
Total contained metal calculated on the basis of Tonnes * Grade / 31.10348 grams per troy ounce.

	
3.

	
Gold-equivalent cut-off grade estimates are based on $1,400/oz gold and $28.00/oz silver and average metal recoveries as described in Note 1 above

	
4.

	
Direct processing material is defined as mineralization above a 0.40 g/t AuEq cut-off and likely to be mined and processed directly.

	
5.

	
Stockpile material is defined as mineralization between a 0.30 g/t AuEq and a 0.40 AuEq cut-off that is suitable for stockpiling and future processing based on average metallurgical recoveries as described in Note 1 above.

Mineral Resources are not Mineral Reserves and as such do not have demonstrated economic viability.  This MD&A includes information on Blackwater which was outlined in the Preliminary Economic Assessment (“PEA”) Technical Report filed on October 10, 2012.  New Gold has, since the date of the PEA, completed non-material updates of the Mineral Resource estimate for Blackwater.  Although the PEA represents useful, accurate and reliable information based on the information available at the time of its publication, and provides an important indicator as to the economic potential of Blackwater, the PEA is based on Mineral Resource estimates with an effective date of July 27, 2012, which do not reflect drilling conducted since their effective date, and the PEA does not reflect the latest Mineral Resource estimate discussed in this MD&A.  Certain assumptions used in the PEA, some of which relate to the July 27, 2012, Mineral Resource estimate may have changed from those used for the new Resource estimate, causing a variation of parameters.  Moreover, the updated Mineral Resource estimate may impact how New Gold intends to develop the deposit, including pit outlines, production rates and mine life.

 

  

18

  

 

Feasibility Study Status

The Feasibility Study (“FS”) phase for Blackwater commenced in the first quarter. Highlights during this period include:

	
·

	
Substantially completed the FS geological block model.

	
·

	
Substantially completed the FS metallurgical testwork program.

	
·

	
Awarded the FS plant design, project costing and FS Report compilation work to AMEC.

	
·

	
Completed mining studies for throughput selection and substantially completed study for trolley assisted haulage systems.

	
·

	
Confirmed the process flowsheet selection as Whole Ore Leach.

	
·

	
Confirmed plant capacity as 60,000 tonnes per day.

	
·

	
Completed second phase of geotechnical testing in the Tailings Storage Facility area, to significantly advance the design to minimize seepage.

Work is ongoing to complete site layout design, finalize equipment sizing and establish the bases of estimate for the project.  The feasibility study remains on track for completion in late 2013.

 

Other Project Highlights

Other highlights for Blackwater in the first quarter of 2013 include:

	
·

	
Receipt of federal Environmental Impact Statement Guidelines and continuation of the provincial and federal environmental process.

	
·

	
Approval of amended multi-year area based exploration permits for 2013.

	
·

	
Initiation of discussions on Participation Agreements for construction and operation of the mine with key First Nations.

	
·

	
Advanced exploration target selection for Capoose and other prospective areas identified for reconnaissance drilling in 2013.

 

EL MORRO PROJECT, ATACAMA REGION, CHILE 

El Morro is an advanced stage gold-copper development project located in north-central Chile, Atacama Region, approximately 80 kilometres east of the city of Vallenar. El Morro is a world-class project with low expected cash costs and great organic growth potential. As at December 31, 2012, attributable to New Gold’s 30% share of the project are Proven and Probable gold Reserves of 2.9 million ounces and Proven and Probable copper Reserves of 2.1 billion pounds. The El Morro and La Fortuna deposits represent the two principal zones of gold-copper mineralization that have been identified to date. Future exploration efforts will also test the potential bulk-mineable gold and copper production below the bottom of the current La Fortuna open pit.

 

Under the terms of New Gold's agreement with Goldcorp Inc. ("Goldcorp"), Goldcorp is responsible for funding New Gold's 30% share of capital costs. The carried funding accrues interest at a fixed rate of 4.58%. New Gold will repay its share of capital plus accumulated interest out of 80% of its share of the project's cash flow with New Gold retaining 20% of its share of cash flow from the time production commences.  Pursuant to the above agreement, New Gold has drawn down $71.3 million of carried funding at March 31, 2013. New Gold had no cash outlay in 2013. New Gold’s 30% of project spending, excluding interest, for the first quarter of 2013 and 2012 were $5.8 million and $7.2 million, respectively.

 

Project field work has been temporarily suspended following the April 27, 2012 ruling by the Supreme Court of Chile against approval of El Morro’s environmental permit.  Based on the Supreme Court's announcement, El Morro suspended all project field work being executed under the terms of the environmental permit. Activities not subject to the environmental permit, including detailed engineering, design work and architectural planning, continue. Goldcorp is working closely with the Chilean Environmental Permitting Authority, the Servicio de Evalucion Ambiental, to address any perceived deficiencies in respect of the environmental permit. It is anticipated this consultation process could be completed by late 2013 with the expectation that the modified EIA should be approved shortly thereafter.  Goldcorp is also focused on obtaining the project permits and optimizing project economics including sourcing of a long-term power supply. See the "Contingencies" section of this MD&A for more details.

 

  

19

  

 

 

FINANCIAL CONDITION REVIEW

 

SUMMARY BALANCE SHEET

 

	  	  	
March 31

	
December 31

	
(in millions of U.S. dollars, except where noted)

	  	
2013

	
2012

	
Cash and cash equivalents

	  	
 672.4

	
 687.8

	
Deferred tax assets

	  	
 192.8

	
 194.1

	
Other assets

	  	
 3,437.0

	
 3,401.8

	
Total assets

	  	
 4,302.2

	
 4,283.7

	  	  	  	  
	
Derivative liabilities

	  	
 88.4

	
 110.5

	
Reclamation and closure cost obligations

	  	
 67.0

	
 68.5

	
Long-term debt

	  	
 854.3

	
 847.8

	
Deferred tax liabilities

	  	
 336.4

	
 322.9

	
Other liabilities

	  	
 226.0

	
 257.5

	
Total liabilities

	  	
 1,572.1

	
 1,607.2

	  	  	  	  
	
Total equity

	  	
 2,730.1

	
 2,676.5

 

BALANCE SHEET REVIEW

 

Assets

At March 31, 2013, New Gold held cash and cash equivalents of $672.4 million. This compares to $687.8 million held at December 31, 2012. The Company’s investment policy is to invest its surplus funds in permitted investments consisting of treasury bills, bonds, notes and other evidences of indebtedness of Canada, the U.S. or any of the Canadian Provinces with a minimum credit rating of R-1 mid from the Dominion Bond Rating Service (“DBRS”) or an equivalent rating from Standard & Poor’s and Moody’s and with maturities of twelve months or less at the original date of acquisition. In addition, the Company is permitted to invest in bankers’ acceptances and other evidences of indebtedness of certain financial institutions.

 

Gold hedge contracts

Under the terms of the term loan facility entered into by Western Mesquite Mines, Inc. (“WMMI”), as a condition precedent to drawdown of the loan, WMMI entered into a gold hedging program required by the banking syndicate. As such, WMMI executed gold forward sales contracts for 429,000 ounces of gold at a price of $801 per ounce. New Gold assumed the liability for the sales contracts on completion of the business combination with Western Goldfields Inc. in mid-2009. As at March 31, 2013, the remaining gold contracts represent a commitment of 5,500 ounces per month for 21 months with the last commitment deliverable in December 2014 for a total of 115,500 ounces.

 

The remaining contracts were marked to market as at March 31, 2013 using the March 31, 2013 gold forward curve, resulting in a cumulative unrealized pre-tax loss of $88.4 million that has been disclosed as a liability.

 

Reclamation and Closure Cost Obligations

Reclamation and closure cost obligations are asset retirement obligations that arise from the acquisition, development, construction and normal operation of mining property, plant and equipment, due to government controls and regulations that protect the environment on the closure and reclamation of mining properties. The Company has future obligations to retire its mining assets including dismantling, remediation and ongoing treatment and monitoring of sites. The exact nature of environmental issues and costs, if any, which the Company may encounter in the future are subject to change, primarily because of the changing character of environmental requirements that may be enacted by governmental agencies.

 

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

 

The long-term portion of the liability at March 31, 2013 is $67.0 million compared to $68.5 million at December 31, 2012. Changes in the liability are due to changes in estimated cash flows related to reclamation activities, amortization or unwinding of the discount, and revisions to the discount and foreign currency rates used in the valuation of the obligations.

 

Long-Term Debt

The majority of the Company’s contractual obligations consist of long-term debt and interest payable. At March 31, 2013, the Company had $854.3 million in long-term debt compared to $847.8 million at December 31, 2012. In the three months ended March 31, 2013, the Company capitalized interest of $4.0 million to qualifying development projects, all of which has been allocated to Blackwater. This compares to $23.8 million of capitalized interest for the year ended December 31, 2012.

 

  

20

  

 

On April 5, 2012, the Company issued an initial offering of Senior Unsecured Notes, which mature and become payable on April 15, 2020 and bear interest at a rate of 7% per annum. At March 31, 2013, the face value of these notes, denominated in U.S. dollars totalled $300 million and the carrying amount totalled $292.7 million. Interest is payable in arrears in equal semi-annual installments on April 15 and October 15 each year.

 

On November 15, 2012, the Company issued a second offering of Senior Unsecured Notes. These notes become payable on November 15, 2022 and bear interest at a rate of 6.25% per annum. At March 31, 2013, the face value of these notes, denominated in U.S. dollars, totalled $500 million and the carrying amount totalled $490.3 million. Interest is payable in arrears in equal semi-annual installments on May 15 and November 15 each year.

 

On December 14, 2010, the Company entered into an agreement for a $150.0 million revolving credit facility (“Facility”) with a syndicate of banks. The amount of the Facility will be reduced by $50.0 million if Cerro San Pedro is not operational for 45 consecutive days due to any injunction, order, judgment or other determination of an official body in Mexico as a result of any disputes now or hereafter before an official body in Mexico with jurisdiction to settle such a dispute. However, the full $50.0 million of credit will be reinstated if operations at Cerro San Pedro resume in accordance with the mine plan for 45 consecutive days and no similar disruption event occurs during this period. The Facility is for general corporate purposes, including acquisitions and is secured on the Company’s operating assets at Peak Mines, Mesquite and Cerro San Pedro and a pledge of a certain subsidiaries’ shares. The Facility contains various covenants customary for a loan facility of this nature, including limits on indebtedness, asset sales and liens. Significant financial covenants are as follows:

 

	  	  	
March 31

	
December 31

	  	
Financial covenant

	
2013

	
2012

	
Minimum tangible net worth ($1.38 billion + 25% of positive quarterly net income)

	
> $1.46 billion

	
$3.1 billion

	
$3.05 billion

	
Minimum interest coverage ratio (EBITDA to interest)

	
> 4.0 : 1

	
10.2 : 1

	
13.2 : 1

	
Maximum leverage ratio (debt to EBITDA)1

	
< 3.0 : 1

	
0.4 : 1

	
2.0 : 1

	
1.

	
The comparative covenant test presented as at December 31, 2012 was not recalculated using net debt to EBITDA. It was calculated using total debt which was the covenant test at the time.

 

On February 28, 2013, New Gold agreed to an extension of the facility to December 14, 2014.  Other amendments include a reduction in fees and the use of net debt, rather than total debt, as a measure of leverage for the purpose of covenant tests. As a result of this amendment and extension, the interest margin on drawings under the Facility ranges from 1.25% to 3.50% over LIBOR, the Prime Rate or the Base Rate, based on the Company’s net debt to EBITDA ratio and the currency and type of credit selected by the Company. The standby fees on undrawn amounts under the Facility range between 0.56% and 0.88% depending on the Company’s net debt to EBITDA ratio. Based on the Company’s net debt to EBITDA ratio, the rate is 0.56% as at March 31, 2013.

 

As at March 31, 2013, the Company has not drawn any funds under the Facility; however the Facility has been used to issue letters of credit of A$10.2 million for Peak Mines’ reclamation bond for the State of New South Wales, C$9.5 million for New Afton’s commitment to B.C. Hydro for power and transmission construction work (the B.C. Hydro letter of credit will be released over time as New Afton consumes and pays for power in the early period of operations), C$9.5 million for New Afton’s reclamation requirements, C$1.2 million for Blackwater’s reclamation requirements and $18.4 million relating to environmental and reclamation requirements at Cerro San Pedro.  The annual fees are 1.60% of the value of the outstanding letters of credit whichtotalled $48.9 million as at March 31, 2013.

 

New Gold’s wholly owned subsidiary Western Goldfields Inc. had a $105.0 million term loan facility with a syndicate of banks under which $86.3 million was borrowed in connection with the development of Mesquite. The remaining loan balance of $27.2 million was fully repaid on February 26, 2010 which allowed the Company the flexibility to monetize the remaining hedges outstanding at its discretion. The related gold hedge extends to the end of 2014 and the related security and covenants were released by the syndicate of banks on December 14, 2010 when New Gold entered into the Facility. The gold hedge is now secured under the Facility and shares in security, on a pari passu basis, with the new lenders. One of the banks under the Facility replaced two of the original banking institutions as the hedge counterparty for a portion of the overall hedge under the same terms. The hedge will remain in place until the hedge is monetized or delivered over this period at 5,500 ounces per month at $801 per ounce.

 

Current and Deferred Income Taxes

The net deferred income tax liability increased from $128.8 million on December 31, 2012 to $143.6 million on March 31, 2013. The primary reason for the increase in the net deferred tax liability is due to the utilization of the deferred tax assets in respect of BC mining taxes and the mark to market hedges as well as the utilization of the deferred tax assets to account for a full quarter of net income from New Afton.

 

The current income tax receivable balance decreased from $6.6 million at December 31, 2012 to $6.1 million at March 31, 2013.  The outstanding receivable is a 2012 income tax refund due in Mexico.

 

  

21

  

 

LIQUIDITY AND CASH FLOW

 

As at March 31, 2013, the Company had cash and cash equivalents held by continuing operations of $672.4 million compared to $687.8 million at December 31, 2012. The Company’s investment policy is to invest its surplus funds in permitted investments consisting of treasury bills, bonds, notes and other evidences of indebtedness of Canada, the U.S. or any of the Canadian Provinces with a minimum credit rating of R-1 mid from the Dominion Bond Rating Service (“DBRS”) or an equivalent rating from Standard & Poor’s and Moody’s and with maturities of twelve months or less at the original date of acquisition.  In addition, the Company is permitted to invest in bankers’ acceptances and other evidences of indebtedness of certain financial institutions. Surplus corporate funds are only invested with approved government or bank counterparties.

 

The change in cash in the quarter ended March 31, 2013 was driven by continuing gold, copper and silver sales from Mesquite, Peak Mines, Cerro San Pedro and New Afton, offset by capital and operating expenditures across the Company.

 

Liquidity and Capital Resources Outlook

During the three months ended March 31, 2013, the Company had positive net cash generated from continuing operations of $58.5 million and invested a total of $76.4 million in mining interests, including $3.4 million at Mesquite, $3.1 million at Cerro San Pedro, $13.4 million at Peak Mines, $42.0 million at New Afton, and  $15.0 million at Blackwater, netted by a credit on other projects. As at March 31, 2013, the Company had working capital of $719.2 million, which includes $672.4 million in cash and cash equivalents.

 

Internal growth will focus on El Morro and Blackwater; however, there are other potential development properties that may become high priorities as further exploration and assessment is completed. In order to supplement this internal growth, the Company may consider expansion opportunities through mergers and acquisitions.

 

In the opinion of management, the working capital at March 31, 2013, together with cash flows from operations, are sufficient to support the Company’s normal operating requirements on an ongoing basis. Based on our current cash balance and expected incremental cash flow, it is expected that the Company’s existing cash will be sufficient to fully fund Blackwater and El Morro. New Gold is not required to fund any of the development capital for El Morro, as under the agreement with Goldcorp, the Company’s 30% share is fully funded and both principal and interest will be repaid solely from future cash generated from New Gold’s share of El Morro’s distributable cash flows. The Company also expects it will not need external financing to repay its outstanding debt in 2020 and 2022.

 

However, the Company’s future profits and cash position are highly dependent on metal prices, including gold, silver and copper. Taking into consideration volatile equity markets, global uncertainty in the capital markets and cost pressures, the Company is continually reviewing expenditures in order to ensure adequate liquidity and flexibility to support its growth strategy while maintaining or increasing production levels at its current operations. However, cash projections may require revision if any further acquisitions or external growth opportunities are realized.

 

COMMITMENTS

 

The Company has entered into a number of contractual commitments related to equipment orders to purchase long lead items or critical pieces of mining equipment. At March 31, 2013, these commitments totalled $42.5 million, of which all are expected to fall due over the next 12 months. This compares to a balance of $87.4 million at December 31, 2012.

 

CONTINGENCIES

 

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

 

El Morro Project

The Chilean Environmental Permitting Authority ("Servicio de Evaluación Ambiental" or "SEA") approved the El Morro Project’s environmental permit in March 2011. A constitutional action was filed against the SEA in May 2011 by the Comunidad Agricola Los Huasco Altinos (“CAHA”) seeking annulment of the environmental permit. Sociedad Contractual Mineral El Morro (“El Morro”), the Chilean company jointly held by the Company and Goldcorp, and which owns and operates the El Morro Project, participated in the legal proceedings as an interested party and beneficiary of the environmental permit. In February 2012, the Court of Appeals of Antofagasta ruled against approval of the environmental permit, for the primary reason that the SEA had not adequately consulted or compensated the indigenous people that form the CAHA. SEA and El Morro 

  

22

  

 

appealed the ruling; however, the ruling was confirmed by the Supreme Court of Chile on April 27, 2012. Based on the Supreme Court’s announcement, El Morro immediately suspended all project field work being executed under the terms of the environmental permit. On June 22, 2012, SEA initiated the administrative process to address the deficiencies identified by the Chilean Court. It is anticipated the consultation process could be completed by late 2013. During the period of temporary suspension, Goldcorp’s focus is on supporting the advancement of the consultation process, evaluating potential future exploration targets and optimizing project economics including sourcing a long-term power supply.

 

Cerro San Pedro Mine

In March 2011, the municipality of Cerro de San Pedro approved a new municipal land use plan, after public consultation, which clearly designates the area of the Cerro San Pedro Mine for mining. New Gold believes this plan resolves any ambiguity regarding the land use in the area in which Cerro San Pedro is located, and which has had a history of ongoing legal challenges related to the environmental authorization (“EIS”) for the Mine. In April 2011, a request was filed for a new EIS based on the new Municipal Plan and on August 5, 2011 a new EIS was granted.

 

CONTRACTUAL OBLIGATIONS

 

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

 

CONTRACTUAL OBLIGATIONS

 

	
Payments due by period

	
(in millions of U.S. dollars)

	
Less than 1 year

	
2 - 3 years

	
4 - 5 years

	
After 5 years

	
Total

	
Long-term debt

	
 -

	
 -

	
 -

	
 800.0

	
 800.0

	
Interest payable on long-term debt

	
 52.3

	
 104.5

	
 104.5

	
 208.8

	
 470.1

	
Operating leases and other commitments

	
 54.8

	
 31.2

	
 1.0

	
 0.4

	
 87.4

	
Reclamation and closure cost obligations

	
 3.2

	
 3.0

	
 5.8

	
 78.4

	
 90.4

	
Total contractual obligations

	
 110.3

	
 138.7

	
 111.3

	
 1,087.6

	
 1,447.9

 

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

 

RELATED PARTY TRANSACTIONS

 

The Company did not enter into any related party transactions during the quarter ended March 31, 2013.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

The Company has no off-balance sheet arrangements.

 

OUTSTANDING SHARES

 

As at May 1, 2013, there were 476,917,422 common shares of the Company outstanding. The Company had 11,418,753 stock options outstanding under its share option plan, exercisable for 11,418,753 common shares. In addition, the Company had 27,849,865 common share purchase warrants outstanding exercisable for 27,849,865 common shares.

 

 

NON-GAAP FINANCIAL PERFORMANCE MEASURES

 

Total Cash Costs per Gold Ounce

“Total cash costs per gold ounce” is a common financial performance measure in the gold mining industry but with no standard meaning under IFRS. New Gold reports total cash costs on a sales basis. The Company believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company’s performance and ability to generate cash flow. The 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.

 

Total cash costs 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 the accepted standard of reporting cash costs 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. Total cash costs include 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 costs are then divided by gold ounces sold to arrive at the total cash costs per ounce sold. The calculation of total cash costs per ounce of gold for Cerro San Pedro is net of by-product silver sales revenue, and the calculation of total cash costs per ounce of gold sold for Peak Mines and New Afton is net of by-product copper sales revenue.

 

  

23

  

Total cash costs are intended to provide additional information only and do not have any standardized definition under IFRS; they should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Other companies may calculate these measures differently.

 

TOTAL CASH COSTS PER OUNCE RECONCILIATION

 

	  	
Three months ended March 31

	
(in millions of U.S. dollars, except where noted)

	  	  	
2013

	
2012

	
Operating expenses from continuing operations

	  	  	
 106.1

	
 72.3

	
Treatment and refining charges on concentrate sales

	  	  	
 7.3

	
 0.9

	
By-product copper and silver sales

	  	  	
 (66.9)

	
 (22.1)

	
Non-cash adjustments

	  	  	
 (0.4)

	
 (0.2)

	
Total cash costs

	  	  	
 46.1

	
 50.9

	
Ounces of gold sold

	  	  	
 95,181

	
 93,676

	
Total cash costs per ounce of gold sold

	  	  	
 485

	
 543

 

Adjusted Net Earnings and Adjusted Net Earnings per Share

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

 

	
•

	
Impairment losses

	
•

	
Fair value changes of embedded derivative in Senior Secured Notes

	
•

	
Gains (losses) on Fair Value Through Profit and Loss financial assets

	
•

	
Ineffectiveness of hedging instruments

	
•

	
Fair value changes of non-hedged derivatives such as share purchase warrants and the prepayment option on our convertible debt

	
•

	
Fair value changes of asset backed commercial paper

	
•

	
Gains (losses) on foreign exchange

	
•

	
Other non-recurring items

Net earnings have been adjusted and tax affected for the group of costs in “Other gains and losses” on the condensed consolidated income statement. The adjusted entries are also impacted for tax to the extent that the underlying entries are impacted for tax in the unadjusted net earnings from continuing operations. As the loss on the fair value change of non-hedged derivatives is only minimally tax affected in unadjusted net earnings from continuing operations, the reversal of tax on an adjusted basis is also minimal. The prior period adjusted tax excludes the impact of the increase in the Chilean Category 1 income tax rate which was enacted in the third quarter of 2012, as well as the impact of adjustments to uncertain tax positions. Also, the prior period tax is adjusted for the foreign exchange impact of deferred tax on non-monetary assets.

 

As noted, the Company uses this measure for its own internal purposes. Management’s internal budgets and forecasts and public guidance do not reflect fair value changes on senior notes and non-hedged derivatives, foreign currency translation and FVTPL financial asset gains/losses. Consequently, the presentation of adjusted net earnings enables investors and analysts to better understand the underlying operating performance of our core mining business through the eyes of management. Management periodically evaluates the components of adjusted net earnings based on an internal assessment of performance measures that are useful for evaluating the operating performance of our business and a review of the non-GAAP measures used by mining industry analysts and other mining companies.

 

Adjusted net earnings are intended to provide additional information only and do not have any standardized definition under IFRS; they should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently.

 

The following table reconciles these non-GAAP measures to the most directly comparable IFRS measure. The reconciliation of net earnings to adjusted net earnings is below.

 

  

24

  

 

ADJUSTED NET EARNINGS RECONCILIATION

 

	  	
Three months ended March 31

	
(in millions of U.S. dollars, except where noted)

	  	  	
2013

	
2012

	
Net earnings before taxes

	  	  	
 48.7

	
 51.8

	
Ineffectiveness on hedging instruments

	  	  	
 0.5

	
 0.2

	
Realized and unrealized gain on non-hedged derivatives

	  	  	
 (22.6)

	
 8.6

	
Loss (gain) on foreign exchange

	  	  	
 5.6

	
 1.5

	
Loss on disposal of assets

	  	  	
 0.5

	
 0.3

	
Other

	  	  	
 0.2

	
 1.5

	
Adjusted net earnings before tax

	  	  	
 32.9

	
 63.9

	  	  	  	  	  
	
Income tax expense

	  	  	
 (12.4)

	
 (18.3)

	
Income tax adjustments

	  	  	
 0.1

	
 (1.4)

	
Adjusted income tax expense

	  	  	
 (12.3)

	
 (19.7)

	  	  	  	  	  
	
Adjusted net earnings

	  	  	
 20.6

	
 44.2

	
Adjusted earnings per share (basic)

	  	  	
 0.04

	
 0.10

	
Adjusted effective tax rate

	  	  	
37%

	
31%

 

Cash generated from operations, excluding working capital changes and income taxes paid

“Cash generated from operations, excluding working capital changes and income taxes paid” is a financial measure with no standard meaning under IFRS, which management uses to further evaluate the Company’s results of operations in each reporting period. Operating margin is calculated as net cash generated from operations excluding the change in non-cash operating working capital and income taxes paid.

 

Cash generated from operations, excluding working capital changes and income taxes paid, is intended to provide additional information only and does not have any standardized definition under IFRS; it should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Other companies may calculate this measure differently.

 

CASH GENERATED FROM OPERATIONS, EXCLUDING WORKING CAPITAL CHANGES AND INCOME TAXES PAID RECONCILIATION

 

	  	
Three months ended March 31

	
(in millions of U.S. dollars, except where noted)

	  	  	
2013

	
2012

	
Net cash generated from operations

	  	  	
 58.5

	
 36.7

	
Add back: Change in non-cash operating working capital

	  	  	
 12.9

	
 16.3

	
Add back: Income taxes paid

	  	  	
 9.7

	
 29.4

	
Cash generated from operations, excluding working capital changes and income taxes paid

	
 81.1

	
 82.4

 

Operating Margin

“Operating margin” is a financial measure with no standard meaning under IFRS, which management uses to further evaluate the Company’s results of operations in each reporting period. Operating margin is calculated as revenues less operating expenses and therefore does not include depreciation and depletion.

 

Operating margin is intended to provide additional information only and does not have any standardized definition under IFRS; it should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Other companies may calculate this measure differently.

 

OPERATING MARGIN RECONCILIATION

 

	  	
Three months ended March 31

	
(in millions of U.S. dollars, except where noted)

	  	  	
2013

	
2012

	
Revenues

	  	  	
 201.8

	
 168.8

	
Less: Operating expenses

	  	  	
 (106.1)

	
(72.3)

	
Operating margin

	  	  	
 95.7

	
 96.5

 

Average Realized Price and Average Realized Margin

“Average realized price” and “average realized margin per ounce of gold sold” are financial measures with no standard meaning under IFRS. Management uses these measures to better understand the price realized in each reporting period for gold, silver, and copper sales. Average realized price excludes from revenues unrealized gains and losses on non-hedged derivative contracts.

 

Average realized margin represents average realized price per ounce less total cash costs per ounce.

 

  

25

  

 

Average realized price and average realized margin are intended to provide additional information only and do not have any standardized definition under IFRS; they should not be considered in isolation or as substitutes for measures of performance prepared in accordance with IFRS. Other companies may calculate these measures differently.

 

AVERAGE REALIZED PRICE AND AVERAGE REALIZED MARGIN RECONCILIATION

 

	  	
Three months ended March 31

	
(in millions of U.S. dollars, except where noted)

	  	  	
2013

	
2012

	
Revenues from gold sales

	  	  	
142.2

	
147.5

	
Ounces of gold sold

	  	  	
 95,181

	
 93,676

	
Average realized price per ounce of gold sold

	  	  	
 1,494

	
 1,575

	
Less: Cash costs per ounce of gold sold

	  	  	
 (485)

	
 (543)

	
Average realized margin per ounce of gold sold

	  	  	
 1,009

	
 1,032

 

 

ENTERPRISE RISK MANAGEMENT

 

Readers of this MD&A should give careful consideration to the information included or incorporated by reference in this document and the Company’s unaudited consolidated financial statements and related notes. Significant risk factors for the Company are metal prices, government regulations, foreign operations, environmental compliance, the ability to obtain additional financing, risk relating to recent acquisitions, dependence on management, title to the Company’s mineral properties, and litigation. For details of risk factors, please refer to the 2012 year-end audited consolidated financial statements and our latest Annual Information Form, dated March 27, 2013 and filed on SEDAR at www.sedar.com.

 

GENERAL RISKS

 

Environmental Risk

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

 

Environmental legislation is evolving in a manner which will require, in certain jurisdictions, stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. No certainty exists that future changes in environmental regulation, if any, will not adversely affect the Company’s operations or development properties. Environmental hazards may exist on the Company’s properties which are unknown to management at present and which have been caused by previous owners or operators of the properties.

 

Failure by the Company to comply with applicable laws, regulations and permitting requirements 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. The Company may be required to compensate those suffering loss or damage by reason of its mining operations or its exploration or development of mineral properties and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.

 

FINANCIAL RISK MANAGEMENT

 

The Company holds a mixture of financial instruments, which are classified and measured as follows. For a discussion of the methods used to value financial instruments, as well as any significant assumptions, refer to Note 2 to our audited consolidated financial statements for the year ended December 31, 2012.

 

  

26

  

 

 

	  	  	  	
As at March 31, 2013

	
(in millions of U.S. dollars)

	
Loans and 

receivables 

at amortized 

cost

	
Designated 

as Fair Value 

Through 

Profit & Loss

	
Available for 

sale at fair 

value

	
Financial 

liabilities 

at amortized 

cost

	
Total

	
Financial assets

	  	  	  	  	  
	
   Cash and cash equivalents

	
672.4

	
-

	
-

	
-

	
672.4

	
   Trade and other receivables

	
  21.2

	
-

	
-

	
-

	
21.2

	
   Copper swap contracts

	
-

	
 2.2

	
-

	
-

	
2.2

	
   Investments

	
-

	
-

	
0.7

	
-

	
0.7

	
Financial liabilities

	  	  	  	  	  
	
   Trade and other payables

	
-

	
-

	
-

	
  57.3

	
57.3

	
   Long-term debt

	
-

	
-

	
-

	
854.3

	
854.3

	
   Gold contracts

	
-

	
88.4

	
-

	
-

	
88.4

	
   Warrants

	
-

	
56.2

	
-

	
-

	
56.2

	
   Share award units

	
-

	
  5.3

	
-

	
-

	
5.3

 

	 	 	 	 	 As at December 31, 2013 
	
(in millions of U.S. dollars)

	
Loans and 

receivables 

at amortized 

cost

	
Designated 

as Fair Value 

Through 

Profit & Loss

	
Available for 

sale at fair 

value

	
Financial 

liabilities 

at amortized 

cost

	
Total

	
Financial assets

	  	  	  	  	  
	
   Cash and cash equivalents

	
687.8

	
-

	
-

	
-

	
687.8

	
   Trade and other receivables

	
  46.9

	
-

	
-

	
-

	
46.9

	
   Investments

	
-

	
-

	
1.0

	
-

	
1.0

	
Financial liabilities

	  	  	  	  	  
	
   Trade and other payables

	
-

	
-

	
-

	
120.7

	
120.7

	
   Long-term debt

	
-

	
-

	
-

	
847.8

	
847.8

	
   Gold contracts

	
-

	110.5	
-

	
-

	
110.5

	
   Copper swap contracts

	
-

	
   0.9

	
-

	
-

	
0.9

	
   Warrants

	
-

	
  80.3

	
-

	
-

	
80.3

	
   Share award units

	
-

	
   4.0

	
-

	
-

	
4.0

 

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

 

Credit Risk

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

 

The Company closely monitors its financial assets and does not have any significant concentration of credit risk. The Company sells its gold exclusively to large international organizations with strong credit ratings. The historical level of customer defaults is minimal and, as a result, the credit risk associated with gold and copper concentrate trade receivables at December 31, 2012 is not considered to be high.

 

The Company’s maximum exposure to credit risk at March 31, 2013 and December 31, 2012 is as follows:

 

	  	
March 31

	
December 31

	
(in millions of U.S. dollars)

	
2013

	
2012

	
Cash and cash equivalents

	
 672.4

	
 687.8

	
Trade receivables

	
 23.4

	
 46.9

	
Reclamation deposits

	
 -

	
 -

	
Total financial instruments subject to credit risk

	
 695.8

	
 734.7

 

 

  

27

  

The aging of accounts receivable at March 31, 2013 and December 31, 2012 is as follows:

 

	  	  	  	  	  	  	
March 31

	
December 31

	
(in millions of U.S. dollars)

	
0-30

days

	
31-60 

days

	
61-90 

days

	
91-120 

days

	
Over 120 

days

	
2013

Total

	
2012

Total

	
Mesquite

	
 0.4

	
 -

	
 -

	
 -

	
 -

	
 0.4

	
 0.9

	
Cerro San Pedro

	
 3.1

	
 -

	
 2.2

	
 -

	
 2.0

	
 7.3

	
 4.7

	
Peak Mines

	
 6.5

	
 -

	
 -

	
 -

	
 -

	
 6.5

	
 5.5

	
New Afton

	
 2.1

	
 2.5

	
 -

	
 2.6

	
 -

	
 7.2

	
 21.5

	
Blackwater

	
 1.0

	
 -

	
 -

	
 -

	
 -

	
 1.0

	
 13.1

	
Corporate

	
 1.0

	
 -

	
 -

	
 -

	
 -

	
 1.0

	
 1.2

	
Total trade receivables

	
 14.1

	
 2.5

	
 2.2

	
 2.6

	
 2.0

	
 23.4

	
 46.9

 

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

 

The Company employs a restrictive investment policy as detailed in the capital risk management section, which is described in Note 18 to our audited consolidated financial statements for the year ended December 31, 2012.

 

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

 

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

 

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure and financial leverage, as outlined in Note 18 to our audited consolidated financial statements for the year ended December 31, 2012.

 

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

 

	  	  	  	  	  	
March 31

	
December 31

	
(in millions of U.S. dollars)

	
Less than 

1 year

	
2-3

	
4-5

years

	
After 5 

years

	
2013

Total

	
2012

Total

	
 years

	
Trade and other payables

	
 111.8

	
 -

	
 -

	
 -

	
 111.8

	
 120.7

	
Long-term debt

	
 -

	
 -

	
 -

	
 800.0

	
 800.0

	
 800.0

	
Interest payable on long-term debt

	
 52.3

	
 104.5

	
 104.5

	
 208.8

	
 470.1

	
 470.1

	
Gold contracts

	
 57.3

	
 35.6

	
 -

	
 -

	
 92.9

	
 116.7

	
Copper swap contracts

	
 -

	
 -

	
 -

	
 -

	
 -

	
 0.9

	  	
 221.4

	
 140.1

	
 104.5

	
 1,008.8

	
 1,474.8

	
 1,508.4

 

Taking into consideration the Company’s current cash position, volatile equity markets, global uncertainty in the capital markets and increasing cost pressures, the Company is 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. A period of continuous low gold and copper prices may necessitate the deferral of capital expenditures which may impact production from mining operations. These statements are based on the current financial position of the Company and are subject to change if any acquisitions or external growth opportunities are realized.

 

Currency Risk

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

 

i. Transaction exposure

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

 

 

 

28

 

 

ii. Exposure to currency risk

The Company is exposed to currency risk through the following assets and liabilities denominated in currencies other than the U.S. dollar: cash and cash equivalents; investments; accounts receivable; reclamation deposits; accounts payable and accruals; reclamation and closure cost obligations; and long-term debt. The currencies of the Company’s financial instruments and other foreign currency denominated liabilities, based on notional amounts, were as follows:

 

	
As at March 31, 2013

	
(in millions of U.S. dollars)

	
Canadian dollar

	
Australian dollar

	
Mexican peso

	
Chilean peso

	
Cash and cash equivalents

	
 25.3

	
 4.5

	
 0.5

	
 -

	
Trade and other receivables

	
 10.0

	
 1.4

	
 7.3

	
 -

	
Trade and other payables

	
 (60.2)

	
 (18.6)

	
 (14.9)

	
 -

	
Reclamation and closure cost obligations

	
 (17.3)

	
 (20.5)

	
 (19.1)

	
 -

	
Warrants

	
 (56.2)

	
 -

	
 -

	
 -

	
Share award units

	
 (5.3)

	
 -

	
 -

	
 -

	
Gross balance exposure

	
 (103.7)

	
 (33.2)

	
 (26.2)

	
 -

 

	
As at December 31, 2012

	
(in millions of U.S. dollars)

	
Canadian dollar

	
Australian dollar

	
Mexican peso

	
Chilean peso

	
Cash and cash equivalents

	
 19.6

	
 10.2

	
 0.3

	
 -

	
Trade and other receivables

	
 35.9

	
 2.1

	
 4.7

	
 -

	
Trade and other payables

	
 (70.8)

	
 (18.4)

	
 (16.3)

	
 -

	
Reclamation and closure cost obligations

	
 (17.9)

	
 (21.4)

	
 (18.4)

	
 -

	
Warrants

	
 (80.3)

	
 -

	
 -

	
 -

	
Share award units

	
 (4.0)

	
 -

	
 -

	
 -

	
Gross balance exposure

	
 (117.5)

	
 (27.5)

	
 (29.7)

	
 -

 

iii. Translation exposure

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

 

	  	
March 31

	
December 31

	
(in millions of U.S. dollars)

	
2013

	
2012

	
Canadian dollar

	
 (10.4)

	
 (11.8)

	
Australian dollar

	
 (3.3)

	
 (2.7)

	
Mexican peso

	
 (2.6)

	
 (2.9)

	
Chilean peso

	
 -

	
 -

	
Total translation risk exposure

	
 (16.3)

	
 (17.4)

 

Interest Rate Risk

Interest rate risk is the risk that the fair value or the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. All of the Company’s outstanding debt obligations are fixed; therefore, there is no exposure to changes in market interest rates. The Facility interest rate is variable; however, the Facility is undrawn as at March 31, 2013.

 

The Company is exposed to interest rate risk on its short-term investments which are included in cash and cash equivalents. The short-term investment interest earned is based on prevailing market interest rates which may fluctuate. A 1.0% change in the interest rate would result in an annual difference of approximately $7.0 million in interest earned by the Company. The Company has not entered into any derivative contracts to manage this risk. 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.

 

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 and are affected by numerous factors beyond our 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

  

29

  

 

	
•

	
interest rates

	
•

	
purchases and sales of gold by central banks and other holders

	
•

	
demand for jewelry containing gold

	
•

	
investment activity, including speculation, in gold as a commodity

The Company acquired gold contracts which mitigate the effects of price changes. The Company designated these contracts as an accounting cash flow hedge effective July 1, 2009 as described in Note 10 (a) to our audited consolidated financial statements. At  March 31, 2013, the Company had remaining gold forward sales contracts for 115,500 ounces of gold at a price of $801 per ounce at a remaining commitment of 5,500 ounces per month, for 21 months.

 

For the three months ended March 31, 2013, the Company’s revenues and cash flows were impacted by gold prices in the range of $1,574 to $1,694 per ounce, and by copper prices in the range of $3.42 to $3.74 per pound. There is a time lag between the shipment of gold and copper and final pricing, and changes in pricing can significantly impact the Company’s revenue and working capital position. As at March 31, 2013, working capital includes unpriced gold and copper concentrate receivables totalling 38,785 ounces of gold and 30.7 million pounds of copper. A $100 change in gold price per ounce would have an impact of $3.9 million on the Company’s working capital. A $0.10 change in copper price per pound would have an impact of $3.1 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 no fuel hedge contracts at this time.

 

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

 

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

 

	
Three months ended March 31

	  	
2013

	
2013

	
2012

	
2012

	
(in millions of U.S. dollars)

	
Net earnings

	
Other 

Comprehensive 

Income

	
Net earnings

	
Other 

Comprehensive 

Income

	
Gold price

	
 14.2

	
 17.7

	
 62.4

	
 28.0

	
Silver price

	
 5.5

	
-

	
 6.3

	
-

	
Copper price

	
 1.1

	
-

	
 6.6

	
-

	
Fuel price

	
 1.7

	
-

	
 1.2

	
-

	
Warrants

	
 5.6

	
-

	
 15.4

	
-

	
Conversion option on convertible debt

	
 -

	
-

	
 2.2

	
-

	
Share aware units

	
 0.5

	
-

	
 0.4

	
-

	
Total price risk exposure

	
 28.6

	
 17.7

	
 94.5

	
 28.0

 

 

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND ACCOUNTING CHANGES

 

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

 

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

 

  

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CRITICAL JUDGMENTS IN THE APPLICATION OF ACCOUNTING POLICIES

 

(i) Commencement of commercial production

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

 

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

 

	
·

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

	
·

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

	
·

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

	
·

	
The ability to sustain ongoing production of ore.

 

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

 

Effective July 31, 2012, management determined that New Afton reached the commercial production levels. The Company defines the point where a development project becomes an operating mine as 60% average mill capacity for a consecutive 30-day period. Upon declaring commercial production at New Afton, the Company transferred the capitalized cost of the mineral property from non-depletable assets to depletable assets, and began depleting the assets on a unit of production method. The Company ceased capitalization of interest to the mine as it was no longer a qualifying asset.

 

In September 2012, the Company recorded the first concentrate sale of the mine. A portion of the sale related to material produced prior to commercial production and was recorded as a credit to the cost of the project.

 

(ii) Functional currency

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

 

As of July 31, 2012 the Company applied the change in functional currency to New Afton and to Blackwater on a prospective basis. The Company translated all items into the new functional currency using the exchange rate as at July 31, 2012. The resulting translated amounts for non-monetary items are treated as their historical cost. Exchange differences arising from the translation of a foreign operation previously recognized in other comprehensive income are not reclassified from equity to net earnings until the disposal of the operation.

 

New Afton

 

The Company re-assessed the functional currency at New Afton, as the mine commenced commercial production and moved from a development project to an operating mine on July 31, 2012. The Company defines commercial production as reaching an average of 60% mill capacity for a consecutive 30-day period. New Afton began earning revenue which is denominated in U.S. dollars. The change in circumstance required the Company to change the functional currency of the mine from the Canadian dollar to the U.S. dollar.

 

Blackwater

 

The Company re-assessed the functional currency of Blackwater. Blackwater is funded from the net earnings of the Company’s operating mines which are denominated in U.S. dollars, and was amalgamated with Corporate on January 1, 2012 which has a U.S. dollar functional currency as well. The Company changed the functional currency at Blackwater to U.S. dollars, as financing will be denominated in such.

 

(iii) Determination of economic viability

Management has determined that exploratory drilling, evaluation, development and related costs incurred on Blackwater have future economic benefits and are economically recoverable. In making this judgment, management has assessed various criteria including but not limited to the geologic and metallurgic information, history of conversion of mineral deposits to proven and probable mineral reserves, scoping and feasibility studies, proximity of operating facilities, operating management expertise, existing permits and life of mine plans.

 

  

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(iv) Carrying value of assets and impairment charges

In determining whether the impairment of the carrying value of an asset is necessary, management first determines whether there are external or internal indicators that would signal the need to test for impairment. These indicators consist of but are not limited to the prolonged significant decline in commodity prices, unfavourable changes to the legal environment in which the entity operates and evidence of long term reduced production of the asset. If an impairment indicator is identified, the Company compares the carrying value of the asset against the higher of the recoverable amount or fair value less cost to sell. These determinations and their individual assumptions require that management make a decision based on the best available information at each reporting period. During the year ended December 31, 2012, the Company identified no indicators that led to additional impairment analysis.

 

(v) Determination of Cash Generating Unit (“CGU”)

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

 

KEY SOURCES OF ESTIMATION UNCERTAINTY IN THE APPLICATION OF ACCOUNTING POLICIES

 

(i) Revenue recognition

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

 

(ii) Inventory valuation

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

 

(iii) Mineral Reserves

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

 

(iv) Estimated recoverable ounces

 

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

 

(v) Deferred income taxes

 

In assessing the probability of realizing income tax assets recognized, management makes estimates related to expectations of future taxable income, applicable tax planning opportunities, expected timing of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. In making its assessments, management gives additional weight to positive and negative evidence that can be objectively verified. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. Forecasted cash flows from operations are based on life of mine projections internally developed and reviewed by management. The Company considers tax planning opportunities that are within the Company’s control, are feasible and implementable without significant obstacles. Examination by applicable tax authorities is supported based on individual facts and circumstances of the relevant tax position examined in light of all available evidence. Where applicable tax laws and

 

  

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regulations are either unclear or subject to ongoing varying interpretations, it is reasonably possible that changes in these estimates can occur that materially affect the amounts of income tax asset recognized. At the end of each reporting period, the Company reassesses unrecognized income tax assets.

 

 

(vi) Reclamation and closure cost obligations

The Company’s provision for reclamation and closure cost obligations represents management’s best estimate of the present value of the future cash outflows required to settle the liability which reflects estimates of future costs, inflation, movements in foreign exchange rates and assumptions of risks associated with the future cash outflows, and the applicable risk-free interest rates for discounting the future cash outflows. Changes in the above factors can result in a change to the provision recognized by the Company. At December 31, 2012, the carrying amount of the Company’s provision for reclamation and closure cost obligations was $71.8 million (2011 - $55.0 million).

 

ACCOUNTING STANDARDS AND RECENT ACCOUNTING PRONOUNCEMENTS

Accounting standards effective January 1, 2013

 

Consolidation

 

In May 2011, the IASB issued IFRS 10 – Consolidated Financial Statements (“IFRS 10”), which supersedes Standing Interpretations Committee standards (“SIC”) 12 and the requirements relating to consolidated financial statements in IAS 27 – Consolidated and Separate Financial Statements (“IAS 27”). IFRS 10 is effective for annual periods beginning on or after January 1, 2013, with earlier application permitted under certain circumstances. IFRS 10 establishes control as the basis for an investor to consolidate its investees; it defines control as an investor’s power over an investee with exposure, or rights, to variable returns from the investee and the ability to affect the investor’s returns through its power over the investee. In addition, the IASB issued IFRS 12 – Disclosure of Interests in Other Entities (“IFRS 12”), which combines and enhances the disclosure requirements for the Company’s subsidiaries, joint arrangements, associates and unconsolidated structured entities. The requirements of IFRS 12 include reporting on the nature of risks associated with the Company’s interests in other entities, and the effects of those interests on the Company’s consolidated financial statements. Concurrently with the issuance of IFRS 10, IAS 27 and IAS 28 – Investments in Associates (“IAS 28”) were revised and reissued as IAS 27 – Separate Financial Statements and IAS 28 – Investments in Associates and Joint Ventures to align with the new consolidation guidance. The Company has evaluated the above standards and determined that they do not have a material impact on the consolidated financial statements.

 

Joint arrangements

 

In May 2011, the IASB issued IFRS 11 – Joint Arrangements (“IFRS 11”), which supersedes IAS 31 – Interests in Joint Ventures and SIC 13 – Jointly Controlled Entities – Non-Monetary Contributions by Venturers. IFRS 11 is effective for annual periods beginning on or after January 1, 2013, with earlier application permitted under certain circumstances. Under IFRS 11, joint arrangements are classified as joint operations or joint ventures based on the rights and obligations of the parties to the joint arrangements. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (“joint operators”) have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (“joint venturers”) have rights to the net assets of the arrangement. IFRS 11 requires that a joint operator recognize its portion of assets, liabilities, revenues and expenses of a joint arrangement, while a joint venturer recognizes its investment in a joint arrangement using the equity method. The Company has evaluated IFRS 11 and determined that it does not have a material impact on the consolidated financial statements.

 

Fair value measurement

 

In May 2011, as a result of the convergence project undertaken by the IASB and the U.S. Financial Accounting Standards Board, to develop common requirements for measuring fair value and for disclosing information about fair value measurements, the IASB issued IFRS 13 – Fair Value Measurement (“IFRS 13”). IFRS 13 is effective for annual periods beginning on or after January 1, 2013, with earlier application permitted. IFRS 13 defines fair value and sets out a single framework for measuring fair value which is applicable to all IFRS that require or permit fair value measurements or disclosures about fair value measurements. IFRS 13 requires that when using a valuation technique to measure fair value, the use of relevant observable inputs should be maximized while unobservable inputs should be minimized. The Company has evaluated IFRS 13 and determined that it does not have a material impact on the consolidated financial statements.

 

  

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Financial statement presentation

 

In June 2011, the IASB issued amendments to IAS 1 – Presentation of Financial Statements (“IAS 1”) that require an entity to group items presented in the Statement of Comprehensive Income on the basis of whether they may be reclassified to earnings subsequent to initial recognition. For those items presented before taxes, the amendments to IAS 1 also require that the taxes related to the two separate groups be presented separately. The amendments are effective for annual periods beginning on or after July 1, 2012, with earlier adoption permitted. The Company has evaluated the amendments to IAS 1 and determined that they do not have a material impact on the consolidated financial statements.

 

Stripping costs in the production phase of a mine

 

In October 2011, the IASB issued IFRIC 20 – Stripping Costs in the Production Phase of a Mine (“IFRIC 20”). IFRIC 20 clarifies the requirements for accounting for the costs of stripping activity in the production phase when two benefits accrue: (i) usable ore that can be used to produce inventory and (ii) improved access to further quantities of material that will be mined in future periods. IFRIC 20 is effective for annual periods beginning on or after January 1, 2013 with earlier application permitted and includes guidance on transition for pre-existing stripping assets. The Company has evaluated IFRIC 20 and the implementation of the standard is consistent with current practice.

 

Accounting standards anticipated to be effective January 1, 2015

 

Financial instruments

 

The IASB intends to replace IAS 39 – Financial Instruments: Recognition and Measurement (“IAS 39”) in its entirety with IFRS 9 – Financial Instruments (“IFRS 9”) in three main phases. IFRS 9 will be the new standard for the financial reporting of financial instruments that is principles-based and less complex than IAS 39. In November 2009 and October 2010, phase 1 of IFRS 9 was issued and amended, respectively, which addressed the classification and measurement of financial assets and financial liabilities. IFRS 9 requires that all financial assets be classified and subsequently measured at amortized cost or at fair value based on the Company’s business model for managing financial assets and the contractual cash flow characteristics of the financial assets. Financial liabilities are classified as subsequently measured at amortized cost except for financial liabilities classified as at FVTPL, financial guarantees and certain other exceptions. On July 22, 2011, the IASB agreed to defer the mandatory effective date of IFRS 9 from annual periods beginning on or after January 1, 2013 (with earlier application permitted) to annual periods beginning on or after January 1, 2015 (with earlier application still permitted). The IASB proposed the deferral of IFRS 9 in an exposure draft with a 60-day comment period which ended on October 21, 2011. The Company is currently evaluating the impact the final standard is expected to have on its consolidated financial statements.

 

 

CONTROLS AND PROCEDURES

 

DISCLOSURE CONTROLS AND PROCEDURES

The Company’s management, with the participation of and under the supervision of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this MD&A, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the Company in reports it files is recorded, processed, summarized and reported, within the appropriate time periods.

 

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:

 

	
•

	
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

	
•

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

	
•

	
Provide reasonable assurance regarding prevention or timely detections of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

 

  

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

 

The Company’s management, under the supervision of the Chief Executive Officer and the Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as at March 31, 2013. In making this assessment, it used the criteria set forth in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, management has concluded that, as at March 31, 2013, the Company’s internal control over financial reporting is effective based on those criteria.

 

The Company’s internal control over financial reporting as at December 31, 2012 has been audited by Deloitte LLP, Independent Registered Chartered Accountants who also audited the Company’s Consolidated Financial Statements for the year ended December 31, 2012. Deloitte LLP as stated in their report that immediately precedes the Company’s audited consolidated financial statements for the year ended December 31, 2012, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

 

CHANGES IN INTERAL CONTROL OVER FINANCIAL REPORTING

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

 

CAUTIONARY NOTES

 

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 MD&A are Canadian mining terms as defined in accordance with National Instrument 43-101 (“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 MD&A concerning descriptions of mineralization and resources under Canadian standards is not comparable to similar information made public by United States companies subject to the reporting and disclosure requirements of the United States Securities and Exchange Commission. An “Inferred Mineral Resource” has a great amount of uncertainty as to its existence and as to its economic and legal feasibility. 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 pre-feasibility 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.

 

  

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information contained in this MD&A, including any information relating to New Gold’s future financial or operating performance may be deemed “forward looking”. All statements in this MD&A, other than statements of historical fact, that address events or developments that New Gold expects to occur are “forward-looking statements”. Forward-looking statements are statements that are not historical facts and are generally, but not always, identified by the use of forward-looking terminology such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, “projects”, “potential”, “believes” or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “should”, “might” or “will be taken”, “occur” or “be achieved” or the negative connotation. All such forward-looking statements are based on the opinions and estimates of management as of the date such statements are made and are subject to important risk factors and uncertainties, many of which are beyond New Gold’s ability to control or predict. Forward-looking statements are necessarily based on estimates and assumptions that are inherently subject to known and unknown risks, uncertainties and other factors that may cause actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Such factors include, without limitation: significant capital requirements; fluctuations in the international currency markets and in the rates of exchange of the currencies of Canada, the United States, Australia, 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, 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 in which New Gold operates, including, but not limited to: in Canada,  obtaining the necessary permits for Blackwater; in Mexico; where Cerro San Pedro has a history of ongoing legal challenges related to our EIS; and Chile, where the courts have temporarily suspended the approval of the environmental permit for El Morro; the lack of certainty with respect to foreign legal systems, which may not be immune from the influence of political pressure, corruption or other factors that are inconsistent with the rule of law; the uncertainties inherent to current and future legal challenges New Gold is or may become a party to; diminishing quantities or grades of Reserves; competition; loss of key employees; additional funding requirements; actual results of current exploration or reclamation activities; uncertainties inherent to economic studies in respect of the PEA for Blackwater changes in project parameters as plans continue to be refined; accidents; labour disputes; defective title to mineral claims or property or contests over claims to mineral properties. In addition, there are risks and hazards associated with the business of mineral exploration, development and mining, including environmental events and hazards, industrial accidents, unusual or unexpected formations, pressures, cave-ins, flooding and gold bullion losses (and the risk of inadequate insurance or inability to obtain insurance to cover these risks) as well as “Risk Factors” included in New Gold’s disclosure documents filed on and available at www.sedar.com. Forward-looking statements are not guarantees of future performance, and actual results and future events could materially differ from those anticipated in such statements. All of the forward-looking statements contained in this MD&A are qualified by these cautionary statements. New Gold expressly disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, events or otherwise, except in accordance with applicable securities laws.

 

 

TECHNICAL INFORMATION

The scientific and technical information contained in this MD&A has been reviewed and approved by Mark Petersen, a Qualified Person under NI 43-101 and an officer of New Gold.

 

This note regarding the PEA on Blackwater is in addition to cautionary language already included in this MD&A as required under NI 43-101. This MD&A includes information on Blackwater, which was outlined in the PEA Technical Report filed on October 10, 2012.  New Gold has, since the date of the PEA, completed non-material updates of the mineral resource estimate for Blackwater. Although the PEA represents useful, accurate and reliable information based on the information available at the time of its publication, and provides an important indicator as to the economic potential of Blackwater, the PEA is based on Mineral Resources estimates with an effective date of July 27, 2012, which do not reflect drilling conducted since their effective date, and the PEA does not reflect the latest Mineral Resource estimate discussed in this MD&A. Certain assumptions used in the PEA, some of which relate to the July 27, 2012 Mineral Resource estimate, may have changed from those used for the new Resource estimate, causing a variation of parametres.  Moreover, the updated Mineral Resource estimate may impact how New Gold intends to develop the deposit, including pit outlines, production rates and mine life.

 

The estimates of Mineral Reserves and Mineral Resources discussed in this MD&A may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical, marketing and other relevant issues. In addition to our February 5, 2013 and April 4, 2013 news releases, further details regarding Mineral Reserve and Resource estimates, classification and reporting parametres for each of New Gold's mineral properties are provided in the respective NI 43-101 Technical Reports, which are available at www.sedar.com.

 

 

 

 

36Exhibit 4.6

 

 

  

  

  

 

 

MANAGEMENT INFORMATION CIRCULAR

Solicitation of Proxies

 

This management information circular (“Circular”) has been prepared for the holders of common shares (“shareholders”) of New Gold Inc. (“New Gold” or the “Company”) in connection with the solicitation of proxies by the management of New Gold for use at New Gold’s Annual General Meeting of shareholders to be held on May 1, 2013 (“Meeting”). References in this Circular to the Meeting include any adjournment(s) or postponement(s).  While it is expected that the solicitation will be made by mail, proxies may be solicited personally or by telephone by directors, officers and employees of New Gold.  The Company will also be using the services of Kingsdale Shareholder Services Inc. to solicit proxies.  Interested shareholders in North America may contact Kingsdale Shareholder Services Inc. at    1-866-581-1477.  All costs of this solicitation, anticipated to be C$32,500, will be borne by New Gold.

 

Notice and Access Process

 

New Gold has decided to use the notice and access model (“Notice and Access”) provided for under recent amendments to National Instrument 54-101 for the delivery of the Circular, financial statements for the year ended December 31, 2012 and Management’s Discussion and Analysis (collectively, the “Meeting Materials”) to shareholders for the Meeting. New Gold has adopted this alternative means of delivery in order to further its commitment to environmental sustainability and to reduce its printing and mailing costs.

 

Under Notice and Access, instead of receiving printed copies of the Meeting Materials, shareholders receive a notice (“Notice”) with information on the Meeting date, location and purpose, as well as information on how they may access the Meeting Materials electronically.

 

Shareholders with existing instructions on their account to receive printed materials and those shareholders with addresses outside of Canada and the United States will receive a printed copy of the Meeting Materials with the Notice.

 

As provided in the Notice, the Meeting will be held on Wednesday, May 1, 2013 at 4:00 pm (Eastern Daylight Time) at St. Andrew’s Club & Conference Centre, 150 King Street West, 27th Floor, Toronto, Ontario, for the purposes described on pages 5 to 15 of this Circular, under the title - “Particulars of Matters to be Acted on at the Meeting”.

 

The record date for the Meeting is March 22, 2013.  The record date is the date for determining the shareholders entitled to receive notice of, and to vote at, the Meeting and any adjournment.  The deadline for receiving duly completed and executed forms of proxy or submitting your proxy by telephone or over the internet is by 4:00 pm (Eastern Daylight Time) on April 29, 2013, or no later than 48 hours (excluding Saturdays, Sundays and holidays) before the time of any adjourned or postponed Meeting.

 

New Gold urges shareholders to review this Circular before voting.

 

Requesting Printed Meeting Materials

 

Shareholders can request that printed copies of the Meeting Materials be sent to them by postal delivery at no cost to them up to one year from the date this Circular was filed on SEDAR. Registered shareholders may make their request through New Gold’s website, www.newgold.com, or by calling 1-888-315-9715.

 

  

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Non-registered shareholders may make their request online at www.ProxyVote.com or by telephone at 1-877-907-7643 by entering the 12-digit control number located on the voting instruction form and following the instructions provided. To receive the Meeting Materials in advance of the proxy deposit date and Meeting Date, New Gold must receive requests for printed copies at least five business days in advance of the proxy deposit date and time.

 

Effective Date

 

Unless otherwise stated, the information contained in this Circular is as at March 21, 2013.

 

Currency

 

All dollar amounts referenced, unless otherwise indicated, are expressed in United States dollars.  Canadian dollars are referred to as “C$”.  Unless otherwise stated, any United States dollar amounts which have been converted from Canadian dollars have been converted at an exchange rate of C$1.00 = US$1.0004 for 2012, C$1.00 = US$1.0117 for 2011 and C$1.00 = US$0.9709 for 2010, being the average noon rate quoted by the Bank of Canada for each respective year.

 

Voting Process – Registered Shareholders

 

Appointment of Proxies

 

The persons named in the form of proxy provided to registered shareholders with the Notice are officers and/or directors of New Gold.  A shareholder can appoint another person, who need not be a shareholder, to represent such shareholder at the Meeting by inserting such person’s name in the blank space provided in the form of proxy or by completing another proper form of proxy.

 

A shareholder appointing a proxy holder may indicate the manner in which the appointed proxy holder can vote with respect to any specific item by checking the space opposite the item on the proxy.  If the shareholder giving the proxy wishes to confer a discretionary authority with respect to any item of business, then the space opposite the item should be left blank.  The common shares represented by the proxy submitted by a shareholder will be voted or withheld from voting in accordance with the directions, if any, given in the proxy.

 

Voting common shares

 

Registered shareholders at the close of business on March 22, 2013 may vote in person at the Meeting or by proxy as follows:

 

	
By telephone:

	
Call the toll free number indicated on the proxy form and follow the instructions.  If you choose the telephone, you cannot appoint any person other than the officers named on the form of proxy as your proxy holder.

 

	
On the internet:

	
Go to the website indicated on the proxy form and follow the instructions on the screen.  If you return your proxy via the internet, you can appoint another person, who need not be a shareholder, to represent you at the Meeting by inserting such person’s name in the blank space provided on the form of proxy.  Complete your voting instructions and date and submit the form.  Make sure that the person you appoint is aware that he or she has been appointed, and attends the Meeting.

 

	
By mail:

	
Complete the form of proxy and return it in the envelope provided.  If you return your proxy by mail, you can appoint another person, who need not be a shareholder, to represent you at the Meeting by inserting such person’s name in the blank space provided in the form of proxy.  Complete your voting instructions and date and sign the form.  Make sure that the person you appoint is aware that he or she has been appointed, and attends the Meeting.

  

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Deadline for receipt of proxies

 

The deadline for receiving duly completed and executed forms of proxy or submitting your proxy by telephone or over the internet is by 4:00 pm (Eastern Daylight Time) on April 29, 2013, or no later than 48 hours (excluding Saturdays, Sundays and holidays) before the time of any adjourned or postponed Meeting.

 

Revocation of Proxies

 

A proxy submitted under this solicitation may be revoked by written notice, signed by the shareholder or by the shareholder’s attorney authorized in writing (or, if the shareholder is a corporation, by a duly authorized officer or attorney), and deposited either:

 

	
(i)  

	
at the registered office of New Gold (New Gold Inc., Suite 1800, Two Bentall Centre, 555 Burrard Street, Vancouver, British Columbia, V7X 1M9, Attention: Corporate Secretary) at any time up to and including the last business day before the day of the Meeting; or

	  	  
	
(ii)  

	
with the Chairman of the Meeting on the day of the Meeting or, if adjourned, any reconvening or in any other manner permitted by law.

A revocation of a proxy does not affect any matter on which a vote has been taken before the revocation.

 

Exercise of Discretion by Proxies

 

The persons named in the form of proxy will vote the common shares in respect of which they are appointed in accordance with the direction of the shareholders appointing them.  In the absence of such direction, the relevant common shares will be voted in favour of the passing of all the resolutions described below.

 

The form of proxy confers discretionary authority on the persons named in the proxy with respect to amendments or variations to matters identified in the Notice and with respect to other matters which may properly come before the Meeting.  At the time of printing of this Circular, management knows of no such amendments, variations or other matters to come before the Meeting.  However, if any such amendments, variations or other matters which are not now known to management should properly come before the Meeting, the proxy will be voted on such matters in accordance with the best judgment of the named proxies.

 

Voting Process – Non-Registered Shareholders

 

Only registered shareholders of New Gold or the persons they appoint as their proxies are permitted to vote at the Meeting.  Most shareholders of New Gold are “non-registered” shareholders (“Non-Registered Shareholders”) because the common shares they own are not registered in their names but are instead registered in the name of the brokerage firm, bank or trust company through which they purchased the common shares.

 

Common shares beneficially owned by a Non-Registered Shareholder are registered either:

 

	
(i)  

	
in the name of an intermediary (“Intermediary”) that the Non-Registered Shareholder deals with in respect of the common shares of New Gold (Intermediaries include, amongst others, banks, trust companies, securities dealers or brokers, and trustees or administrators of self-administered RRSPs, RRIFs, RESPs and similar plans); or

	  	  
	
(ii)  

	
in the name of a clearing agency (such as CDS Clearing and Depository Services Inc. or The Depository Trust & Clearing Corporation) of which the Intermediary is a participant.

 

  

3

  

 

In accordance with applicable securities law requirements, New Gold has distributed copies of the Notice and the form of proxy (which includes a place to request copies of the Circular and annual and/or interim financial statements and Management’s Discussion and Analysis (“MD&A”) or to waive the receipt of the Circular or annual and/or interim financial statements and MD&A) to the clearing agencies and Intermediaries for distribution to Non-Registered Shareholders.

 

Intermediaries are required to forward the Notice and, if applicable, the Meeting Materials to Non-Registered Shareholders unless a Non-Registered Shareholder has waived the right to receive them.  Intermediaries often use service companies to forward the Notice and any Meeting Materials to Non-Registered Shareholders. Generally, Non-Registered Shareholders who have not waived the right to receive the Notice and any Meeting Materials will either:

 

	
(i)  

	
be given a voting instruction form which is not signed by the Intermediary and which, when properly completed and signed by the Non-Registered Shareholder and returned to the Intermediary or its service company, will constitute voting instructions (often called a “voting instruction form”) which the Intermediary must follow.  Typically, the voting instruction form will consist of a one page pre-printed form; or

	  	  
	
(ii)  

	
be given a form of proxy which has already been signed by the Intermediary (typically by a facsimile, stamped signature), which is restricted as to the number of common shares beneficially owned by the Non-Registered Shareholder but which is otherwise not completed by the Intermediary.  Because the Intermediary has already signed the form of proxy, this form of proxy is not required to be signed by the Non-Registered Shareholder when submitting the proxy.  In this case, the Non-Registered Shareholder who wishes to submit a proxy should carefully follow the instructions of their Intermediary, including those regarding when and where the completed proxy or voting instruction form is to be delivered.

 

In either case, the purpose of these procedures is to permit Non-Registered Shareholders to direct the voting of the common shares of New Gold that they beneficially own.  Should a Non-Registered Shareholder who receives one of the above forms wish to vote at the Meeting in person (or have another person attend and vote on behalf of the Non-Registered Shareholder), the Non-Registered Shareholder should strike out the names of the persons listed in the form of proxy and insert the Non-Registered Shareholder or such other person’s name in the blank space provided.  In either case, Non-Registered Shareholders should carefully follow the instructions of their Intermediary, including those regarding when and where the proxy or voting instruction form is to be delivered.

 

A Non-Registered Shareholder may revoke a voting instruction form or a waiver of the right to receive the Notice and any Meeting Materials and to vote, which has been given to an Intermediary, by written notice to the Intermediary at any time up to seven days before the Meeting.  An Intermediary is not required to act on a revocation of a voting instruction form or of a waiver of the right to receive the Notice and any Meeting Materials and to vote which is not received by the Intermediary at least seven days before the Meeting.

 

Voting Securities and Principal Shareholders

 

As at the date of this Circular, 476,801,223 common shares in the capital of New Gold were issued and outstanding.  Each common share entitles the holder to one vote on all matters to be acted on at the Meeting.  The record date for the determination of shareholders entitled to receive notice of, and to vote at, the Meeting is March 22, 2013.  Each registered shareholder on the record date will be entitled to vote at the Meeting or any adjournment.  All such registered shareholders are entitled to attend and vote in person at the Meeting the common shares held by them or, provided a completed and executed proxy has been delivered to New Gold’s transfer agent within the time specified in the Notice, to attend and vote by proxy at the Meeting the common shares held by them.

 

To the knowledge of the directors and executive officers of New Gold, as at the date of this Circular, no person or company, other than Van Eck Associates Corporation (“Van Eck”), beneficially owns, or controls or directs, directly or indirectly, voting securities carrying 10% or more of the voting rights attached to any class of voting securities of New Gold.  According to public filings with United States Securities and Exchange Commission, as at the date of this Circular, Van Eck held 51,620,702 common shares of New Gold, which represents 10.8% of the common shares issued and outstanding.

 

  

4

  

PARTICULARS OF MATTERS TO BE ACTED ON AT THE MEETING

	
1.  

	
Board Size Resolution

 

The Company’s Articles require that the Board consist of the greater of three directors or the number set by ordinary resolution.  At the Meeting, the eight persons named below will be proposed for election as directors of New Gold.  New Gold is asking shareholders to set, by ordinary resolution, the number of directors of New Gold at eight.

 

Unless authority to do so is withheld, the persons named in the form of proxy intend to vote FOR setting the Board size to eight persons.

 

	
2.  

	
Election of Directors

 

At the Meeting, the eight persons named in the table below will be proposed for election as directors of New Gold (“Nominees”).

 

Unless authority to do so is withheld, the persons named in the form of proxy intend to vote FOR the election of each of the Nominees.

 

Management does not contemplate that any of the Nominees will be unable to serve as a director, but if that should occur for any reason before the Meeting, it is intended that discretionary authority shall be exercised by the persons named in the proxy to vote the proxy for the election of any other person or persons in place of any Nominee or Nominees unable to serve.  Each director elected will hold office until the close of the first annual general meeting of shareholders of New Gold following his election or until his successor is duly elected or appointed, unless his office is earlier vacated in accordance with the Articles of New Gold.

 

The board of directors of New Gold (“Board”) has adopted a policy (“Majority Voting Policy”) stipulating that if the common shares voted in favour of the election of a Nominee at a shareholders’ meeting represent less than a majority of the common shares voted and withheld, the Nominee will submit his resignation promptly after such meeting for the Corporate Governance and Nominating Committee’s consideration.  After reviewing the matter, the Corporate Governance and Nominating Committee will make a recommendation to the Board, and the Board’s subsequent decision to accept or reject the resignation offer will be publicly disclosed.  The Nominee will not participate in any Corporate Governance and Nominating Committee or Board deliberations regarding the resignation offer.  The Majority Voting Policy does not apply in circumstances involving contested director elections.

 

The following table contains brief biographies for each of the Nominees, including their principal occupations, business or employment within the past five years, name, province or state and country of residence, independence status, age, principal occupation, date they first became a director of New Gold, areas of expertise and number of common shares, other securities and stock options beneficially owned by each Nominee.

 

The statement as to the common shares, other securities and stock options beneficially owned, directly or indirectly, or over which control or direction is exercised by the Nominees as at March 21, 2013 in each instance has been reviewed by the Nominee concerned.

 

  

5

  

	
THE HONOURABLE DAVID EMERSON

	
David Emerson P.C., OBC is a Corporate Director, Public Policy Advisor and serves as a senior advisor to CAI Managers, a private equity fund. He has served as a minister in the Government of Canada including Minister of Foreign Affairs, Minister of International Trade and Minister of Industry. He has also held a number of senior positions in the public service in British Columbia. In the private sector, he was President and CEO of Canfor Corporation, President and CEO of the Vancouver International Airport Authority and Chairman and CEO of Canadian Western Bank. Mr. Emerson serves on the boards of directors of Finning International Inc., Stantec Inc. and is Chair of Maple Leaf Foods Inc.  In addition, Mr. Emerson is Co-chair, Prime Minister’s Advisory Committee on the Public Service. Mr. Emerson is a recipient of the Order of British Columbia and the Peter Lougheed Award of Excellence in Public Policy.  Mr. Emerson holds bachelors and masters degrees in economics from the University of Alberta and a doctorate in Economics from Queen’s University. Mr. Emerson’s principal occupation is as a corporate director and public policy advisor.

Areas of Expertise:  Accounting & Finance; Corporate Governance; Public Company Board; Management; Government Relations.

	  	
Common Shares and DSU Held

	  	  	  
	
British Columbia, Canada

Age: 67

 

	
Date

	
Common Shares

Held (#)(1)

	
DSU Held (#)

	
Total Common Shares and DSU(#)

	
At-Risk Value of Common Shares and DSU ($)(2)

	
Director since:

	
March 21, 2013

	
5,000

	
3,991

	
8,991

	
86,305

	
July 1, 2012

	  	  	  	  
	  	
Other Securities Held

	  	  	  
	
Independent

	
Nil

	  	  	  	  
	  	  	  	  	  
	  	
Options Held

	  	  	  
	  	
Date Granted

	
Expiry Date

	
Exercise Price (C$)

	
Total Unexercised Options (#)

	
At-Risk Value of Unexercised Options ($)(3)

	  	
August 10, 2012

	
August 10, 2017

	
10.34

	
20,300

	
0

	  	
Total At-Risk Value of Common Shares, DSU and Options

	
86,305

	  	  	  	  	  
	  	
Voting Results(5) :

	  	  	  
	  	
N/A

	  	  	  	  
	  	  	  	  
	  	
Board and Committee Membership 2012(6)

	
Attendance

	
Other Public Board Memberships

	  	
Board

	  	
3 of 3

	
Finning International Inc.

	  	
Audit Committee

	  	
2 of 2

	
(since December 2008)

	  	
Corporate Governance, Chair

	
1 of 1

	
Stantec Inc. (since July 2009)

	  	  	  	
Maple Leaf Foods Inc. (since May 2012)

 

  

6

  

	
JAMES ESTEY

 

	
James Estey is the retired Chairman of UBS Securities Canada Inc. and has over 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 Range Royalty Management Ltd. and Gibson Energy Inc.  He also serves on the boards of The Estey Centre for Law and Economics in International Trade and St. Clements School and is on the Advisory Board of the Edwards School of Business.  Mr. Estey’s principal occupation is as a Corporate Director.

Areas of Expertise:  Accounting & Finance; Corporate Governance; Public Company Board; Management.

	  	
Common Shares and DSU Held

	  	  	  
	
Ontario, Canada

Age: 60

 

	
Date

	
Common Shares

Held (#)(1)

	
DSU Held (#)

	
Total Common Shares and DSU(#)

	
At-Risk Value of Common Shares and DSU ($)(2)

	
Director since:

	
March 21, 2013

	
209,000

	
28,079

	
237,079

	
2,275,720

	
July 8, 2008

	  	  	  	  
	  	
Other Securities Held

	  	  	  
	
Independent

	  	  	  	  	
At-Risk Value ($)

	  	
7% Senior Notes due 2020

	  	  	
250,000

	  	  	  	  	  
	  	
Options Held

	  	  	  
	  	
Date Granted

	
Expiry Date

	
Exercise Price (C$)

	
Total Unexercised Options (#)

	
At-Risk Value of Unexercised Options ($)(3)

	  	
May 10, 2012

	
May 10, 2017

	
8.54

	
24,600

	
 30,988

	  	
June 8, 2011

	
June 8, 2016

	
9.59

	
18,700

	
 4,383

	  	
May 11, 2010

	
May 11, 2015

	
5.93

	
28,000

	
 106,634

	  	
June 2, 2009

	
June 2, 2014

	
3.21

	
68,000

	
 4,017

	  	
July 8, 2008

	
July 7, 2013

	
7.84

	
34,450

	
 4,017

	  	
Total At-Risk Value of Common Shares, DSU and Options

	
 2,675,759

	  	  	  	  	  
	  	
Voting Results(5):

	  	  	  
	  	
Year

	
For

	
Withheld

	  	  
	  	
2012

	
80.42%

	
19.58%

	  	  
	  	
2011

	
87.62%

	
12.38%

	  	  
	  	
2010

	
99.83%

	
0.17%

	  	  
	  	  	  	  
	  	
Board and Committee Membership 2012(6)

	
Attendance

	
Other Public Board Memberships

	  	
Board

	
5 of 5

	
Gibson Energy Inc. (since August 2011)

	  	
Audit Committee, Chair

	
4 of 4

	  
	  	
Compensation Committee

	
1 of 1

	  
	  	
Corporate Governance

	
1 of 1

	  

  

7

  

	
ROBERT GALLAGHER

 

	
 

Robert Gallagher’s principal occupation is President and Chief Executive Officer of New Gold.  Mr. Gallagher has worked in the mining industry for over 35 years and spent 15 years with Placer Dome Inc. and from August 2000 to December 2007 with Newmont Mining Corporation, most recently as Vice President, Operations, Asia Pacific.  Before the June 2008 business combination of Peak Gold, Metallica and New Gold, Mr. Gallagher was the President and Chief Executive Officer of Peak Gold from February 2008.

Areas of Expertise:  Mining Industry & Operations; Accounting & Finance; Health, Safety, Environment & Risk Management; Public Company Board; Management; Government Relations and Legal.

	  	
Common Shares, RSU and PSU Held

	  	  	  
	
British Columbia, Canada

Age:  62

	
Date

	
Common Shares

Held (#)(1)

	
RSU Held (#)

	
PSU Held (#)

	
Total Common Shares and RSU/PSU(#)

	
At-Risk Value of Common Shares and DSU ($)(2)

	  	
March 21, 2013

	
255,060

	
83,334

	
93,000

	
431,394

	
4,140,949

	
Director since:

	
Other Securities Held

	  	  	  
	
June 30, 2008

	
Nil

	  	  	  	  
	  	
Options Held

	  	  	  
	
Non-Independent

	
Date Granted

	
Expiry Date

	
Exercise Price (C$)

	
Total Unexercised Options (#)

	
At-Risk Value of Unexercised Options ($)(3)

	  	
February 13 , 2013(4)

	
February 13, 2018

	
10.01

	
189,000

	
 0

	  	
February 10, 2012

	
February 10, 2017

	
11.87

	
350,000

	
 0

	  	
January 26, 2011

	
January 26, 2018

	
7.67

	
400,000

	
 843,696

	  	
June 2, 2009

	
June 2, 2016

	
3.21

	
840,000

	
5,430,121

	  	
February 17, 2009

	
February 17, 2016

	
2.71

	
380,000

	
2,642,018

	  	
July 8, 2008

	
July 7, 2013

	
7.84

	
230,000

	
 446,944

	  	
Total At-Risk Value of Common Shares, RSU, PSU and Options

	
13,503,728

	  	
Voting Results(5):

	  	  	  
	  	
Year

	
For

	
Withheld

	  	  
	  	
2012

	
92.54%

	
7.46%

	  	  
	  	
2011

	
97.20%

	
2.80%

	  	  
	  	
2010

	
99.85%

	
0.15%

	  	  
	  	
Board and Committee Membership 2012

	
Attendance

	
Other Public Board Memberships

	  	
Board

	
5 of 5

	
Southern Arc Minerals (since 2010)

	  	
 

	  	
Dynasty Gold Corp. (since 2009)

  

8

  

	
VAHAN KOLOLIAN

 

	
Vahan Kololian is the founder and Managing Partner of TerraNova Partners LP, which invests in the industrial, services and resource sectors. Mr. Kololian started his career in investment banking in 1980 with Burns Fry Limited (now BMO Nesbitt Burns). From 1990 to 2000, he was co-founder and President of Polar Capital Corporation and from 2002 to 2011, he was Chairman of KK Precision Inc., a private engineering and manufacturing company.  Mr. Kololian also serves on the board of Manicouagan Minerals Inc., a public mineral exploration company.  Mr. Kololian holds BA and LL.B. degrees.  Mr. Kololian is also co-founder and Chairman of the Mosaic Institute, whose purpose is to bring together and promote dialogue among Canadians of differing ethnicities whose homelands are in conflict with one another. Mr. Kololian’s principal occupation is Managing Partner of TerraNova Partners LP.

Areas of Expertise:  Accounting & Finance; Health, Safety, Environment & Risk Management; Corporate Governance; Public Company Board; Management; Legal.

	  	
Common Shares and DSU Held

	  	  	  
	
Ontario, Canada

Age:  59

	
Date

	
Common Shares

Held (#)(1)

	
DSU Held (#)

	
Total Common Shares and DSU(#)

	
At-Risk Value of Common Shares and DSU ($)(2)

	
Director since:

	
March 21, 2013

	
1,125,001

	
10,098

	
1,135,099

	
10,895,810

	
June 1, 2009

	  	  	  	  
	  	
Other Securities Held

	  	  	  
	
Independent

	
Nil

	  	  	  	  
	  	  	  	  	  
	  	
Options Held

	  	  	  
	  	
Date Granted

	
Expiry Date

	
Exercise Price (C$)

	
Total Unexercised Options (#)

	
At-Risk Value of Unexercised Options ($)(3)

	  	
May 10, 2012

	
May 10, 2017

	
8.54

	
24,600

	
30,988

	  	
June 8, 2011

	
June 8, 2016

	
9.59

	
18,700

	
4,383

	  	
May 11, 2010

	
May 11, 2015

	
5.93

	
28,000

	
106,634

	  	
June 2, 2009

	
June 2, 2014

	
3.21

	
68,000

	
439,581

	  	
Total At-Risk Value of Common Shares, DSU and Options

	
11,477,395

	  	  	  	  	  
	  	
Voting Results(5):

	  	  	  
	  	
Year

	
For

	
Withheld

	  	  
	  	
2012

	
97.97%

	
2.03%

	  	  
	  	
2011

	
99.81%

	
0.19%

	  	  
	  	
2010

	
99.75%

	
0.25%

	  	  
	  	  	  	  
	  	
Board and Committee Membership 2012(6)

	
Attendance

	
Other Public Board Memberships

	  	
Board

	
5 of 5

	
Manicouagan  Minerals Inc. (since 2001)

	  	
Audit Committee

	
2 of 2

	  
	  	
Corporate Governance

	
1 of 1

	  
	  	
Compensation Committee, Chair

	
2 of 2

	  
	  	
HSE&CSR Committee

	
2 of 2

	  

  

9

  

	
MARTYN KONIG

 

	
 

Martyn Konig has over 30 years of experience in investment banking and the commodity markets as well as extensive experience in the natural resource sector. Mr. Konig’s principal occupation is Chief Investment Officer for T Wealth Management SA, the private family office for partners and senior management of the Trafigura Group.  Mr. Konig was Executive Chairman and President of European Goldfields Limited until its acquisition by Eldorado Gold Corp. in February 2012 and was Chief Executive Officer of the Blackfish Capital Group from 2005 until August 2009. Mr. Konig was a main Board Director of NM Rothschild and Sons Ltd. for 15 years and held senior positions at Goldman Sachs and UBS. Mr. Konig is a Barrister and Fellow of the Chartered Institute of Bankers.

Areas of Expertise:  Mining Industry and Operations, Accounting & Finance; Health, Safety, Environment & Risk Management; Corporate Governance; Public Company Board; Management; Legal.

 

 

	  	
Common Shares and DSU Held

	  	  	  
	
Jersey, British Isles

Age:  55

	
Date

	
Common Shares

Held (#)(1)

	
DSU Held (#)

	
Total Common Shares and DSU(#)

	
At-Risk Value of Common Shares and DSU ($)(2)

	  	
March 21, 2013

	
150,000

	
22,743

	
172,743

	
1,658,159

	
Director since:

	  	  	  	  
	
June 1, 2009

	
Other Securities Held

	  	  	  
	  	
Nil

	  	  	  	  
	
Independent

	  	  	  	  
	  	
Options Held

	  	  	  
	  	
Date Granted

	
Expiry Date

	
Exercise Price (C$)

	
Total Unexercised Options (#)

	
At-Risk Value of Unexercised Options ($)(3)

	  	
May 10, 2012

	
May 10, 2017

	
8.54

	
24,600

	
30,988

	  	
June 8, 2011

	
June 8, 2016

	
9.59

	
18,700

	
4,383

	  	
May 11, 2010

	
May 11, 2015

	
5.93

	
28,000

	
106,634

	  	
June 2, 2009

	
June 2, 2014

	
3.21

	
68,000

	
439,581

	  	
Total At-Risk Value of Common Shares, DSU and Options

	
2,239,745

	  	  	  	  	  
	  	
Voting Results(5):

	  	  	  
	  	
Year

	
For

	
Withheld

	  	  
	  	
2012

	
95.68%

	
4.32%

	  	  
	  	
2011

	
99.14%

	
0.86%

	  	  
	  	
2010

	
99.85%

	
0.15%

	  	  
	  	  	  	  
	  	
Board and Committee Membership 2012(6)

	
Attendance

	
Other Public Board Memberships

	  	
Board

	
5 of 5

	
N/A

	  	
Audit Committee

	
4 of 4

	  
	  	
Compensation Committee, Chair

	
3 of 3

	  
	  	
HSE&CSR Committee

	
1 of 1

	  

  

10

  

	
PIERRE LASSONDE

 

	
Pierre Lassonde is 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 at November 30, 2007. Previously Mr. Lassonde served as a director and President (1982 to 2002) and Co-Chief Executive Officer (1999 to 2002) of Franco-Nevada Corporation.  Mr. Lassonde’s principal occupation is Chairman of Franco-Nevada Corporation.

Areas of Expertise:   Mining Industry and Operations, Accounting & Finance; Corporate Governance; Risk Management; Public Company Board; Management.

	  	
Common Shares and DSU Held

	  	  	  
	
Ontario, Canada

Age:  65

	
Date

	
Common Shares

Held (#)(1)

	
DSU Held (#)

	
Total Common Shares and DSU(#)

	
At-Risk Value of Common Shares and DSU ($)(2)

	
Director since:

	
March 21, 2013

	
6,500,000

	
9,930

	
6,509,930

	

62,488,786

	
June 30, 2008

	  	  	  	  
	  	
Other Securities Held

	  	  	
At-Risk Value ($)

	
Independent

	
7% Senior Notes due 2020

	  	  	  	
5,000,000

	  	  	  	  	  	  
	  	  	  	  	  
	  	
Options Held

	  	  	  
	  	
Date Granted

	
Expiry Date

	
Exercise Price (C$)

	
Total Unexercised Options (#)

	
At-Risk Value of Unexercised Options ($)(3)

	  	
May 10, 2012

	
May 10, 2017

	
8.54

	
24,600

	
30,988

	  	
June 8, 2011

	
June 8, 2016

	
9.59

	
18,700

	
4,383

	  	
May 11, 2010

	
May 11, 2015

	
5.93

	
28,000

	
106,634

	  	
June 2, 2009

	
June 2, 2014

	
3.21

	
68,000

	
439,581

	  	
July 8, 2008

	
July 8, 2013

	
7.84

	
34,450

	
66,944

	  	
Total At-Risk Value of Common Shares, DSU and Options

	
68,137,316

	  	  	  	  	  
	  	
Voting Results(5):

	  	  	  
	  	
Year

	
For

	
Withheld

	  	  
	  	
2012

	
97.97%

	
2.03%

	  	  
	  	
2011

	
99.82%

	
0.18%

	  	  
	  	
2010

	
99.77%

	
0.23%

	  	  
	  	  	  	  
	  	
Board and Committee Membership 2012(6)

	
Attendance

	
Other Public Board Memberships

	  	
Board

	
5 of 5

	
Franco-Nevada Corporation (since 2007)

	  	
Compensation Committee

	
3 of 3

	
Enghouse Systems Limited (since 2000)

	  	
Corporate Governance

	
2 of 2

	  

  

11

  

	
RANDALL OLIPHANT

 

	
Randall Oliphant’s principal occupation is Executive Chairman of New Gold.  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 Goldfields Inc.  Until the spring of 2011 he was also President and Chief Executive Officer of Silver Bear Resources Inc. of which he remains a director. Mr. Oliphant is a Chartered Accountant.

Areas of Expertise:  Mining Industry and Operations, Accounting & Finance; Corporate Governance; Risk Management; Public Company Board; Management.

	  	
Common Shares and DSU Held

	  	  	  
	
Ontario, Canada

Age:  53

	
Date

	
Common Shares

Held (#)(1)

	
RSU Held (#)

	
PSU Held (#)

	
Total Common Shares and RSU/PSU(#)

	
At-Risk Value of Common Shares and DSU ($)(2)

	
Director since:

	
March 21, 2013

	
4,570,855

	
100,000

	
144,000

	
4,814,855

	
46,217,769

	
June 1, 2009

	  	  	  	  
	  	
Other Securities Held

	  	  	  
	
Non-Independent

	
Nil

	  	  	  	  
	  	  	  	  	  
	  	
Options Held

	  	  	  
	  	
Date Granted

	
Expiry Date

	
Exercise Price (C$)

	
Total Unexercised Options (#)

	
At-Risk Value of Unexercised Options ($)(3)

	  	
February 13 , 2013(4)

	
February 13, 2018

	
10.01

	
290,000

	
0

	  	
February 10, 2012

	
February 10, 2017

	
11.87

	
500,000

	
0

	  	
January 26, 2011

	
January 26, 2018

	
7.67

	
500,000

	
1,054,620

	  	
June 2, 2009

	
June 2, 2016

	
3.21

	
1,500,000

	
9,696,645

	  	
Total At-Risk Value of Common Shares, RSU, PSU and Options

	
56,969,034

	  	  	  	  	  
	  	
Voting Results(5):

	  	  	  
	  	
Year

	
For

	
Withheld

	  	  
	  	
2012

	
92.40%

	
7.60%

	  	  
	  	
2011

	
97.14%

	
2.86%

	  	  
	  	
2010

	
96.28%

	
3.72%

	  	  
	  	  	  	  
	  	
Board and Committee Membership 2012(6)

	
Attendance

	
Other Public Board Memberships

	  	
Board

	
5 of 5

	
Franco-Nevada Corporation (since 2007)

	  	  	  	
WesternZagros Resources Ltd. (since 2007)

	  	  	  	
Silver Bear Resources Inc. (since 2004)

  

12

  

	
RAYMOND THRELKELD

 

	
Raymond Threlkeld has over 32 years of mineral industry experience.  Mr. Threlkeld’s principal occupation is President and Chief Executive Officer of Rainy River Resources Ltd. From 2005 to 2009, Mr. Threlkeld was the Chief Operating Officer of Silver Bear Resources Inc.  From 2006 to 2009, he was the President and Chief Executive Officer of Western Goldfields Inc. From 1996 to 2005 Mr. Threlkeld held various senior management positions in precious metal mine development with Barrick Gold Corporation and Coeur d’Alene Mines Corporation including the development of the Pierina Mine in Peru, the Bulyanhulu Mine in Tanzania and the Veladero Mine in Argentina. Mr. Threlkeld has had exploration acquisition success in the Western United States in addition to his management and project development experience.

Areas of Expertise:  Mining Industry and Operations; Health, Safety, Environment & Risk Management; Public Company Board; Management.

	  	
Common Shares and DSU Held

	  	  	  
	
North Carolina, United States

Age:  66

	
Date

	
Common Shares

Held (#)(1)

	
DSU Held (#)

	
Total Common Shares and DSU(#)

	
At-Risk Value of Common Shares and DSU ($)(2)

	  	
March 21, 2013

	
121,159

	
4,965

	
126,124

	
1,210,664

	
Director since:

	  	  	  	  
	
June 1, 2009

	
Other Securities Held

	  	  	  
	  	
Nil

	  	  	  	  
	
Independent

	  	  	  	  
	  	
Options Held

	  	  	  
	  	
Date Granted

	
Expiry Date

	
Exercise Price (C$)

	
Total Unexercised Options (#)

	
At-Risk Value of Unexercised Options ($)(3)

	  	
May 10, 2012

	
May 10, 2017

	
8.54

	
24,600

	
30,988

	  	
June 8, 2011

	
June 8, 2016

	
9.59

	
18,700

	
4,383

	  	
May 11, 2010

	
May 11, 2015

	
5.93

	
28,000

	
106,634

	  	
Total At-Risk Value of Common Shares, DSU and Options

	
1,352,668

	  	  	  	  	  
	  	
Voting Results(5):

	  	  	  
	  	
Year

	
For

	
Withheld

	  	  
	  	
2012

	
79.80%

	
20.20%

	  	  
	  	
2011

	
86.25%

	
13.75%

	  	  
	  	
2010

	
99.78%

	
0.22%

	  	  
	  	  	  	  
	  	
Board and Committee Membership 2012(6)

	
Attendance

	
Other Public Board Memberships

	  	
Board

	
5 of 5

	
Rainy River Resources Ltd. (since 2009)

	  	
HSE&CSR Committee

	
2 of 2

	  

Notes:

 

 

	
(1)

	
Represents common shares beneficially owned by the respective directors, directly or indirectly, or over which control or direction is exercised as at March 21, 2013.

	  	  
	
(2)

	
At-risk value of common shares is calculated using the closing price of the Company’s common shares on the TSX on March 21, 2013 of C$9.83 and converted to United States dollars; at-risk value of DSU/Share Units is calculated using the closing price of the Company’s common shares on the TSX on March 21, 2013 of C$9.83, and converted to United States dollars.  All values are converted at an exchange rate of C$1.00 = US$0.9765, being the noon rate quoted by the Bank of Canada on March 21, 2013.

	  	  
	
(3)

	
Calculated using the closing price of the common shares on the TSX on March 21, 2013 of C$9.83 and subtracting the exercise price of in-the-money stock options, and converted to United States dollars at an exchange rate of C$1.00 = US$0.9765 being the noon rate quoted by the Bank of Canada on March 21, 2013.  The value shown in this column does not represent the actual value the individual director could receive.  The actual gain, if any, on exercise will depend on the value of the common shares on the date of exercise.

  

13

  

	
(4)

	
Includes options granted on February 13, 2013, for performance in 2012.

	  	  
	
(5)

	
Annual voting results for last three years in which the director was nominated for appointment to the Board.

	  	  
	
(6)

	
Attendance by each director at Board and Committee meetings is based on the number of meetings each director was eligible to attend during 2012.

	  	  
	  	
Various changes were made to the membership of the Board’s standing committees effective May 2, 2012 when Mr. Craig Nelsen ceased to be a director of the Company after he did not stand for re-election at the Company’s Annual General and Special Meeting.  Further, Mr. Emerson was appointed as a member of the Audit Committee and Chair of the Corporate Governance and Nominating Committee following his appointment as a director effective July 1, 2012.

	  	  
	  	
Mr. Emerson was eligible to attend three Board meetings, two Audit Committee meetings and one Corporate Governance and Nominating Committee meeting during 2012.

	  	  
	  	
Mr. Estey ceased to be a member of the Corporate Governance and Nominating Committee and was appointed as a member of the Compensation Committee, for which he was eligible to attend one meeting during 2012.

	  	  
	  	
Mr. Kololian ceased to be a member of the Audit Committee and Compensation Committee and was appointed as a member of the Corporate Governance and Nominating Committee, for which he was eligible to attend one meeting during 2012.

	  	  
	  	
Mr. Konig was appointed as a member of the Health, Safety, Environment and Corporate Social Responsibility Committee, for which he was eligible to attend one meeting during 2012.

Cease Trade Orders or Bankruptcies

 

As at the date of this Circular, no Nominee has, or has been within the past ten years, 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 (collectively, an “Order”), that was issued while the proposed director was acting in the capacity as director, chief executive officer or chief financial officer; or

	  	  
	
(ii)  

	
was subject to an Order that was issued after the proposed director 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.

As at the date of this Circular, no Nominee:

 

	
(i)  

	
is, or has been within the past ten years, 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 Mr. Kololian, who was a board member (but had previously resigned from the board) of a business services company that filed for voluntary bankruptcy on or about June 23, 2010;

	  	  	  
	
(ii)  

	
has, within the past ten years, 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 proposed director; or

	  	  	  
	
(iii)  

	
has been subject to

	  	  	  
	  	
a.  

	
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

	  	  	  
	  	
b.  

	
any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable shareholder in deciding whether to vote for a Nominee.

  

14

  

 

Additional Information regarding the Board

 

For additional information regarding New Gold’s Board, including compensation, corporate governance practices, independence and directorships of other public company boards, see “Statement of Executive Compensation – Director Compensation” and “Corporate Governance Practices”.

 

	
3.  

	
Appointment of Auditor

 

Shareholders will be asked to consider and, if thought fit to pass, an ordinary resolution to appoint Deloitte LLP as auditor of New Gold to hold office until the close of the next annual general meeting of New Gold.  It is also proposed that shareholders authorize the directors to fix the remuneration to be paid to the auditor. Deloitte LLP was first appointed as auditor of New Gold on July 8, 2008.  Additional information with respect to our auditor can be found in our latest Annual Information Form available at www.sedar.com.

 

Unless authority to do so is withheld, the persons named in the accompanying proxy intend to vote FOR the appointment of Deloitte LLP as auditor of New Gold until the close of the next annual general meeting of shareholders and to authorize the directors to fix their remuneration.

 

STATEMENT OF EXECUTIVE COMPENSATION

In this section, the individuals in the “Summary Compensation Table” are referred to as the named executive officers (“NEOs”).

 

Compensation Discussion and Analysis

 

New Gold is an intermediate gold producer with a portfolio of assets in the United States, Mexico, Australia, Canada and Chile.  As part of its business strategy, New Gold is focused on:

 

	  	
(a)  

	
executing on operational targets (safety, cost, production, environment, and social responsibility);

	  	  	  
	  	
(b)  

	
maintaining a strong financial position;

	  	  	  
	  	
(c)  

	
enhancing value through project development and continuous improvement of its existing operations; and

	  	  	  
	  	
(d)  

	
disciplined growth through additional, value-enhancing, merger and acquisition opportunities.

 

The objective of New Gold’s executive compensation program is to support these goals by attracting and retaining talented employees through competitive compensation, paying for performance, aligning compensation with shareholders’ interests and providing the flexibility necessary to accommodate the needs of New Gold in the different business conditions in which it operates.

 

In particular, New Gold’s executive compensation program is designed to support the Company’s growth by rewarding:

 

	  	
(a)  

	
individual skill and experience of executives;

	  	  	  
	  	
(b)  

	
individual and corporate performance; and

	  	  	  
	  	
(c)  

	
long-term performance of New Gold’s share price.

  

15

  

Role of the Compensation Committee

 

The Compensation Committee is comprised of Martyn Konig (Chair), Pierre Lassonde and James Estey, who are each independent directors.  The Compensation Committee assists the Board in approving and monitoring the Company’s guidelines and practices with respect to compensation and benefits, as well as administering the Company’s equity-based compensation plans.  The Compensation Committee’s responsibilities include, among other things:

 

	
(a)  

	
ensuring that the Company has programs to attract and develop executive officers of the highest calibre and a process to provide for the orderly succession of executive officers; and

	  	  
	
(b)  

	
reviewing and approving corporate goals and objectives relevant to the compensation of executive officers and, based on performance against those goals and objectives, recommending to the Board the annual salary, bonus and other benefits, direct and indirect, of executive officers.

In addition, the Compensation Committee is responsible for establishing a clear and concise compensation philosophy for the Company.  New Gold’s executive compensation philosophy is as follows:

 

	
(a)  

	
salaries will be benchmarked to the median of the market compensation data, which means that executive officers should not expect automatic annual salary increases;

	  	  
	
(b)  

	
New Gold’s compensation will be focused on performance-based bonuses and equity; and

	  	  
	
(c)  

	
compensation packages will include salary, performance-based bonus, stock options and performance share units (“PSU”).

Elements of NEO Compensation

 

Compensation of NEOs for the financial year ended December 31, 2012 included base salary, annual performance-based bonus, stock options, PSU and other annual compensation such as health and retirement benefits.  The following table lists each element of the Company’s executive compensation program and summarizes why New Gold chooses to pay each element.

 

	
Element of Compensation

	
Purpose of Element

	
Base Salary

	
Base salaries are fixed and therefore not subject to uncertainty.  Base salaries are used as a measure to compare to, and remain competitive with, compensation offered by competitors and as the base to determine other elements of compensation and benefits.

 

	
Annual Bonus

	
While base salaries are fixed, annual bonuses are tied to performance and are a variable component of compensation designed to reward NEOs for maximizing operating and financial performance of the Company.  Annual bonuses are paid at the discretion of the Board and are determined based on a number of factors, including financial and operational performance.

 

	
Stock Options

	
Stock options are variable elements of compensation intended to reward NEOs’ success in achieving sustained, long-term profitability and increases in stock value.

 

	
PSU (1)

	
PSU are variable elements of compensation intended to reward NEOs’ success in achieving sustained, long-term profitability, increases in stock value and comparatively better performance than the S&P/TSX Global Gold index.

 

 

  

16

  

 

	
Element of Compensation

	
Purpose of Element

	
Benefits Plans - including medical, dental, life insurance, disability insurance, and a group RRSP for Canadian employees

	
The Company’s benefits plans provide financial reassurance to NEOs in the event of illness, disability or death.  The group RRSP is provided to assist individuals in saving for retirement.  Benefits plans during 2012 were provided to NEOs on the same basis as other employees in the applicable jurisdiction, except for annual health assessments that have been available for executives since 2008.

 

 

	
(1)

	
PSU were granted to NEOs in respect of their performance in 2012.  Restricted Share Units (“RSU”) were granted to the Executive Chairman and the President and Chief Executive Officer in 2011 in relation to performance in 2010.  There were no RSU granted to NEOs for their performance in 2011 or 2012.

 

Benchmarking

 

The Compensation Committee believes that it is appropriate to establish compensation levels based largely on benchmarking against similar companies, both in terms of compensation practices as well as levels of compensation. In this way, New Gold can assess if its compensation is competitive in the marketplace for its talent, as well as measure its reasonableness.

 

New Gold reviewed the actual compensation paid to executives of the following companies, which are similar in size and scope to New Gold, as reported in their annual executive compensation disclosures.  All of the companies are gold producers with at least one asset in production, with operations of similar size and scope to New Gold and with comparable market capitalization. In addition, New Gold referenced the compensation data of companies with annual revenues ranging from $500 million to $2.5 billion provided in the Mining Industry Salary Surveys published jointly by Coopers Consulting Ltd. (“Coopers Consulting”) and PricewaterhouseCoopers.

 

	
Comparative Company

	
Corporate Head Office Location

	
Agnico-Eagle Mines Limited

	
Toronto, Ontario

	
Alamos Gold Inc.

	
Toronto, Ontario

	
Alacer Gold Corp.

	
Englewood, Colorado, United States

	
AuRico Gold Inc.

	
Toronto, Ontario

	
Centerra Gold Inc.

	
Toronto, Ontario

	
Eldorado Gold Corporation

	
Vancouver, British Columbia

	
IAMGold Corporation

	
Toronto, Ontario

	
Osisko Mining Corporation

	
Montreal, Quebec

	
Yamana Gold Inc.

	
Toronto, Ontario

Outside Consultants

 

New Gold purchased compensation surveys related to the mining industry from Coopers Consulting in 2011 and 2012. The surveys are generally published in July of each year.

 

New Gold engaged Towers Watson, in the first quarter of 2011, to provide an analysis of executive long term incentive plans.  Towers Watson also provided New Gold with market compensation data for executive level positions in 2011 and 2012, as well as general industry compensation surveys.

 

In 2012 New Gold engaged Hugessen Consulting Inc. (“Hugessen Consulting”) to review New Gold’s executive compensation practices.

 

  

17

  

 

Other than described above, Towers Watson, Coopers Consulting and Hugessen Consulting did not provide any other services to New Gold during 2012.

 

	
Consultant

	
Financial Year ending December 31

	
Executive Compensation-Related Fees ($) (1)

	
All Other Fees ($)

	
Hugessen Consulting

	
2012

	
126,634

	
Nil

	  	
2011

	
Nil

	
Nil

	
Towers Watson

	
2012

	
25,344(2)

	
Nil

	  	
2011

	
48,358

	
Nil

	
Coopers Consulting

	
2012

	
6,002

	
Nil

	  	
2011

	
7,252

	
Nil

 

	
(1)

	
Consulting fees were charged in Canadian dollars and converted at an exchange rate of C$1.00 = US$1.0004 for 2012 and C$1.00 = US$1.0017 for 2011, being the average noon rate quoted by the Bank of Canada for each respective year.

	  	  
	
(2)

	
Towers Watson fee for 2012 includes $8,797 paid in 2012 relating to services provided in 2011.

Compensation Elements

 

Below is a description of why New Gold currently chooses to pay each element of executive compensation and how New Gold determines the amount to be paid for each element.

 

Base Salary

 

To ensure New Gold will continue to attract and retain qualified and experienced executives, base salaries are reviewed and, if appropriate, adjusted annually in order to ensure they remain at the median for comparable companies.

 

New Gold endeavours to pay the salaries of its NEOs at the median compensation of comparable companies while providing greater compensation upside using performance-based compensation components such as performance-based bonuses and stock options.  However, there will be occasions when it pays an executive a base salary above or below the median depending on the individual skills and experience of the executive.  New Gold may also take into account the compensation paid to other executives at a similar level when determining compensation.

 

Annual Performance-Based Cash Incentives

 

Bonuses paid in early 2013 for 2012 performance were determined by considering a number of factors, including the following corporate performance factors:

 

	
Performance Factor

	
Performance Goal

	
Result

	
Wtg(1)

	
Disciplined Growth:

	
At the New Afton Mine; achieve commercial production (defined as mill throughput of 6,600 tonnes of ore per day) by August 1, 2012, with Project Capital Cost in line with budget.  Achieve mill throughput of 11,000 tonnes of ore per day by year end.

 

 

	
· Commercial production (defined as mill throughput of 6,600 tonnes of ore per day) was achieved before August 1, 2012.

· Mill throughput of over 11,000 tonnes per day was achieved during the third quarter of 2012 and mill throughput of over 12,000 tonnes per day was achieved during October 2012.

· The project was completed within 10% of budgeted costs.

	
30%

 

  

18

  

 

	
Performance Factor

	
Performance Goal

	
Result

	
Wtg(1)

	
Disciplined Growth:

	
At the Blackwater Project; complete 200,000 metres of drilling, complete the Preliminary Economic Assessment (PEA) and the Project Description in the third quarter of 2012.

	
· Total drilling to year end was 270,301 metres.

· NI 43-101 compliant Preliminary Economic Assessment (PEA) was completed on September 20, 2012 with the related Technical Report filed on SEDAR in October 2012.

· Project Description filed in September and accepted by both the Federal and Provincial Agencies in November, initiating the Environmental Assessment process.

 

	
20%

	  	
Increase gold resource inventory from existing properties, before depletion, by one million ounces with weighting factors of 1.0 for reserve ounces, 0.5 for measured and indicated resource ounces and 0.25 for inferred resource ounces.  This translates to 1,000,000 ounces of reserves, or 2,000,000 ounces of measured and indicated resources, or 4,000,000 ounces of inferred resource, or a combination of the above.

 

	
· Increased measured and indicated gold resource by 2.6 million ounces.

	
10%

	
Operational Execution:

	
Achieve planned production and cash costs at forecast foreign exchange and copper/gold/silver prices.

 

	
· Production and cash costs were 411,892 ounces of gold at $421 per ounce, consistent with 2012 guidance.

	
25%

	  	
Implement the standard safety system at all sites while achieving a 10% year on year reduction in Total Reportable Injury Frequency Rate and an 85% completion of target leading indicators during the second through fourth quarters of the year.

	
· 6% reduction of total Reportable Injury Frequency Rate.   In addition, lost time injury frequency, an indicator of more serious injuries, was reduced by 23%.  Lost time injury rates compared to the mining average industry rates in all locations where our operations are located are currently 71% below average.

· Standard safety system was defined by mid-year and eight of its 15 core elements were implemented across all sites by the end of 2012.  The remaining seven elements will be detailed and implemented during 2013.  Target leading indicators were not established until the end of the second quarter, with performance measured against the indicators starting on September 1, 2012.  During the period September 1 – December 31, 2012, New Gold’s projects and operations achieved 87.5% completion of the targeted lead indicators.

	
5%

	  	
Achieve Level B rating for the Global Reporting Initiative.

 

	
· Level B rating for the Global Reporting Initiative has been achieved: confirmed by a third party (Canadian Business for Social Responsibility).

 

	
5%

 

  

19

  

 

	
Performance Factor

	
Performance Goal

	
Result

	
Wtg(1)

	
Management Succession:

 

	
Employ a senior operations executive with the experience and ability to lead New Gold’s operating assets and to be a strong contributor to New Gold’s growth process.

 

	
· Ernest Mast appointed as Vice President, Operations on July 15, 2012.

	
5%

	  	
Progress succession planning to a point where all positions managing sizeable teams at the General Manager and higher levels have at least one potential successor in place and ready for promotion within a two year time frame.

 

	
· All positions where departments have teams large enough to accommodate a successor, including all general management positions at our operations, have at least one successor.

	  

 

	
(1)

	
Weighting given to each performance factor in determining bonus payments for performance in 2012.

	  	  
	
(2)

	
“Total cash costs” per gold ounce is a common financial performance measure in the gold mining industry but with no standard meaning under IFRS. New Gold reports total cash costs on a sales basis. The Company believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company’s performance and ability to generate cash flow. The 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.  Total cash costs 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 costs 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. Total cash costs include 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 costs then divided by gold ounces sold to arrive at the total cash costs per ounce sold.  Total cash costs are intended to provide additional information only and do not have any standardized definition under IFRS; they should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Other companies may calculate these measures differently. See page 37 of the Company’s MD&A for the year ended December 31, 2012, posted on the Company’s website www.newgold.com, for further discussion.

	  	  
	
(3)

	
Total Reportable Injuries = fatalities, lost time, restricted duty and medical treatment injuries.

Actual bonus payments were determined by referencing amounts prescribed in the employment contracts of the NEOs, as applicable, and bonus target awards expressed as a percentage of annual salary, benchmarked against the salary survey data and comparator group described above. A summary of the bonus amounts prescribed in employment contracts (where applicable), the resulting target award percentages and the actual bonuses paid for the financial year ended December 31, 2012 for each NEO is set out below.  The Board, on the recommendation of the Compensation Committee, exercised its discretion in considering other factors, such as the completion of two successful high yield financings during 2012 which raised $800 million in determining the annual bonus payments for 2012.

 

  

20

  

	
Name and position

	
Annual salary (at December 31, 2012)

($)

	
Minimum amount specified in employment contract

(where applicable)

	
Target award as % of annual salary(1)

	
Bonus amount paid

 ($)

	
Bonus amount as % of annual salary

(at December 31, 2012)

	
Randall Oliphant

Executive Chairman

	
650,260

	
A minimum bonus of one-third of annual salary

	
125%

	
1,500,600

	
231%

	
Robert Gallagher

President and Chief Executive Officer

	
650,260

	
A minimum bonus of one-third of annual salary

	
125%

	
800,320

	
123%

	
Brian Penny

Executive Vice President and Chief Financial Officer

	
400,160

	
n/a

	
100%

	
500,200

	
125%

	
Ernest Mast, Vice President, Operations(2)

	
174,236

	
n/a

	
80%

	
185,074

	
106%

	
Hannes Portmann, Vice President, Corporate Development

	
260,104

	
n/a

	
80%

	
300,120

	
115%

 

	
(1)

	
New Gold reviewed the target award as a percentage of annual salary against the practices of its peer companies and has increased the 2012 targets for each NEO as listed in the table above.

	  	  
	
(2)

	
Mr. Mast was appointed Vice President, Operations on July 15, 2012.  Salary shown is pro-rated.

Other Compensation – Perquisites

 

During the financial year ended December 31, 2012, Ernest Mast received perquisites associated with his relocation from Panama to Vancouver to take up the role of Vice President, Operations.  In addition, Mr. Mast also received a signing bonus, and contributions to a group RRSP and non-registered investment account. In the aggregate such perquisites were greater than $50,000 or 10% of his pro-rated salary.  No other NEO received any perquisites which in aggregate were greater than $50,000 or 10% of the respective NEO’s salary.

 

Stock Options

 

In March 2011, New Gold adopted the New Gold Inc. Stock Option Plan 2011 (“2011 Plan”).  The general purpose of the 2011 Plan is to advance the interests of New Gold by providing Eligible Persons with incentives to maximize shareholder value and to attract and reward long term commitments to New Gold by Eligible Persons.  Options granted under the 2011 Plan expire not later than the fifth anniversary of the date the options were granted and vesting provisions for issued options are determined at the discretion of the Board.  New Gold has a practice of not having options vest earlier than 12 months from the grant date. See “Securities Authorized for Issuance under Equity Compensation Plans”.

 

The Compensation Committee recommends stock option awards to the Board after considering input from management.  The Compensation Committee considers external benchmarking data as well as individual performance of the NEO, individual option holdings, whether they are in-the-money or not, and the total number of stock options outstanding in making decisions or recommendations for option grants to the Board. The Board has delegated authority to the Compensation Committee to grant individual stock option awards up to 50,000 options to non-executive officers and other employees.  Option awards in excess of 50,000 options or to executive officers require approval by the Board.

 

  

21

  

 

New Gold has a policy that provides for annual grants to be made at, or shortly after, a meeting of the Compensation Committee in the first quarter of each year.  Expected value is calculated using a Black-Scholes valuation methodology consistent with the methodology for valuing stock options for New Gold’s stock-based compensation expense in its financial statements.  Expected value as a percentage of annual salary varies depending on an individual’s level within the organization and is determined based on benchmarking against a comparator group of companies as listed under the heading “Benchmarking”.

 

The Board approved, on the recommendation of the Compensation Committee, the grant of the following stock options on February 13, 2013 to the NEOs in recognition of their performance in 2012 and as part of their 2012 compensation.

 

	
Name

	
Position

	
Number of Options(1)

	
Value of Option Award($)(2)

	
Randall Oliphant

	
Executive Chairman

	
290,000

	
1,325,544

	
Robert Gallagher

	
President and Chief Executive Officer

	
189,000

	
863,889

	
Brian Penny

	
Executive Vice President and Chief Financial Officer

	
112,000

	
511,934

	
Ernest Mast(3)

	
Vice President, Operations

	
94,000

	
429,659

	
Hannes Portmann

	
Vice President, Corporate Development

	
62,000

	
283,392

 

	
(1)

	
All of these stock options were granted on February 13, 2013 and vest in three equal installments beginning on the first anniversary of the date of grant.  The exercise price for these stock options is C$10.01.  The options expire on February 13, 2018.

	  	  
	
(2)

	
The value of the option awards is calculated using the Black-Scholes option valuation methodology converted at an exchange rate of C$1.00 = US$0.9980, being the noon rate quoted by the Bank of Canada on February 13, 2013, the date on which the options were granted.

	  	  
	
(3)

	
Mr. Mast was also granted 150,000 options on appointment as Vice President, Operations on July 15, 2012.  These options had a fair market value of US$686,486 using the Black-Scholes option valuation methodology, converted at an exchange rate of C$1.00 = US$1.0085, being the noon rate quoted by the Bank of Canada on August 10, 2012, the date on which the options were granted.

Long-Term Incentive Plan

 

In 2009, New Gold introduced a share unit plan (“Long-Term Incentive Plan”) that provides for time-based share unit awards (“RSU”) that may be granted by the Board to employees, officers, directors and certain eligible contractors of the Company and its affiliates (“RSU Participants”) as a bonus in consideration of past services to the Company or its affiliates.  In February 2013, the Board approved amendments to the Long-Term Incentive Plan to provide for the grant of performance based share unit awards (“PSU”) by the Board to officers and certain mine managers, project directors and corporate managers (“PSU Participants”) as a bonus in consideration of past services to the Company or its affiliates.

 

In this Circular, RSU and PSU are collectively referred to as “Share Units”.

 

  

22

  

Restricted Share Units

 

Under the Long-Term Incentive Plan,  RSU will vest on the entitlement date or dates, which shall not be later than December 31 of the year that is three years after the year of service that the award relates to (“Maturity Date”), as determined by the Board in its sole discretion. On a Maturity Date, the Company will make a payment to the relevant RSU Participant in cash equal to the five-day volume weighted average price of the Company’s common shares on the TSX multiplied by the number of RSU held.

 

A RSU Participant will have no right or entitlement whatsoever to receive any cash payment until the Maturity Date and, as a holder of RSU, will not have any rights as a shareholder of the Company.

 

A RSU Participant’s Maturity Date may be accelerated on the death or permanent disability of the RSU Participant.  In the event that a RSU Participant is terminated with or without cause, any RSU previously credited to the RSU Participant’s account that have not been paid out shall become void and the RSU Participant shall have no entitlement to payment under the Long-Term Incentive Plan.  In certain circumstances, on a change of control of the Company, the RSU will vest immediately and the Maturity Date will occur.

 

Performance Share Units

 

Under the Long-Term Incentive Plan, PSU will vest on the entitlement date which is three years after the date of services that the PSU relate to (“Maturity Date”). The number of PSU that will vest on a Maturity Date will vary from 50% to 150% of the number of PSU granted to the PSU Participant, depending on New Gold’s total shareholder return compared to the return of the S&P/TSX Global Gold Index (“Performance Criteria”) over the relevant performance measurement periods. PSU will be settled in cash equal to the equal to the five-day volume weighted average price of the Company’s common shares on the TSX multiplied by the number of PSU vested.  Subject to TSX and shareholder approvals, which the Company intends seeking at its 2014 shareholders’ meeting, on a Maturity Date, a PSU Participant may, at the discretion of the Board, be issued the equivalent number of common shares of New Gold as the number of PSU that vested on the Maturity Date in lieu of a cash payment.

 

A PSU Participant will have no right or entitlement whatsoever to receive any shares of New Gold or cash payment until the Maturity Date and, as a holder of PSU, will not have any rights as a shareholder of the Company.

 

A PSU Participant’s Maturity Date may be accelerated on the death or permanent disability of the PSU Participant.  In the event that a PSU Participant is terminated with or without cause, any PSU previously credited to the PSU Participant’s account that have not been paid out shall become void and the PSU Participant shall have no entitlement to payment (including the issue of New Gold shares) under the Long-Term Incentive Plan.  In certain circumstances, on a change of control of the Company, the PSU will vest immediately and the Maturity Date will occur.

 

The Board has delegated authority to the Compensation Committee to grant individual awards of up to 25,000 RSU or PSU to non-executive officers and other employees.  Awards in excess of 25,000 RSU or PSU or to executive officers require approval of the Board.  The Board has also delegated authority to management to grant individual RSU awards up to 15,000 RSU to employees who are not officers.

 

RSU were granted to Mr. Oliphant and Mr. Gallagher in 2011 in recognition of performance in 2010. There were no RSU granted to NEOs for their performance in 2011 or 2012.  PSU were granted to each NEO in 2013 in recognition of performance in 2012.  The Board considers that PSU are a more appropriate form of compensation for NEOs as their value is tied to the performance of the Company relative to the wider industry over the applicable performance measurement periods.  In contrast, RSU are paid out based on the value of the Company’s shares on a fixed date, regardless of the Company’s performance.

 

The Board approved, on the recommendation of the Compensation Committee, the grant of the following PSU on February 13, 2013 to the NEOs in recognition of their performance in 2012 and as part of their 2012 compensation.

 

  

23

  

	
Name

	
Position

	
Number of PSU(1)

	
Value of PSU  Award($)(2)

	
Randall Oliphant

	
Executive Chairman

	
144,000

	
1,438,557

	
Robert Gallagher

	
President and Chief Executive Officer

	
93,000

	
929,068

	
Brian Penny

	
Executive Vice President and Chief Financial Officer

	
56,000

	
559,439

	
Ernest Mast

	
Vice President, Operations

	
45,000

	
449,549

	
Hannes Portmann

	
Vice President, Corporate Development

	
30,000

	
299,699

 

	
(1)

	
All of these PSU were granted on February 13, 2013 and vest in one installment on December 31, 2015.

	  	  
	
(2)

	
The value of the PSU awards is calculated using C$10.01, being the five-day weighted average share price of New Gold on the TSX immediately preceding the date of grant (February 13, 2013) and converted at an exchange rate of C$1.00 = US$0.9980, being the noon rate quoted by the Bank of Canada on February 13, 2013.

Share Ownership Policy for Directors and NEOs

 

Refer to page 40 of this Circular for information about the Company’s share ownership policy and compliance by the Company’s Directors, the Executive Chairman and the President and Chief Executive Officer in 2012.  New Gold’s other NEOs are not required to comply with any minimum share ownership policy.

 

Retirement benefits

 

New Gold sponsors a voluntary Group RRSP program for Canadian corporate employees.   Participating employees may contribute between 1% and 9% of their annual base salary to the RRSP program.  New Gold then matches the employee contributions up to a maximum amount based on the annual limitation set each year by the Canada Revenue Agency.  In 2012, the limitation on the Company’s matching contributions was C$11,485 per participating employee.

 

Other than matching contributions to the retirement programs described above (which amounts are disclosed under “All other compensation” in the Summary Compensation Table), New Gold does not provide retirement benefits for NEOs.

 

Fit with Overall Compensation Objectives

 

New Gold believes that all of the elements of compensation discussed above fit into New Gold’s overall compensation philosophy and objectives.  Specifically, New Gold believes that the base salaries and retirement benefits paid to NEOs in 2012 supported its compensation objective of providing competitive compensation that attracts and retains talented employees while its annual performance-based cash incentives and equity grants align compensation with shareholders’ interests and pay for performance and results.  These elements also support New Gold’s business strategy and are sufficiently flexible to recognize the needs of New Gold in different business conditions.

 

Risks Associated with Company’s Compensation Policies and Practices

 

The Compensation Committee considers the implications and risks of the Company’s compensation policies and practices as a factor in assisting the Board in approving and monitoring guidelines and practices regarding the compensation and benefits of officers, as well as administering the Company’s equity-based compensation plans.  In particular, the committee considers the impact on NEOs and other senior executives to ensure that they do not take undue risks.

 

  

24

  

 

The Compensation Committee has not identified any risks in the Company’s existing compensation policies and practices that it believes would be reasonably likely to have a material adverse effect on the Company.

 

Other Matters

 

The Company does not have a formal policy prohibiting a NEO or director from purchasing financial instruments that are designed to hedge or offset a decrease in market value of equity securities granted as compensation and held, directly or indirectly, by the NEO or director.  However, there is an understanding that the Company’s NEOs and directors will not purchase such financial instruments, and no NEO or director has purchased any such financial instruments as at the date of this Circular.

 

Performance Graph

 

The following graph compares the cumulative total shareholder return for C$100 invested in common shares of New Gold from December 31, 2007 to December 31, 2012 against the cumulative total shareholder return of the S&P/TSX Composite Index and the S&P/TSX Global Gold Index for the same period, assuming the reinvestment of all dividends.

 

Cumulative Value of C$100 Investment from December 31, 2007 to December 31, 2012

 

 

	
(in C$)

	
2007

	
2008

	
2009

	
2010

	
2011

	
2012

	
New Gold Inc.

	
100.00

	
  34.71

	
   74.51

	
189.80

	
201.57

	
215.88

	
% Change (year on year)

	  	
  -65.29

	
  114.66

	
 154.73

	
     6.20

	
      7.10

	
S&P/TSX Composite Index

	
100.00

	
  67.62

	
   90.85

	
106.53

	
  97.40

	
104.28

	
% Change (year on year)

	  	
  -32.38

	
    34.35

	
   17.26

	
    -8.57

	
      7.06

	
S&P/TSX Global Gold Index

	
100.00

	
101.46

	
109.16

	
138.17

	
119.48

	
102.02

	
% Change (year on year)

	  	
     1.46

	
     7.59

	
   26.58

	
 -13.53

	
  -14.61

The current management team at New Gold was brought together as a result of two business combinations in 2008 and 2009 respectively.  Since that time New Gold has endured a significant downturn in the global stock markets, however its share price has rebounded significantly from market lows.  Since 2009, New Gold has outperformed the S&P/TSX Global Gold index each year.

 

  

25

  

Summary Compensation Table

 

The following table provides information for the financial years ended December 31, 2012, 2011 and 2010 regarding compensation earned by each of the following NEOs of New Gold:  (a) the Executive Chairman, (b) the President and Chief Executive Officer, (c) the Executive Vice President and Chief Financial Officer, and (d) the other two most highly compensated NEOs.

 

Compensation is paid to the NEOs in Canadian dollars and, unless stated otherwise, has been converted to United States dollars at an exchange rate of C$1.00 = US$1.0004 for 2012, C$1.00 = US$1.0117 for 2011, and C$1.00 = US$0.9709 for 2010, being the average noon rate quoted by the Bank of Canada for each respective year.

 

For the purposes of this disclosure, New Gold has elected to report the amounts paid to NEOs in United States dollars as this is the currency that the Company uses for its financial statements.  The exchange rates in the paragraph above have been applied to 2012, 2011 and 2010 compensation.

 

	
Name and principal position

	
 

Year

 

	
 

Salary

($)

	
 

Share-based awards ($)(7)(8)

	
 

Option-based awards

($)(7)(8)

	
 

Non-equity incentive plan compensation

($)

	
 

All other compensation

($)(10)

	
 

Total compensation

($)

	
Annual incentive plans(9)

	
Long-term incentive plans

	
Randall Oliphant(1)

Executive Chairman

	
2012

	
650,260

	
1,438,557

	
1,325,544

	
1,500,600

	
-

	
11,490

	
4,926,451

	
2011

	
657,605

	
-

	
2,650,752

	
1,112,870

	
-

	
21,752

	
4,442,979

	
2010

	
631,085

	
2,338,942

	
2,215,364

	
970,900

	
-

	
-

	
6,156,291

	
Robert Gallagher(2)

President and Chief Executive Officer

	
2012

	
650,260

	
929,068

	
863,889

	
800,320

	
-

	
11,490

	
3,255,027

	
2011

	
657,605

	
-

	
1,855,526

	
607,020

	
-

	
11,356

	
3,131,507

	
2010

	
631,085

	
1,949,118

	
1,772,291

	
776,720

	
-

	
10,680

	
5,139,894

	
Brian Penny(3)

Executive Vice President and Chief Financial Officer

	
2012

	
400,160

	
559,439

	
511,934

	
500,200

	
-

	
11,490

	
1,983,223

	
2011

	
389,505

	
-

	
1,060,301

	
404,680

	
-

	
11,356

	
1,865,842

	
2010

	
354,378

	
-

	
443,073

	
354,379

	
-

	
10,680

	
1,162,510

	
Ernest Mast (4)(5)

Vice President Operations

	
2012

	
174,236

	
449,549

	
1,116,145

	
185,074

	
-

	
250,960

	
2,175,964

	
2011

	
-

	
-

	
-

	
-

	
-

	
-

	
-

	
2010

	
-

	
-

	
-

	
-

	
-

	
-

	
-

	
Hannes Portmann(6)

Vice President, Corporate Development

	
2012

	
260,104

	
299,699

	
283,392

	
300,120

	
-

	
10,579

	
1,153,894

	
2011

	
242,808

	
-

	
530,150

	
404,680

	
-

	
11,356

	
1,188,994

	
2010

	
213,598

	
-

	
221,536

	
174,762

	
-

	
10,680

	
620,576

 

	
(1)

	
Mr. Oliphant was appointed Executive Chairman of New Gold effective June 1, 2009.  Mr. Oliphant is a director of New Gold but does not receive compensation related to his role as a director.

	  	  
	
(2)

	
Mr. Gallagher was appointed President and Chief Executive Officer of New Gold effective June 30, 2008.  Mr. Gallagher is a director of New Gold but does not receive compensation related to his role as a director.

	  	  
	
(3)

	
Mr. Penny was appointed Executive Vice President and Chief Financial Officer of New Gold effective June 1, 2009.

	  	  
	
(4)

	
Mr. Mast was appointed Vice President Operations of New Gold effective July 15, 2012.  The salary paid to Mr. Mast in 2012 relates to the period July 15, 2012 onwards.  Mr. Mast was granted 150,000 stock options on August 10, 2012 at an exercise price of C$10.34.  The stock options are valued using the Black-Scholes stock option valuation methodology which resulted in a per option value of $4.54 converted at an exchange rate of C$1.00 = US$1.0085.  This is consistent with accounting values used in the Company’s financial statements.

 

  

26

  

	
(5)

	
Mr. Mast’s “All other compensation” includes $11,500 in Company paid matching contributions to a Group RRSP and non-registered investment account, a signing bonus of $75,031, and relocation expenses of $164,430.

	 	  
	
(6)

	
Mr. Portmann was appointed Director, Corporate Development of New Gold effective June 1, 2009 and was subsequently promoted to Vice President, Corporate Development effective January 27, 2010.

	  	  
	
(7)

	
The Share Units granted in 2010 are valued by multiplying the number of units granted by C$7.76 being the five-day volume weighted average share price of New Gold on the TSX immediately preceding the date of grant (January 26, 2011) and converted at an exchange rate of C$1.00 = US$1.0047 being the noon rate quoted by the Bank of Canada for January 26, 2011. The PSU granted in 2013 in respect of performance in 2012 are valued by multiplying the number of units granted by C$10.01 being the five-day volume weighted average share price of New Gold on the TSX immediately preceding the date of grant (February 13, 2013) and converted at an exchange of C$1.00 = US$0.9980 being the noon rate quoted by the Bank of Canada for February 13, 2013.

	  	  
	
(8)

	
Option-based awards are valued using the Black-Scholes stock option valuation methodology. This is consistent with the accounting values used in the Company’s financial statements. The grants made were valued using the following assumptions:

 

	
Grant Date

	
Exercise Price

	
Risk Free Rate of Return

	
Volatility Estimate

	
Expected Life (Years)

	
Per Option Value

	
Exchange Rate

(C$1.00 =)

	
February 13, 2013

	
C$10.01

	
0.57%

	
60%

	
3.67

	
C$4.58

	
$0.9980

	
August 10, 2012

	
C$10.34

	
0.53%

	
60%

	
3.67

	
C$4.54

	
$1.0085

	
February 10, 2012

	
C$11.87

	
1.41%

	
60%

	
4.67

	
C$5.92

	
$0.9984

	
January 26, 2011

	
C$7.67

	
2.48%

	
70%

	
4.67

	
C$4.41

	
$1.0047

	
January 27, 2010

	
C$4.39

	
2.81%

	
70%

	
7.00

	
C$2.98

	
$0.9384

	
June 2, 2009

	
C$3.21

	
2.61%

	
60%

	
7.00

	
C$1.94

	
$0.9236

 

Options and Share Units are disclosed as follows:

 

	  	
a.  

	
Options and Share Units granted in recognition of a previous year’s performance in the first quarter of the following year are disclosed in the year to which the performance is being recognized.

	  	  	  
	  	
b.  

	
Options granted on hire or following a merger are disclosed in the year of grant.

	  	  	  
	
(9)

	
Payments under annual incentive plans were paid in 2011 for performance during 2010, 2012 for performance in 2011 and 2013 for performance in 2012.

	  	  	  
	
(10)

	
Included in this column are Company paid matching contributions to a Group RRSP in the amounts of $10,680 in 2010, $11,356 in 2011 and $11,490 in 2012 to each of Messrs. Gallagher and Penny. The amounts shown for Mr. Portmann are Company paid contributions of $10,680 in 2010, $11,356 in 2011 and $10,571 in 2012.  The amounts shown for Mr. Oliphant are Company paid contributions of $21,752 for 2010 and 2011 which were paid in 2011 and $11,490 for 2012.

The following table shows the total compensation for the current NEOs, as well as the total compensation as a percentage of earnings from operations and as a percentage of shareholder equity.

 

	  	
Total Compensation for Named Executive Officers ($)(1)

	
Total Compensation for Named Executive Officers as a Percentage of Earnings from Mine Operations

	
Total Compensation for Named Executive Officers as a Percentage of Shareholder Equity

	
2012

	
13,494,559

	
4.1%

	
0.5%

	
2011

	
10,629,322

	
3.4%

	
0.5%

	
Change

	
2,865,237

	
0.7%

	
    0%

 

	
(1)

	
Ernest Mast commenced employment with the Company on July 15, 2012.

 

  

27

  

NEO Cash Compensation

 

The following table shows the cash compensation received by each NEO during the financial years ended December 31, 2012 and 2011 and the year-over-year change. Refer to the Summary Compensation Table above for total compensation earned by NEOs during financial years ended December 31, 2012 and 2011.

 

	
Name and principal position

	
Year

	
Salary

($)(1)

	
Annual incentive plans (Bonus amount paid) ($)(2)

	
All other cash compensation

($)(3)

	
Total Cash Compensation

($)

	
Randall Oliphant

Executive Chairman

	
2012

	
650,260

	
1,500,600

	
11,490

	
2,162,350

	
2011

	
657,605

	
1,112,870

	
21,752

	
1,792,227

	
Change

	
(7,345)

	
387,730

	
 (10,262)

	
370,123

	
Robert Gallagher

President and Chief Executive Officer

	
2012

	
650,260

	
800,320

	
11,490

	
1,462,070

	
2011

	
657,605

	
607,020

	
11,356

	
1,275,981

	
Change

	
(7,345)

	
193,300

	
134

	
186,089

	
Brian Penny

Executive Vice President and Chief Financial Officer

	
2012

	
400,160

	
500,200

	
11,490

	
911,850

	
2011

	
389,505

	
404,680

	
11,356

	
805,541

	
Change

	
10,655

	
95,520

	
134

	
106,309

	
Ernest Mast(4)

Vice President Operations

	
2012

	
174,236

	
185,074

	
250,960

	
610,270

	
2011

	
-

	
 -

	
 -

	
 -

	
Change

	
-

	
 -

	
 -

	
 -

	
Hannes Portmann

Vice President, Corporate Development

	
2012

	
260,104

	
300,120

	
10,579

	
570,803

	
2011

	
242,808

	
404,680

	
11,356

	
658,844

	
Change

	
17,296

	
(104,560)

	
(777)

	
(88,041)

	
(1)  

	
Negative change in salary for Messrs. Oliphant and Gallagher is due to currency exchange rate variations.  There was no change in the salary that is paid in Canadian dollars from 2011 to 2012.

	  	  
	
(2)  

	
Payments under annual incentive plans were paid in 2013 for performance in 2012, and 2012 for performance in 2011.

	  	  
	
(3)  

	
Included in this column are Company paid matching contributions to a Group RRSP in the amounts of $11,356 in 2011 and $11,490 in 2012 to each of Messrs. Gallagher and Penny. The amounts shown for Mr. Portmann are Company paid contributions of $11,356 in 2011 and $10,579 in 2012. The amounts shown for Mr. Oliphant are Company paid contributions of $21,752 for 2010 and 2011 which was paid in 2011 and $11,490 for 2012.

	  	  
	
(4)  

	
Mr. Mast was appointed Vice President Operations of New Gold effective July 15, 2012.   The salary and bonus paid to Mr. Mast in 2012 relates to the period July 15, 2012 onwards.  Mr. Mast's "All other compensation" includes $11,500 in Company paid matching contributions to a Group RRSP and non-registered investment account, a signing bonus of $75,031, and relocation expenses of $164,430.

  

28

  

 

NEO Equity Compensation

 

The following table shows the equity compensation received by each NEO during the financial years ended December 31, 2012 and 2011 and the year-over-year change. Refer to the Summary Compensation Table above for total compensation earned by NEOs during financial years ended December 31, 2012, 2011 and 2010.

 

	
Name and principal position

	
Year

	
Share-based awards

($)(1) (3)

	
Option-based awards 

($)(2)(3)

	
Total value of equity-based compensation 

($)

	
Randall Oliphant

	
2012

	
         1,438,557

	
         1,325,544

	
         2,764,101

	Executive Chairman	
2011

	
                       -

	
         2,650,752

	
         2,650,752

	  	
Change

	
         1,438,557

	
        -1,325,208

	
             113,349

	
Robert Gallagher

	
2012

	
            929,068

	
             863,889

	
         1,792,957

	
President and Chief Executive Officer

	
2011

	
                       -

	
         1,855,526

	
         1,855,526

	  	
Change

	
            929,068

	
           -991,637

	
             -62,569

	
Brian Penny

	
2012

	
            559,439

	
             511,934

	
         1,071,373

	
Executive Vice President and Chief Financial Officer

	
2011

	
                       -

	
         1,060,301

	
         1,060,301

	  	
Change

	
            559,439

	
           -548,367

	
               11,072

	
Ernest Mast

	
2012

	
            449,549

	
         1,116,145

	
         1,565,694

	
Vice President Operations

	
2011

	
                       -

	
-

	
-

	  	
Change

	
            449,549

	
         1,116,145

	
         1,565,694

	
Hannes Portmann

	
2012

	
            299,699

	
             283,392

	
             583,091

	
Vice President, Corporate Development

	
2011

	
                       -

	
             591,053

	
             591,053

	  	
Change

	
            299,699

	
            -307,661

	
                -7,962

 

	
(1)

	
The Share Units are valued by multiplying the number of units granted by C$10.01 being the five-day volume weighted average share price of New Gold on the TSX immediately preceding the date of grant (February 13, 2013) and converted at an exchange rate of C$1.00 = US$0.9980 being the noon rate quoted by the Bank of Canada for February 13, 2013.  RSU were granted to the Executive Chairman and the President and Chief Executive Officer in 2011 in relation to performance in 2010.  PSU were granted to NEOs in 2013 in respect of performance in 2012.

	  	  	  
	
(2)

	
Option-based awards are valued using the Black-Scholes stock option valuation methodology. This is consistent with the accounting values used in the Company’s financial statements. The grants made were valued using the assumptions listed in Note 8 to the Summary Compensation Table above.

	  	  	  
	  	  	  
	
(3)

	
Options and Share Units are disclosed as follows:

	  	  	  
	  	
(a)  

	
Options and Share Units granted in recognition of a previous year’s performance in the first quarter of the following year are disclosed in the year to which the performance is being recognized.

	  	  	  
	  	
(b)  

	
Options granted on hire or following a merger are disclosed in the year of grant.

 

  

29

  

NEO Share Ownership at December 31, 2012

 

The following table shows the number of common shares of New Gold and Share Units held by each NEO and the value of those common shares as at December 31, 2012 and 2011 and the year-over-year change.

 

	
NEO

	
Year

	
Number of Common Shares Held

	
 

Number of Share Units Held

	
Amount at Risk (Total Market Value of Common Shares and Share Units) ($)(1)

	
Randall Oliphant

Executive Chairman

	
2012

	
 4,570,855

	
      100,000

	
 51,446,684

	
2011

	
 4,250,000

	
      200,000

	
 46,281,228

	
Change

	
 320,855

	
(100,000)

	
 5,165,456

	
Robert Gallagher

President and Chief  and Executive Officer

	
2012

	
 175,000

	
        83,334

	
 2,845,395

	
2011

	
 150,000

	
      166,667

	
 3,293,424

	
Change

	
 25,000

	
(83,333)

	
(448,029)

	
Brian Penny

Executive Vice President and Chief Financial Officer

	
2012

	
 500,000

	
Nil

	
 5,507,202

	
2011

	
 500,000

	
Nil

	
 5,200,138

	
Change

	
 -

	
Nil

	
 307,064

	
Ernest Mast

Vice President Operations

	
2012

	
Nil

	
Nil

	
Nil

	
2011

	
Nil

	
Nil

	
Nil

	
Change

	
Nil

	
Nil

	
Nil

	
Hannes Portmann

Vice President,  Corporate Development

	
2012

	
 8,650

	
Nil

	
 95,275

	
2011

	
 3,800

	
Nil

	
 39,521

	
Change

	
 4,850

	
Nil

	
 55,754

	
(1)

	
Calculated using the closing price of the common shares on the TSX on December 31, 2012 and 2011 of C$11.01 and C$10.28 respectively, and converted to United States dollars at the respective average Bank of Canada noon exchange rates for 2012 and 2011.

 

Incentive Plan Awards

 

The following table provides information regarding the incentive plan awards for each NEO outstanding as at December 31, 2012.  New Gold granted 300,000 RSU to Mr. Oliphant and 250,000 RSU to Mr. Gallagher in 2011, for performance in 2010.  New Gold granted PSU on February 13, 2013 to the NEOs in recognition of their performance in 2012 and as part of their 2012 compensation.

 

Outstanding Option and Share-Based Awards

 

	
Name

	
Grant Date

	
Number of securities underlying unexercised options (#)

	
Option exercise price (C$)

	
Option expiration date

	
Value of unexercised in-the-money options ($)(1)

	
Number of unvested Share Units (#)

	
Market value of unvested share-based awards

($) (2)

	
Randall

Oliphant

	
June 2, 2009 (5)

	
1,500,000

	
3.21

	
June 2, 2016

	
11,704,680

	
-

	
-

	
January 26, 2011 (5) (6)

	
   500,000

	
7.67

	
January 26, 2018

	
1,670,668

	
100,000

	
1,101,440

	  	
February 10, 2012 (5) (7)

	
   500,000

	
11.87

	
February 10, 2017

	
-

	
-

	
-

 

  

30

  

 

	
Name

	
Grant Date

	
Number of securities underlying unexercised options (#)

	
Option exercise price (C$)

	
Option expiration date

	
Value of unexercised in-the-money options ($)(1)

	
Number of unvested Share Units (#)

	
Market value of unvested share-based awards

($) (2)

	
Robert Gallagher

	
March 20, 2008 (3)

	
200,000

	
6.20

	
March 20, 2013

	
962,385

	
-

	
-

	
July 8, 2008 (3)

	
  60,000

	
7.84

	
July 7, 2013

	
190,276

	
-

	
-

	  	
July 8, 2008 (3)

	
170,000

	
7.84

	
July 7, 2013

	
539,116

	
-

	
-

	  	
February 17, 2009 (5)

	
380,000

	
2.71

	
February 17, 2016

	
3,155,262

	
-

	
-

	  	
June 2, 2009 (5)

	
840,000

	
3.21

	
June 2, 2016

	
6,554,621

	
-

	
-

	  	
January, 26, 2011 (5) (6)

	
400,000

	
7.67

	
January 26, 2018

	
1,336,534

	
83,334

	
917,874

	  	
February 10, 2012 (5) (7)

	
350,000

	
11.87

	
February 10, 2017

	
-

	
-

	
-

	
Brian Penny

	
November 27, 2008 (4)

	
100,000

	
1.75

	
November 26, 2013

	
926,370

	
-

	
-

	
June 2, 2009 (5)

	
200,000

	
3.21

	
June 2, 2016

	
1,560,624

	
-

	
-

	  	
January 27, 2010 (5)

	
400,000

	
4.39

	
January 27, 2017

	
2,649,059

	
-

	
-

	  	
January 26, 2011(5) (6)

	
100,000

	
7.67

	
January 26, 2018

	
334,134

	
-

	
-

	  	
February 10, 2012 (5) (7)

	
200,000

	
11.87

	
February 10, 2017

	
-

	
-

	
-

	
Ernest Mast

	
August 10, 2012

	
150,000

	
10.34

	
August 10, 2017

	
100,540

	
-

	
-

	
Hannes Portmann

	
August 8, 2008 (4)

	
  60,000

	
2.00

	
August 8, 2015

	
540,816

	
-

	
-

	
November 27, 2008 (4)

	
  25,000

	
1.75

	
November 26, 2013

	
231,593

	
-

	
-

	  	
January 27, 2010 (5)

	
150,000

	
4.39

	
January 27, 2017

	
993,397

	
-

	
-

	  	
January 26, 2011 (5) (6)

	
  50,000

	
7.67

	
January 26, 2018

	
167,067

	
-

	
-

	  	
February 10, 2012 (5) (7)

	
100,000

	
11.87

	
February 10, 2017

	
-

	
-

	
-

 

	
(1)

	
Calculated using the closing price of New Gold’s common shares on the TSX on December 31, 2012 of C$11.01 and subtracting the exercise price of in-the-money stock options.  The amount is then converted to United States dollars. The value shown in this column does not represent the actual value the individual NEO could receive.  The actual gain, if any, on exercise will depend on the value of the common shares on the date of exercise.

	  	  
	
(2)

	
Calculated using the closing price of New Gold’s common shares on the TSX on December 31, 2012 of C$11.01 and converted to United States dollars.  The actual value realized will depend on the price of the common shares on the date of vesting.

	  	  
	
(3)

	
Fully vested.

	  	  
	
(4)

	
These options were originally granted by Western Goldfields Inc. and became fully vested as a result of the 2009 Business Combination.

	  	  
	
(5)

	
Option awards vest in three equal installments beginning on the first anniversary of the date of grant.

	  	  
	
(6)

	
Options granted in January 2011 for performance in 2010.

	  	  
	
(7)

	
Options granted in February 2012 for performance in 2011.

 

The following table provides information regarding the value vested or earned of incentive plan awards for the financial year ended December 31, 2012.

 

  

31

  

Value Vested or Earned During the Financial Year Ended December 31, 2012

 

	
Name

	
Option-based awards – Value vested during the year ($) (1)

	
Non-equity incentive plan compensation – Value earned during the year ($)(2)

	
Randall Oliphant

	
4,458,447

	
1,036,414

	
Robert Gallagher

	
4,624,179

	
863,675

	
Brian Penny

	
1,514,612

	
Nil

	
Ernest Mast

	
Nil

	
Nil

	
Hannes Portmann

	
386,819

	
Nil

 

	
(1)

	
Calculated using the closing price of New Gold’s common shares on the TSX on December 31, 2012 of C$11.01 and subtracting the exercise price of in-the-money stock options.  The amount is then converted to United States dollars. The value shown in this column does not represent the actual value the individual NEO could receive.  The actual gain, if any, on exercise will depend on the value of the common shares on the date of exercise.

	  	  
	
(2)

	
Amount of RSU paid out on entitlement date, converted to United States dollars.

Options Exercised During the Financial Year Ended December 31, 2012

 

The following table provides details regarding stock options exercised and sold by the NEOs during the year ended December 31, 2012.

 

	
Name

	
Number of

options exercised and sold

	
Option

exercise price

	
Value realized ($) (1)

	
Randall Oliphant

	
Nil

	
Nil

	
Nil

	
Robert Gallagher

	
Nil

	
Nil

	
Nil

	
Brian Penny

	
Nil

	
Nil

	
Nil

	
Ernest Mast

	
Nil

	
Nil

	
Nil

	
Hannes Portmann

	
60,000

	
C$2.00

	
600,615

 

	
(1)

	
Calculated using the fair market value of New Gold’s common shares acquired on exercise of the respective stock options and subtracting the respective exercise prices, and converted to United States dollars.

 

Termination and Change of Control Benefits

 

New Gold has entered into employment agreements with each NEO that contain termination and change of control provisions.

 

Randall Oliphant (Executive Chairman)

 

Mr. Oliphant entered into an employment agreement with New Gold effective December 14, 2009, in connection with his appointment as Executive Chairman of New Gold on June 1, 2009.

 

  

32

  

Termination without Cause

 

If Mr. Oliphant’s employment is terminated without cause, New Gold will pay any salary earned to the date of the termination of employment plus the greater of the pro-rated bonus at target or the pro-rated bonus received in the previous year.  In addition, Mr. Oliphant’s employment agreement provides for a severance payment of 36 months’ salary, plus the greater of two times his annual bonus at target or two times the bonus received by him in the previous bonus year.  Any stock options granted before the date of the employment agreement which have not vested at the time of termination will vest immediately and shall remain exercisable until the earlier of (i) the expiry of such option, or (ii) the date which is 12 months from the date of such termination.  Any stock options granted after the date of the employment agreement which are not vested will be cancelled and any stock options that are vested shall remain exercisable until the earlier of (i) the termination of such option, or (ii) such shorter period prescribed by the Board or the policies of the TSX.  In addition, he shall continue to be entitled to participate, at the expense of New Gold, in New Gold’s health and medical plans (or receive a payment in lieu of continued benefits equal to 15% of salary), until the earlier of obtaining alternate coverage under the terms of any new employment or the second anniversary of the termination date.

 

Termination Following a Change of Control

 

If there is a Change of Control of New Gold (as defined below) and within 12 months of such Change of Control (i) New Gold gives notice of its intention to terminate his employment for any reason other than just cause, or (ii) a certain event occurs (“Triggering Event” as defined below) and Mr. Oliphant elects to terminate his employment, New Gold will pay any salary earned to the date of the termination of employment plus the greater of the pro-rated bonus at target or the pro-rated bonus received in the previous year.  In addition, Mr. Oliphant will receive a severance payment of 36 months’ salary, plus the greater of two times his annual bonus at target or two times the bonus received by him in the previous bonus year.  Any stock options granted which have not vested at the time of termination will vest immediately and shall remain exercisable until the earlier of (i) the expiry of such option, or (ii) such shorter period prescribed by the Board or the policies of the TSX.  In addition, he shall continue to be entitled to participate, at the expense of New Gold, in New Gold’s health and medical plans (or receive a payment in lieu of continued benefits equal to 15% of salary), until the earlier of obtaining alternate coverage under the terms of any new employment or the second anniversary of the termination date.

 

Robert Gallagher (President and Chief Executive Officer)

 

Mr. Gallagher entered into a new employment agreement with New Gold effective December 15, 2009.

 

Termination without Cause

 

If Mr. Gallagher’s employment is terminated without cause, New Gold will pay any salary earned to the date of the termination of employment plus the greater of the pro-rated bonus at target or the pro-rated bonus received in the previous year.  In addition, Mr. Gallagher’s employment agreement provides for a severance payment of 36 months’ salary, plus the greater of two times his annual bonus at target or two times the bonus received by him in the previous bonus year.  Any stock options granted before the date of the employment agreement which have not vested at the time of termination will vest immediately and shall remain exercisable until the earlier of (i) the expiry of such option, or (ii) the date which is 12 months from the date of such termination.  Any stock options granted after the date of the employment agreement which are not vested will be cancelled and any stock options that are vested shall remain exercisable until the earlier of (i) the expiry of such option, or (ii) such shorter period prescribed by the Board or the policies of the TSX.  In addition, he shall continue to be entitled to participate, at the expense of New Gold, in New Gold’s health and medical plans (or receive a payment in lieu of continued benefits equal to 15% of salary), until the earlier of obtaining alternate coverage under the terms of any new employment or the second anniversary of the termination date.

 

  

33

  

Termination Following a Change of Control

 

If there is a Change of Control of New Gold and within 12 months of such Change of Control (i) New Gold gives notice of its intention to terminate his employment for any reason other than just cause, or (ii) a Triggering Event occurs and Mr. Gallagher elects to terminate his employment, New Gold will pay any salary earned to the date of the termination of employment plus the greater of the pro-rated bonus at target or the pro-rated bonus received in the previous year.  In addition, Mr. Gallagher will receive a severance payment of 36 months’ salary, plus the greater of two times his annual bonus at target or two times the bonus received by him in the previous bonus year.  Any stock options granted which have not vested at the time of termination will vest immediately and shall remain exercisable until the earlier of (i) the expiry of such option, or (ii) such shorter period prescribed by the Board or the policies of the TSX.  In addition, he shall continue to be entitled to participate, at the expense of New Gold, in New Gold’s health and medical plans (or receive a payment in lieu of continued benefits equal to 15% of salary), until the earlier of obtaining alternate coverage under the terms of any new employment or the second anniversary of the termination date.

 

Brian Penny (Executive Vice President and Chief Financial Officer)

 

Mr. Penny entered into an employment agreement with New Gold effective December 4, 2009, in connection with his appointment as Executive Vice President and Chief Financial Officer of New Gold on June 1, 2009.

 

Termination without Cause

 

If Mr. Penny’s employment is terminated without cause, New Gold will pay any salary earned to the date of the termination of employment plus the greater of the pro-rated bonus at target or the pro-rated bonus received in the previous year.  In addition, Mr. Penny’s employment agreement provides for a severance payment of 12 months’ salary, and incentive bonus plus one month’s salary and incentive bonus per year of service to a maximum of 18 months’ salary and incentive bonus.  For this purpose incentive bonus is calculated as the greater of annual bonus at target or the bonus received by him in the previous bonus year.  Any stock options granted before the date of the employment agreement which have not vested at the time of termination will vest immediately and shall remain exercisable until the earlier of (i) the expiry of such option, or (ii) the date which is 12 months from the date of such termination.  Any stock options granted after the date of the employment agreement which are not vested will be cancelled and any stock options that are vested shall remain exercisable until the earlier of (i) the expiry of such option, or (ii) such shorter period prescribed by the Board or the policies of the TSX.  In addition, he shall continue to be entitled to participate, at the expense of New Gold, in New Gold’s health and medical plans (or receive a payment in lieu of continued benefits equal to 15% of salary), until the earlier of obtaining alternate coverage under the terms of any new employment or the period used to determine the severance payment above.

 

Termination Following a Change of Control

 

If there is a Change of Control of New Gold and within 12 months of such Change of Control (i) New Gold gives notice of its intention to terminate his employment for any reason other than just cause, or (ii) a Triggering Event occurs and Mr. Penny elects to terminate his employment, New Gold will pay any salary earned to the date of the termination of employment plus the greater of the pro-rated bonus at target or the pro-rated bonus received in the previous year.  In addition, Mr. Penny will receive a severance payment of 24 months’ salary, plus the greater of two times his annual bonus at target or two times the bonus received by him in the previous bonus year.  Any stock options granted which have not vested at the time of termination will vest immediately and shall remain exercisable until the earlier of (i) the expiry of such option, or (ii) the date which is 12 months from the date of such termination.  In addition, he shall continue to be entitled to participate, at the expense of New Gold, in New Gold’s health and medical plans (or receive a payment in lieu of continued benefits equal to 15% of salary), until the earlier of obtaining alternate coverage under the terms of any new employment or the second anniversary of the termination date.

 

  

34

  

Ernest Mast (Vice President Operations)

 

Mr. Mast entered into an employment agreement with New Gold effective July 15, 2012.

 

Termination without Cause

 

If Mr. Mast’s employment is terminated without cause, New Gold will pay any salary earned to the date of the termination of employment plus the greater of the pro-rated bonus at target or the pro-rated bonus received in the previous year.  In addition, Mr. Mast’s employment agreement provides for a severance payment of 12 months’ salary, and incentive bonus plus one month’s salary and incentive bonus per year of service to a maximum of 18 months’ salary and incentive bonus.  For this purpose, incentive bonus is calculated as the greater of annual bonus at target or the bonus received by him in the previous bonus year.  Any stock options that are not vested will be cancelled and any stock options that are vested at the time of termination shall remain exercisable until the earlier of (i) the expiry of such options, or (ii) the date which is 6 months from the date of such termination.  In addition, he shall continue to be entitled to participate, at the expense of New Gold, in New Gold’s health and medical plans (or receive a payment in lieu of continued benefits equal to 15% of salary), until the earlier of obtaining alternate coverage under the terms of any new employment or the period used to determine the severance payment above.

 

Termination Following a Change of Control

 

If there is a Change of Control of New Gold and within 12 months of such Change of Control (i) New Gold gives notice of its intention to terminate his employment for any reason other than just cause, or (ii) a Triggering Event occurs and Mr. Mast’s elects to terminate his employment, New Gold will pay any salary earned to the date of the termination of employment plus the greater of the pro-rated bonus at target or the pro-rated bonus received in the previous year.  In addition, Mr. Mast’s will receive a severance payment of 24 months’ salary, plus the greater of two times his annual bonus at target or two times the bonus received by him in the previous bonus year.  Any stock options granted which have not vested at the time of termination will vest immediately and shall remain exercisable until the earlier of (i) the expiry of such option, or (ii) the date which is 12 months from the date of such termination.  In addition, he shall continue to be entitled to participate, at the expense of New Gold, in New Gold’s health and medical plans (or receive a payment in lieu of continued benefits equal to 15% of salary), until the earlier of obtaining alternate coverage under the terms of any new employment or the second anniversary of the termination date.

 

Hannes Portmann (Vice President, Corporate Development)

 

Mr. Portmann entered into a new employment agreement with New Gold effective December 1, 2009.

 

Termination without Cause

 

If Mr. Portmann’s employment is terminated without cause, New Gold will pay any salary earned to the date of the termination of employment plus the greater of the pro-rated bonus at target or the pro-rated bonus received in the previous year.  In addition, Mr. Portmann’s employment agreement provides for a severance payment of 12 months’ salary, and incentive bonus plus one month’s salary and incentive bonus per year of service to a maximum of 18 months’ salary and incentive bonus.  For this purpose incentive bonus is calculated as the greater of annual bonus at target or the bonus received by him in the previous bonus year.  Any stock options that are not vested will be cancelled and any stock options that are vested at the time of termination shall remain exercisable until the earlier of (i) the expiry of such options, or (ii) the date which is 6 months from the date of such termination.  In addition, he shall continue to be entitled to participate, at the expense of New Gold, in New Gold’s health and medical plans (or receive a payment in lieu of continued benefits equal to 15% of salary), until the earlier of obtaining alternate coverage under the terms of any new employment or the period used to determine the severance payment above.

 

  

35

  

Termination Following a Change of Control

 

If there is a Change of Control of New Gold and within 12 months of such Change of Control (i) New Gold gives notice of its intention to terminate his employment for any reason other than just cause, or (ii) a Triggering Event occurs and Mr. Portmann elects to terminate his employment, New Gold will pay any salary earned to the date of the termination of employment plus the greater of the pro-rated bonus at target or the pro-rated bonus received in the previous year.  In addition, Mr. Portmann will receive a severance payment of 24 months’ salary, plus the greater of two times his annual bonus at target or two times the bonus received by him in the previous bonus year.  Any stock options granted which have not vested at the time of termination will vest immediately and shall remain exercisable until the earlier of (i) the expiry of such option, or (ii) the date which is 12 months from the date of such termination.  In addition, he shall continue to be entitled to participate, at the expense of New Gold, in New Gold’s health and medical plans (or receive a payment in lieu of continued benefits equal to 15% of salary), until the earlier of obtaining alternate coverage under the terms of any new employment or the second anniversary of the termination date.

 

 “Change of Control”

 

A “Change of Control” is generally defined in each NEO’s employment agreement as (a) New Gold is not the surviving entity in a merger, amalgamation or other reorganization (or survives only as a subsidiary of an entity other than a previously wholly owned subsidiary of New Gold); (b) New Gold sells, leases or exchanges greater than 50% of its assets to any other person or entity (other than an affiliate of New Gold); (c) a resolution is adopted to wind up, dissolve or liquidate New Gold; (d) an acquirer acquires 40% or more voting securities; (e) as a result of or in connection with: (i) the contested election of directors or (ii) a transaction referred to in (a) above, the nominees named in the most recent management information circular of New Gold for election to the Board of directors of New Gold shall not constitute a majority of the board of directors; or (f) the Board of directors adopts a resolution to the effect that a Change of Control as defined in the employment agreements has occurred or is imminent.

 

“Triggering Event”

 

A “Triggering Event” includes (a) a material adverse change in any of the officer’s duties, powers, rights, discretion, prestige, salary, benefits, perquisites, as they exist, and with respect to financial entitlements, the conditions under and manner in which they were payable, immediately before a Change of Control; (b) a diminution of title as it exists immediately before a Change of Control; (c) a change in the person or body to whom the officer reports, except if such person or body is of equivalent rank or stature or such change is as a result of the resignation or removal of such person or the persons comprising such body, providing this shall not include a change resulting from a promotion in the normal course of business; (d) a change in the location at which the officer is regularly required to carry out the terms of his employment, which is of a distance greater than 50 kilometres from the city of his normal work location; or (e) a significant increase in the amount of travel the officer is required to conduct on behalf of New Gold.

 

Estimated Incremental Payment on Termination following a Change of Control or Termination without Cause

 

The following tables detail the estimated incremental payments from New Gold to each of the NEOs on a Change of Control (with termination of employment) or on termination without cause, assuming a termination of employment occurred on December 31, 2012.

 

  

36

  

Termination of Employment Following Change of Control

 

	
Name

 

	
Base Salary Value

($)

	
Bonus Value

($)

	
Benefits Value

($)

	
Value of Unvested Options & Share Units Vested

($)(1)

	
Total Estimated Incremental Payment

($)(2)

	
Randall Oliphant

	
1,950,780

	
3,001,200

	
195,078

	
1,658,331

	
6,805,389

	
Robert Gallagher

	
1,950,780

	
1,600,640

	
195,078

	
1,363,388

	
5,109,886

	
Brian Penny

	
800,320

	
1,000,400

	
120,048

	
111,380

	
2,032,148

	
Ernest Mast

	
760,304

	
370,148

	
114,046

	
55,690

	
1,254,169

	
Hannes Portmann

	
520,208

	
600,240

	
78,031

	
100,540

	
1,345,038

	
Total:

	
5,982,392

	
6,572,628

	
702,281

	
3,289,329

	
16,546,630

 

	
(1)  

	
Calculated using the closing price of New Gold’s common shares on the TSX as at December 31, 2012 by subtracting the exercise price from the share price as at December 31, 2012 and multiplying by the number of unvested in-the-money options that would have vested on termination of employment and multiplying the number of share units that would have vested on termination of employment by the share price as at December 31, 2012.  Options granted in 2013 are not included in this value.

	  	  
	
(2)  

	
These amounts do not include any salary payable or pro-rata bonus payable to the date of termination of employment.

 

Termination of Employment without Cause

 

	
Name

	
Base Salary Value

($)

	
Bonus Value

($)

	
Benefits Value

($)

	
Value of Unvested Options & Share Units Vested

($)(1)

	
Total Estimated Incremental Payment

($)(2)

	
Randall Oliphant

	
1,950,780

	
3,001,200

	
195,078

	
0

	
5,147,058

	
Robert Gallagher

	
1,950,780

	
1,600,640

	
195,078

	
0

	
3,746,498

	
Brian Penny

	
600,240

	
750,300

	
90,036

	
0

	
1,440,576

	
Ernest Mast

	
380,152

	
185,074

	
57,023

	
0

	
622,249

	
Hannes Portmann

	
346,805

	
400,160

	
52,021

	
0

	
798,986

	
Total:

	
5,228,757

	
5,937,374

	
589,236

	
0

	
11,755,367

 

	
(1)

	
Calculated using the closing price of New Gold’s common shares on the TSX as at December 31, 2012 by subtracting the exercise price from the share price as at December 31, 2012 and multiplying by the number of unvested in-the-money options that would have vested on termination of employment and multiplying the number of share units that would have vested on termination of employment by the share price as at December 31, 2012.  Options granted in 2013 are not included in this value.

	  	  
	
(2)

	
These amounts do not include any salary payable or pro-rata bonus payable to the date of termination of employment.

  

37

  

 

Director Compensation 

New Gold pays an annual retainer of C$100,000 to each non-executive director and C$15,000 to the Chairman of the Audit Committee.  The annual retainer is required to be taken with a minimum of 50% as deferred share units (“DSU”), at a director’s election.  New Gold does not pay per-meeting fees.

 

All reasonable expenses incurred by a director in attending meetings of the Board, committee meetings or shareholder meetings, together with all expenses properly and reasonably incurred by any director in the conduct of New Gold’s business or in the discharge of his duties as a director are paid by New Gold.

 

New Gold has a policy that stock option grants to non-executive directors shall not exceed 1% of the Company’s outstanding issued common shares; provided further that the maximum value of stock options which may be granted to each non-executive director shall not exceed C$100,000 in any fiscal year.  Of the stock options granted to non-executive directors, 717,700 stock options remained outstanding as at December 31, 2012, which equates to 0.15% of the Company’s issued and outstanding common shares.

 

During the financial year ended December 31, 2012, an aggregate of $141,724 was paid in cash to the non-executive directors, and New Gold granted an aggregate of 143,300 stock options and 45,201 DSU to the non-executive directors.

 

Director Compensation Table

 

The following table provides information regarding compensation paid to New Gold’s non-executive directors during the financial year ended December 31, 2012.

 

	
Name

	
Annual Retainer

– Cash ($)

	
Annual Retainer – 

Share-Based Awards($) (1)

	
Option-based awards ($) (2)

	
All other compensation ($)

	
Total ($)

	
David Emerson

	
   41,684

	
  43,958

	
92,945

	
-

	
    178,587

	
James Estey

	
-

	
125,784

	
92,093

	
-

	
    217,877

	
Vahan Kololian

	
   50,020

	
  54,687

	
92,093

	
-

	
    196,800

	
Martyn Konig

	
-

	
109,373

	
92,093

	
-

	
    201,466

	
Pierre Lassonde

	
-

	
109,373

	
92,093

	
-

	
    201,466

	
Raymond Threlkeld

	
50,020

	
  54,687

	
92,093

	
-

	
    196,800

	
TOTALS

	
141,724

	
497,862

	
553,410

	
-

	
1,192,996

 

	
(1)

	
Annual Retainer taken in DSU instead of cash.  Value of share based awards calculated by multiplying the number of DSU by C$11.01 being the closing price of New Gold’s common shares on the TSX as at December 31, 2012 and converted at an exchange rate of C$1.00 = US$1.0004 being the average noon rate quoted by the Bank of Canada for 2012.

	  	  
	
(2)

	
Valued using the Black-Scholes stock option valuation methodology, which value is shown in this column. The key assumptions made in valuing the awards are as follows:

 

	
Grant Date

	
Exercise Price

	
Risk Free Rate of Return

	
Volatility Estimate

	
Expected Life (Years)

	
Per Option Value

	
Exchange Rate

(C$1.00 =)

	
May 10, 2012

	
8.54

	
0.58%

	
60%

	
3.67

	
3.75

	
$0.9983

 

The following table breaks down the non-executive directors’ compensation for the financial year ended December 31, 2012.

 

  

38

  

 

	
Name

	
Board Annual Retainer ($)(1)

	
Committee Chair Retainer ($)(1)

	
Committee Member Retainer ($)

	
Aggregate Board Attendance Fee ($)

	
Aggregate Committee Attendance Fee ($)

	
Total Fees ($)

	
David Emerson

	
83,367

	
-

	
-

	
-

	
-

	
83,367

	
James Estey

	
100,040

	
15,006

	
-

	
-

	
-

	
115,046

	
Vahan Kololian

	
100,040

	
-

	
-

	
-

	
-

	
100,040

	
Martyn Konig

	
100,040

	
-

	
-

	
-

	
-

	
100,040

	
Pierre Lassonde

	
100,040

	
-

	
-

	
-

	
-

	
100,040

	
Raymond Threlkeld

	
100,040

	
-

	
-

	
-

	
-

	
100,040

	
TOTALS

	
583,567

	
15,006

	
-

	
-

	
-

	
598,573

 

	
(1)

	
The amounts shown in these columns are retainers paid after the 2012 Annual General and Special Meeting of shareholders.  Non-executive directors may elect to take their Annual Retainer in DSU instead of cash.  See the “Director Compensation Table” above for more information.

 

Director Ownership at December 31, 2012

 

The following table shows the number of common shares of New Gold and DSU held by each non-executive director and the value of such common shares and DSU as at December 31, 2012 and 2011 and the year-over-year change.

 

	
 

Name

	
 

Year

	
Number of Common Shares Held

	
Number of DSU Held

	
Amount at Risk (Total Market Value of Common Shares and DSU) ($)(1)

	
David Emerson

	
2012

	
 5,000

	
 3,991

	
99,031

	
2011

	
Nil

	
Nil

	
Nil

	
Change

	
 5,000

	
 3,991

	
99,031

	
James Estey

 

	
2012

	
 209,000

	
 28,079

	
 2,611,284

	
2011

	
 209,000

	
 16,659

	
 2,346,916

	
Change

	
Nil

	
11,420

	
 264,368

	
Vahan Kololian

	
2012

	
 1,125,001

	
 10,098

	
 12,502,439

	
2011

	
 1,125,001

	
 5,133

	
 11,753,706

	
Change

	
Nil

	
 4,965

	
 748,733

	
Martyn Konig

	
2012

	
 150,000

	
 22,743

	
 1,902,661

	
2011

	
 150,000

	
 12,813

	
 1,693,300

	
Change

	
Nil

	
 9,930

	
 209,361

	
Pierre Lassonde

	
2012

	
 6,500,000

	
 9,930

	
 71,702,999

	
2011

	
 6,180,000

	
 -

	
 64,273,706

	
Change

	
 320,000

	
 9,930

	
 7,429,293

	
Raymond Threlkeld

	
2012

	
 121,159

	
 4,965

	
 1,389,181

	
2011

	
 228,680

	
 -

	
 2,378,335

	
Change

	
(107,521 )

	
 4,965

	
(989,154)

 

	
(1)

	
Calculated using the closing price of New Gold’s common shares on the TSX on December 31, 2012 of C$11.01 and C$10.28 respectively, and converted to United States dollars at the average noon exchange rate for 2012 of C$1.00 = US$1.0004 and for 2011 of C$1.00 = US$01.0117.

 

  

39

  

 

Share Ownership Policy for Directors and NEOs

 

In March 2011, the Board introduced a share ownership policy for the Company’s directors as well as the Executive Chairman and the President and Chief Executive Officer.

 

The policy requires each director, with the exception of the Executive Chairman and the President and Chief Executive Officer, own common shares or DSU equivalent in value to at least three times the annual retainer paid to directors, including the value of grants of common shares or DSU.

 

The Executive Chairman and the President and Chief Executive Officer must own common shares and Share Units (not including stock options) equivalent in value to at least three times the Executive Chairman’s and the President and Chief Executive Officer’s respective base salaries.

 

With the exception of Mr. Emerson, at the date of this Circular each director, the Executive Chairman and the President and Chief Executive Officer comply with the relevant requirements of the share ownership policy.  New Gold’s share ownership policy allows a period of three years for newly elected directors to achieve compliance.  As such, Mr. Emerson will have until July 2015 to comply.  New Gold’s other NEOs are not required to comply with any minimum share ownership policy.

 

	
Name

	
Annual Retainer Paid and/or Base Salary ($)

	
Minimum value of Common Shares and Share Units/or DSU required to be held ($)

	
Value of Common Shares and Share Units/or DSU held ($) (1)

	
Compliance with Policy

	
David Emerson

	
100,040

	
300,120

	
99,031

	
Not Achieved(2)

	
James Estey

	
115,046

	
345,138

	
2,611,284

	
Achieved

	
Vahan Kololian

	
100,040

	
300,120

	
12,502,439

	
Achieved

	
Martyn Konig

	
100,040

	
300,120

	
1,902,661

	
Achieved

	
Pierre Lassonde

	
100,040

	
300,120

	
71,702,999

	
Achieved

	
Raymond Threlkeld

	
100,040

	
300,120

	
1,389,181

	
Achieved

	
Randall Oliphant

	
650,260

	
1,950,780

	
51,446,684

	
Achieved

	
Robert Gallagher

	
650,260

	
1,950,780

	
5,323,636

	
Achieved

 

	
(1)

	
Calculated using the closing price of New Gold’s common shares on the TSX on December 31, 2012 of C$11.01 and converted to United States dollars.

	  	  
	
(2)

	
New Gold’s Share Ownership Policy allows a period of three years for newly elected directors to achieve compliance.  Therefore, Mr. Emerson has until 2015 to achieve compliance.

 

  

40

  

Incentive Plan Awards

 

The following table provides information regarding the incentive plan awards for each non-executive director outstanding as at December 31, 2012.

 

Outstanding Share-Based Awards and Option-Based Awards

 

	
Name

	
Grant Date

	
Number of securities underlying unexercised options (#)

	
Option exercise price

(C$)

	
Option expiration date

	
Value of unexercised in-the-money options ($)(1)

	
Number of unvested shares or DSU (#)

	
Market value of unvested DSU ($)(2)

	
David Emerson

	
August 10, 2012

	
20,300

	
10.34

	
August 10, 2017

	
13,606

	
3,991

	
43,958

	  	
Total

	
20,300

	  	  	
13,606

	
3,991

	
43,958

	
James Estey

	
July 8, 2008

	
34,450

	
7.84

	
July 8, 2013

	
109,250

	
-

	
-

	  	
June 2, 2009

	
68,000

	
3.21

	
June 2, 2014

	
530,612

	
-

	
-

	  	
May 11, 2010

	
28,000

	
5.93

	
May 11, 2015

	
142,297

	
-

	
-

	  	
June 30, 2010

	
-

	
-

	
-

	
-

	
9,985

	
109,979

	  	
June 2, 2011

	
-

	
-

	
-

	
-

	
6,674

	
73,510

	  	
June 8, 2011

	
18,700

	
9.59

	
June 8, 2016

	
26,565

	
-

	
-

	  	
May 10, 2012

	
24,600

	
8.54

	
May 10, 2017

	
60,786

	
-

	
-

	  	
June 18, 2012

	
-

	
-

	
-

	
-

	
11,420

	
125,784

	  	
Total

	
173,750

	  	  	
869,510

	
28,079

	
309,273

	
Vahan Kololian

	
June 2, 2009

	
68,000

	
3.21

	
June 2, 2014

	
530,612

	
-

	
-

	  	
May 11, 2010

	
28,000

	
5.93

	
May 11, 2015

	
142,297

	
-

	
-

	  	
June 2, 2011

	
-

	
-

	
-

	
-

	
5,133

	
56,537

	  	
June 8, 2011

	
18,700

	
9.59

	
June 8, 2016

	
26,565

	
-

	
-

	  	
May 10, 2012

	
24,600

	
8.54

	
May 10, 2017

	
60,786

	
-

	
-

	  	
June 18, 2012

	
-

	
-

	
-

	
-

	
4,965

	
54,687

	  	
Total

	
139,300

	  	  	
760,260

	
10,098

	
111,224

	
Martyn Konig

	
June 2, 2009

	
68,000

	
3.21

	
June 2, 2014

	
 530,612

	
-

	
-

	  	
May 11, 2010

	
28,000

	
5.93

	
May 11, 2015

	
 142,297

	
-

	
-

	  	
June 30, 2010

	
-

	
-

	
-

	
-

	
7,680

	
84,591

	  	
June 2, 2011

	
-

	
-

	
-

	
-

	
5,133

	
56,537

	  	
June 8, 2011

	
18,700

	
9.59

	
June 8, 2016

	
26,565

	
-

	
-

	  	
May 10, 2012

	
24,600

	
8.54

	
May 10, 2017

	
60,786

	
-

	
-

	  	
June 18, 2012

	
-

	
-

	
-

	
-

	
9,930

	
109,373

	  	
Total

	
139,300

	  	  	
760,260

	
22,743

	
250,501

 

  

41

  

 

	
Name

	
Grant Date

	
Number of securities underlying unexercised options (#)

	
Option exercise price

(C$)

	
Option expiration date

	
Value of unexercised in-the-money options ($)(1)

	
Number of unvested shares or DSU (#)

	
Market value of unvested DSU ($)(2)

	
Pierre Lassonde

	
July 8, 2008

	
34,450

	
7.84

	
July 8, 2013

	
109,250

	  	  
	  	
June 2, 2009

	
68,000

	
3.21

	
June 2, 2014

	
530,612

	
-

	
-

	  	
May 11, 2010

	
28,000

	
5.93

	
May 11, 2015

	
142,297

	
-

	
-

	  	
June 8, 2011

	
18,700

	
9.59

	
June 8, 2016

	
26,565

	
-

	
-

	  	
May 10, 2012

	
24,600

	
8.54

	
May 10, 2017

	
60,786

	
-

	
-

	  	
June 18, 2012

	
-

	
-

	
-

	
-

	
9,930

	
109,373

	  	
Total

	
173,750

	  	  	
869,510

	
9,930

	
109,373

	
Raymond Threlkeld

	
May 11, 2010

	
28,000

	
5.93

	
May 11, 2015

	
142,297

	
-

	
-

	  	
June 8, 2011

	
18,700

	
9.59

	
June 8, 2016

	
26,565

	
-

	
-

	  	
May 10, 2012

	
24,600

	
8.54

	
May 10, 2017

	
60,786

	
-

	
-

	  	
June 18, 2012

	
-

	
-

	
-

	
-

	
4,965

	
54,687

	  	
Total

	
71,300

	  	  	
229,648

	
4,965

	
54,687

	  	
Total

	
717,700

	  	  	
3,502,794

	
79,806

	
879,016

 

	
(1)

	
Calculated using the closing price of New Gold’s common shares on the TSX on December 31, 2012 of C$11.01, and subtracting the exercise price of in-the-money stock options, and converted to United States dollars.  The value shown in this column does not represent the actual value the individual director could receive.  The actual gain, if any, on exercise will depend on the value of New Gold’s common shares on the date of exercise.

	  	  
	
(2)

	
Calculated using the closing price of New Gold’s common shares on the TSX on December 31, 2012 of C$11.01, and converted to United States dollars.  The actual value realized will depend on the price of New Gold’s common shares on the date of vesting.

 

The following table provides information regarding the value vested or earned of incentive plan awards for each non-executive director holding that position as at December 31, 2012.

 

Value Vested During the Financial Year Ended December 31, 2012

 

	
Name

	
Option-based awards – value vested during the year ($)(1)

	
David Emerson

	
Nil

	
James Estey

	
233,158

	
Vahan Kololian

	
233,158

	
Martyn Konig

	
233,158

	
Pierre Lassonde

	
233,158

	
Raymond Threlkeld

	
233,158

 

  

42

  

 

	
(1)

	
Calculated using the closing price of New Gold’s common shares on the TSX on December 31, 2012 of C$11.01 and subtracting the exercise price of in-the-money stock options.  The amount is then converted to United States dollars. The value shown in this column does not represent the actual value the individual director could receive.  The actual gain, if any, on exercise will depend on the value of New Gold’s common shares on the date of exercise.

 

Options Exercised during the Financial Year Ended December 31, 2012

 

The following table provides details regarding stock options exercised and sold by each director during the year ended December 31, 2012.

 

Option Exercises during the Financial Year Ended December 31, 2012

 

	
Name

	
Number of

options exercised and sold

	
Option

exercise price

	
Value realized ($) (1)

	
James Estey

	
Nil

	
Nil

	
Nil

	
Vahan Kololian

	
Nil

	
Nil

	
Nil

	
Martyn Konig

	
Nil

	
Nil

	
Nil

	
Pierre Lassonde (2)

	
300,000

	
$9.30

	
$15,006

	
Craig Nelsen(3)

	
151,690

	
$5.10

	
$814,535

	
Raymond Threlkeld

	
68,000

	
$3.21

	
$487,331

 

	
(1)

	
Calculated using the fair market value of New Gold’s common shares acquired on exercise of the respective stock options and subtracting the respective exercise prices, and converted to United States dollars.

	  	  
	
(2)

	
Mr. Lassonde exercised these options but continues to hold common shares of New Gold.

	  	  
	
(3)

	
Mr. Nelsen ceased to be a director of the Company after he did not stand for re-election at the Company’s Annual General and Special Meeting held on May 2, 2012.

 

Deferred Share Unit Plan

 

On May 6, 2010, the Company established a director deferred share unit plan (“DSU Plan”) for the purpose of strengthening the alignment of interests between eligible directors of the Company and designated affiliates (for the purposes of this section “Directors”) and shareholders by linking a portion of annual director compensation to the future value of New Gold’s common shares. In addition, the DSU Plan was adopted for the purpose of advancing the interests of the Company through the motivation, attraction and retention of Directors, it being generally recognized that deferred share unit plans aid in attracting, retaining and encouraging director commitment and performance due to the opportunity offered to them to receive compensation in line with the value of New Gold’s common shares.

 

The DSU Plan is administered by the Compensation Committee. DSU are bookkeeping entries and are subject to adjustment for dividends and normal anti-dilution events including the subdivision, consolidation or reclassification of the outstanding shares. DSU are not assignable or transferable.  Under the DSU Plan, Directors may elect (on an annual basis) to receive a percentage of their compensation in DSU (a director’s annual retainer must be taken with a minimum of 50% as DSU). The number of DSU granted to a Director is determined by dividing the amount of compensation elected to be taken as DSU by the closing price for a share on the TSX on the business day immediately preceding the date of grant.

 

  

43

  

A Director is only entitled to payment in respect of the DSU granted to him or her when the director ceases to be a director of the Company or an affiliate for any reason. On ceasing to be a director, the Company shall redeem each DSU held by the Director for a payment in cash, being the product of: (i) the number of DSU held by the Director on ceasing to be a director and (ii) the greater of either: (a) the weighted average trading price; or (b) the average of daily high and low board lot trading prices of New Gold’s common shares, on the TSX for the five consecutive trading days immediately prior to the date of termination. Payment will be made to the Director on such date as the Company determines not later than 60 days after the date of the director ceasing to be a Director.

 

Under the DSU Plan, the Compensation Committee may from time to time, amend, modify and change the provisions of the DSU Plan, provided that any amendment, modification or change to the provisions of the DSU Plan which would (a) materially increase the benefits under the DSU Plan, (b) materially modify the requirements as to eligibility for participation in the DSU Plan, and (c) terminate the DSU Plan, shall only be effective on such amendment, modification or change being approved by the Board and, if required, by the TSX and any other regulatory authorities having jurisdiction over the Company.

 

During the year ended December 31, 2012, an aggregate of 45,201 DSU were issued to Directors.  Other than Craig Nelsen who redeemed 12,813 DSU after he did not stand for re-election at the Company’s 2012 Annual General and Special Meeting, no DSU were redeemed under the DSU Plan during 2012. As at March 21, 2013 there are an aggregate of 79,806 DSU outstanding under the DSU Plan.

 

Loans to Directors

 

The Company does not make personal loans or extensions of credit to its directors or NEOs.  There are no loans outstanding from the Company to any of its directors or NEOs.

 

Retirement Policy for Directors

 

New Gold does not have a retirement policy for its directors.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table provides details of compensation plans under which equity securities of New Gold are authorized for issuance as at the financial year ended December 31, 2012.

 

Equity Compensation Plan Information

 

	
Plan Category

	
Number of securities to be issued on exercise of outstanding options (1)

	
Weighted-average price of outstanding options ($)

	
Number of securities remaining available for future issuance under equity compensation plans (2)

	
Equity compensation plans approved by shareholders

	
10,939,619

	
$6.01

	
12,860,527

	 Equity compensation plans not approved by shareholders	 n/a	 n/a	n/a 

 

	
(1)

	
Represents the number of common shares of New Gold reserved for issuance on exercise of outstanding stock options.

 

  

44

  

	
(2)

	
Based on the maximum number of common shares of New Gold reserved for issuance on exercise of stock options under New Gold’s 2011 Plan of 23,800,146, representing 5% of the number common shares of New Gold issued and outstanding as at December 31, 2012. The table below shows the percentage of options granted in 2012:

 

	
Maximum initial share reserve at December 31, 2012

	
23,800,146

	
Total issued and outstanding shares at December 31, 2012

	
476,002,911

	
Total shares that may be issued on exercise of outstanding options as a percentage of total shares issued and outstanding

	
2.30%

	
Number of options granted in 2012 (2,160,300), expressed as a percentage of the common shares of New Gold that were issued and outstanding as at December 31, 2012

	
0.45%

 

Stock Option Plans

 

In addition to the 2011 Plan, New Gold has four historical stock option plans:  the 2005 Plan; the Metallica Plan; the Peak Plan; and the Western Goldfields Plan.

 

2011 Plan

 

The 2011 Plan was adopted by the Board on March 3, 2011 and was approved by shareholders on May 4, 2011. In accordance with the rules of the TSX, the Plan requires the approval of shareholders every three years.

 

As at March 21, 2013, a total of 9,381,485 options remain outstanding under the 2011 Plan.  The following is a summary of the principal terms of the 2011 Plan.  For the purposes of this summary, all capitalized terms have the meanings given in the 2011 Plan.  A copy of the 2011 Plan is available under New Gold’s profile on SEDAR at www.sedar.com.

 

Purpose

 

The purpose of the 2011 Plan is to advance the interests of New Gold by:

 

	
(i)  

	
providing eligible persons, being directors, employees, officers or Eligible Contractors (collectively, the “Eligible Persons”), with additional incentives through equity ownership;

	  	  
	
(ii)  

	
increasing the proprietary interest of Eligible Persons in the success of New Gold;

	  	  
	
(iii)  

	
encouraging Eligible Persons to remain with New Gold or its affiliates; and

	  	  
	
(iv)  

	
attracting new directors, employees, officers and service providers.

 

Eligible Participants

 

Options may be granted Eligible Persons of New Gold (or its affiliates). Subject to the provisions of the 2011 Plan, the Board has the authority to determine the terms, limitations, restrictions and conditions, applicable to the vesting or to the exercise of an Option, including, without limitation, the nature and duration of the restrictions, if any, to be imposed on the sale or other disposition of Shares acquired on exercise of the Option. An Eligible Person may receive Options on more than one occasion under the 2011 Plan and may receive separate Options on any one occasion.

 

Vesting

 

The Board has established the vesting and other terms and conditions for an Option at the time each Option is granted.  The past practice has been to vest options as to one-third of the number granted on the first anniversary of the grant date, one-third on the second anniversary and one-third on the third anniversary.

 

  

45

  

 

Securities Issuable under the 2011 Plan

 

The aggregate number of Shares to be reserved for exercise of all Options granted under the 2011 Plan and any other security-based compensation arrangements of the Company must not exceed 5% of the Shares (on a non-diluted basis), issued and outstanding at the time of granting the Option.

 

The maximum number of Shares issuable to any one person under the 2011 Plan is 5% of the Shares issued and outstanding at the time of the grant (on a non-diluted basis) less the aggregate number of Shares reserved for issuance to such person under any other security-based compensation arrangements of New Gold.

 

The maximum number of Shares issuable to insiders under the 2011 Plan and any other security-based compensation arrangements of New Gold is 10% of the Shares issued and outstanding at the time of the grant (on a non-diluted basis). The maximum number of Shares which may be issued to insiders under the 2011 Plan and any other security-based compensation arrangements of New Gold within a 12-month period is 10% of the Shares, issued and outstanding at the time of the issuance (on a non-diluted basis). In addition, grants of Options to non-employee directors should not exceed the lesser of (i) 1% of the total number of Shares issued and outstanding at the time of issuance (on a non-diluted basis) and (ii) an annual equity value of $100,000 to each director.

 

Exercise Price and Term

 

Each Option is confirmed by an option agreement or option grant letter or other form of confirmation (electronic or otherwise) as prescribed by the Board from time to time. The Board establishes the exercise price of an Option at the time each Option is granted.  The exercise price may not be less than the Market Price, being the volume weighted average trading price of the Shares on the TSX for the five trading days ending on the last trading date immediately before the date on which the Market Price is calculated.  Options granted must be exercised no later than five years after the date of grant or such lesser period as the Board may approve. In the event that any Option expires during, or within 48 hours after a Company-imposed blackout period on the trading of securities of the Company, such expiry becomes the tenth day after the end of the blackout period.

 

Cessation or Termination of Options

 

Subject to specific exceptions and restrictions outlined in the 2011 Stock Option Plan, Options are not assignable and will terminate as follows:

 

	
(i)  

	
if a Participant ceases to be an Eligible Person for any reason other than death or termination for cause, their Options will be cancelled:

	  	  	  
	  	
a.  

	
90 days after the Participant ceases to be an Eligible Person or otherwise in accordance with the terms of the Participant’s employment agreement;

	  	  	  
	  	
b.  

	
such longer period as may be determined by the Board, but not exceeding the original expiry date of the Option; or

	  	  	  
	  	
c.  

	
immediately if the Options are unvested at the date the Participant ceases to be an Eligible Person unless the Board determines otherwise;

	  	  	  
	
(ii)  

	
if a Participant ceases to be an Eligible Person because their relationship with the Company or an Affiliate is terminated for cause by the Company or an Affiliate, their Options will be cancelled immediately after the Participant ceases to be an Eligible Person; or

 

  

46

  

 

	
(iii)  

	
if a Participant ceases to be an Eligible Person as a result of their death, all Options unvested at the date of the Participant’s death will vest immediately and their Options will be cancelled:

	  	  	  
	  	
a.  

	
180 days after their death; or

	  	  	  
	  	
b.  

	
such longer period as may be determined by the Board, but not exceeding the original expiry date of the Option to a maximum of 12 months.

 

Assignability

 

Options are non-assignable and non-transferable by a Participant otherwise than by will or the laws of descent and distribution and are exercisable only by the Participant during the lifetime of the Participant and only by the Participant’s legal representative after death of the Participant (in accordance with the 2011 Plan).

 

Notwithstanding, Options may be assigned by an Eligible Person to whom an Option has been granted to a Permitted Assign (as such term is defined in the 2011 Plan) of such Eligible Person, following which such Options shall be non-assignable and non-transferable by such Permitted Assign, except to another Permitted Assign, otherwise than by will or the laws of descent and distribution, and shall be exercisable only by such Permitted Assign during the lifetime of such Permitted Assign and only by such Permitted Assign’s legal representative after death of such Permitted Assign.

 

Amendment Provisions

 

Subject to any applicable regulatory or stock exchange requirements or restrictions in the 2011 Plan, the Board may at any time and without shareholder approval, terminate the 2011 Plan or amend the provisions of the 2011 Plan or any Options granted under it, including without limitation amendments

 

	
(i)  

	
related to the exercise of Options, including the inclusion of a cashless exercise feature where payment is in cash or Shares or otherwise;

	  	  
	
(ii)  

	
deemed by the Board to be necessary or advisable because of any change in applicable securities laws or other laws;

	  	  
	
(iii)  

	
to the definitions;

	  	  
	
(iv)  

	
to the change of control provisions;

	  	  
	
(v)  

	
relating to the administration of the 2011 Plan;

	  	  
	
(vi)  

	
to the vesting provisions of any outstanding Option;

	  	  
	
(vii)  

	
to postpone or adjust any exercise of an Option or the issuance of any Shares pursuant to the 2011 Plan in order to permit New Gold to effect or maintain registration of the 2011 Plan or the Shares issuable pursuant to the 2011 Plan under the securities laws of any applicable jurisdiction, or to determine that the Shares and the 2011 Plan are exempt from such registration; or

	  	  
	
(viii)  

	
fundamental or otherwise, not requiring Shareholder approval under applicable law or the rules of an Exchange, including amendments of a “clerical” or “housekeeping” nature and amendments to ensure that the Options granted under the 2011 Plan will comply with any provisions respecting income tax and other laws in force in any country or jurisdiction of which an Eligible Person may from time to time be resident or a citizen.

 

  

47

  

The Board may not amend the following provisions of the 2011 Plan without first having obtained the approval of a majority of Shareholders voting at a duly called and held meeting of Shareholders:

 

	
(i)  

	
an increase in the maximum number of Shares which may be issued under the 2011 Plan;

	  	  
	
(ii)  

	
an increase in the ability of the Board to amend the 2011 Plan without shareholder approval;

	  	  
	
(iii)  

	
the definitions of “Eligible Person” and “Permitted Assigns”;

	  	  
	
(iv)  

	
the exercise price of any Option issued under the 2011 Plan where such amendment reduces the exercise price of such Option;

	  	  
	
(v)  

	
the term of any Option issued under the 2011 Plan; or

	  	  
	
(vi)  

	
the transfer provisions of the 2011 Plan.

 

In addition, the Board may not amend the 2011 Plan to increase Insider participation limits without first having obtained the approval of a majority of Shareholders voting at a duly called and held meeting of Shareholders excluding shares voted by Insiders who are Eligible Persons.

 

Western Goldfields Plan

 

As at March 21, 2013, a total of 796,667options remain outstanding under the former Western Goldfields stock option plan (“Western Goldfields Plan”), which, as a result of the 2009 Business Combination are now exercisable for common shares of New Gold.  No new options will be granted under the Western Goldfields Plan.  The exercise price of the existing options ranges from C$0.75 to C$3.74. Options issued under this plan had a term not exceeding seven years and the last of the options issued under the Western Goldfields Plan will expire on September 1, 2015.

 

If a holder of an option ceases to be a service provider to New Gold (other than as a result of the death of such holder), such holder’s options terminate on the earlier of (i) 90 days after the holder ceases to be a service provider and (ii) the original expiry date of the option; if a holder of an option dies while he or she is a service provider, such holder’s options terminate on the earlier of (i) one year after the date of death of the holder and (ii) the original expiry date of the option.  Options may not be assigned or transferred, except by will or by the laws of descent and distribution.

 

[Remainder of page intentionally blank]

  

48

  

CORPORATE GOVERNANCE PRACTICES 

The National Policy 58-201 Corporate Governance Guidelines (“Governance Guidelines”) and National Instrument 58-101 Disclosure of Corporate Governance Practices (“Governance Disclosure Rule”) form the regulatory framework for New Gold’s Corporate Governance practices.  The Governance Guidelines deal with matters such as the constitution and independence of corporate boards, their functions, the effectiveness and education of board members and other items dealing with sound corporate governance practices.  The Governance Disclosure Rule requires that, if management of an issuer solicits proxies from its shareholders for the purpose of electing directors, specified disclosure of its corporate governance practices must be included in its management information circular.

 

New Gold and the Board recognize the importance of corporate governance to the effective management of New Gold and to the protection of its employees and shareholders.  New Gold’s approach to significant issues of corporate governance is designed with a view to ensuring that the business and affairs of New Gold are effectively managed so as to enhance shareholder value.  The Board fulfills its mandate directly and through its committees at regularly scheduled meetings and as required.  Frequency of meetings may be increased and the nature of the agenda items may be changed depending on the state of New Gold’s affairs and in light of opportunities or risks which New Gold faces.  The directors are kept informed of New Gold’s operations at these meetings as well as through reports and discussions with management on matters within their particular areas of expertise.

 

New Gold’s corporate governance practices have been, and continue to be, in compliance with applicable Canadian and United States regulatory requirements.  New Gold continues to monitor developments in Canada and the United States with a view to further revising its governance policies and practices, as appropriate.

 

The following is a description of New Gold’s corporate governance practices as reported by the Corporate Governance and Nominating Committee and approved by the Board.

 

 

BOARD OF DIRECTORS

Independence of the Board

 

The Board, in consultation with the Corporate Governance and Nominating Committee, annually reviews the relationship between each director and the Company in order to determine if each director is or remains independent within the meaning of the Governance Guidelines.  In addition, annual peer assessments by each director assess the independence of the other directors.  With the assistance of the Corporate Governance and Nominating Committee, the Board has considered the relationship to the Company of each of the Nominees for election by shareholders and has determined that six of the eight Nominees are independent for the purposes of membership on the Board.

 

	
Nominee

	
Relationship

	
Reason for Non-Independent Status

	
David Emerson

	
Independent

	
N/A – no material relationship.

	
James Estey

	
Independent

	
N/A – no material relationship.

	
Robert Gallagher

	
Non-Independent

	
Considered to have a material relationship with the Company by virtue of being the President and Chief Executive Officer of the Company.

	
Vahan Kololian

	
Independent

	
N/A – no material relationship.

	
Martyn Konig

	
Independent

	
N/A – no material relationship.

	
Pierre Lassonde

	
Independent

	
N/A – no material relationship.

	
Randall Oliphant

	
Non-Independent

	
Considered to have a material relationship with the Company by virtue of being the Executive Chairman of the Company.

	
Raymond Threlkeld

	
Independent

	
N/A – no material relationship.

 

  

49

  

 

The Company has a majority of independent directors and recognizes the importance of providing leadership to its independent directors. The Chair of each of the Company’s committees is an independent director and every committee charter provides for access to information respecting the Company and to officers, employees, external auditors and legal counsel of the Company. As well, each charter states that the committees may engage separate independent counsel and advisors at the expense of the Company.

 

The Corporate Governance and Nominating Committee, which is a wholly independent committee, is responsible for identifying whether the Board’s mandate is effectively being carried out. Specifically, this committee reviews with the Board, on a regular basis and at least annually, the role of the Board, the terms of reference of each of the committees of the Board and the methods and processes by which the Board fulfills its duties and responsibilities.

 

As well, to facilitate the Board operating independently of management, the following processes are in place:

 

	  	
(a)  

	
the Board has implemented a policy to hold in-camera meetings with the independent directors at the end of each Board meeting. The Chair of the Corporate Governance and Nominating Committee presides at such meetings;

	  	  	  
	  	
(b)  

	
at every Board meeting, members of management, including the President and Chief Executive Officer and Executive Chairman, are not present for the discussion and determination of certain matters;

	  	  	  
	  	
(c)  

	
under the Company’s Articles any one director may call a Board meeting;

	  	  	  
	  	
(d)  

	
the compensation of the President and Chief Executive Officer and Executive Chairman is considered in their absence by the Compensation Committee at least annually; and

	  	  	  
	  	
(e)  

	
in addition to the standing committees of the Board, independent committees are appointed from time to time, when appropriate.

Chairman

 

The Board has appointed Randall Oliphant as its Executive Chairman.  As Mr. Oliphant is not independent, he works closely with the standing committees of the Board regarding items relating to compensation, finance and corporate governance.  Each of the Corporate Governance and Nominating Committee, Audit Committee and Compensation Committee is comprised entirely of independent directors.  The Executive Chairman must provide leadership to directors in discharging their duties, which includes:

 

	  	
(a)  

	
promoting cohesiveness among the directors; and

	  	  	  
	  	
(b)  

	
being satisfied that the responsibilities of the Board and its committees are well understood by the directors.

	  	  	  
	
The Executive Chairman must assist the Board in discharging its stewardship function, which includes:

	  	  	  
	  	
(a)  

	
leading, managing and organizing the Board consistent with the approach to corporate governance adopted by the Board from time to time;

	  	  	  
	  	
(b)  

	
satisfying itself as to the integrity of the executive officers of New Gold and ensuring that such executive officers created a culture of integrity throughout the organization;

	  	  	  
	  	
(c)  

	
strategic planning;

	  	  	  
	  	
(d)  

	
identifying and managing risks;

	  	  	  
	  	
(e)  

	
succession planning;

 

  

50

  

 

	  	
(f)  

	
together with the Corporate Governance and Nominating Committee Chair, reviewing the committees of the Board, the Chairs of such committees and the charters of such committees; and

	  	  	  
	  	
(g)  

	
together with the Corporate Governance and Nominating Committee Chair, ensuring that the Board, committees of the Board, individual directors and executive officers of New Gold understand and discharge their duties and obligations under New Gold’s system of corporate governance.

	  	  	  
	
In connection with meetings of the directors, the Executive Chairman is responsible for the following (in consultation with the Corporate Governance and Nominating Committee Chair, as appropriate):

	  	  	  
	  	
(a)  

	
scheduling meetings of the directors;

	  	  	  
	  	
(b)  

	
coordinating with the Chairs of the committees of the Board to schedule meetings of the committees;

	  	  	  
	  	
(c)  

	
reviewing items of importance for consideration by the Board;

	  	  	  
	  	
(d)  

	
ensuring that all business required to come before the Board is brought before the Board, such that the Board is able to carry out all of its duties to manage or supervise the management of the business and affairs of New Gold;

	  	  	  
	  	
(e)  

	
setting the agenda for meetings of the Board;

	  	  	  
	  	
(f)  

	
monitoring the adequacy of materials provided to the directors by management in connection with the directors' deliberations;

	  	  	  
	  	
(g)  

	
ensuring that the directors have sufficient time to review the materials provided to them and to fully discuss the business that comes before the Board;

	  	  	  
	  	
(h)  

	
presiding over meetings of the directors; and

	  	  	  
	  	
(i)  

	
encouraging free and open discussion at meetings of the Board (it is also policy that in-camera meetings will be held with the independent directors at the end of each Board meeting).

Meetings of the Board and Committees of the Board

 

The Board meets a minimum of four times per year for each quarter and as otherwise required.  Typically, each committee of the Board meets at least twice each year, or more frequently as deemed necessary by the applicable committee.  The frequency of the meetings and the nature of the meeting agendas depend on the nature of the business and affairs that New Gold faces from time to time.  During the financial year ended December 31, 2012, the Board met five times, the Audit Committee met four times, the Compensation Committee met three times and the Corporate Governance and Nominating Committee and the Health, Safety, Environment and Corporate Social Responsibility Committee each met twice.  Below are details regarding director attendance at Board and committee meetings held during the financial year ended December 31, 2012.

 

	
Director

	
Board

	
Audit Committee

	
Compensation Committee

	
Corporate Governance and Nominating Committee

	
HSE&CSR Committee

	
David Emerson (2)

	
3 of 3

	
2 of 2

	
-

	
1 of 1

	
-

	
James Estey (2)

	
5 of 5

	
4 of 4

	
1 of 1

	
1 of 1

	
-

	
Robert Gallagher (1)

	
5 of 5

	
-

	
-

	
-

	
-

	
Vahan Kololian (2)

	
5 of 5

	
2 of 2

	
2 of 2

	
1 of 1

	
2 of 2

 

  

51

  

 

	
Director

	
Board

	
Audit Committee

	
Compensation Committee

	
Corporate Governance and Nominating Committee

	
HSE&CSR Committee

	
Martyn Konig (2)

	
5 of 5

	
4 of 4

	
3 of 3

	
-

	
1 of 1

	
Pierre Lassonde

	
5 of 5

	
-

	
3 of 3

	
2 of 2

	
-

	
Randall Oliphant (1)

	
5 of 5

	
-

	
-

	
-

	
-

	
Raymond Threlkeld

	
5 of 5

	
-

	
-

	
-

	
2 of 2

 

	
(1)

	
Mr. Gallagher and Mr. Oliphant are not members of any committee of the Board.

	  	  
	
(2)

	
The attendance of the Committee members listed above is based on the number of Committee meetings the respective directors were eligible to attend during 2012.

	  	  
	  	
Various changes were made to the membership of the Board’s standing committees effective May 2, 2012 when Mr. Craig Nelsen ceased to be a director of the Company after he did not stand for re-election at the Company’s Annual General and Special Meeting.  Further, Mr. Emerson was appointed as a member of the Audit Committee and Chair of the Corporate Governance and Nominating Committee following his appointment as a director effective July 1, 2012.

	  	  
	  	
Mr. Emerson was eligible to attend three Board meetings, two Audit Committee meetings and one Corporate Governance and Nominating Committee meeting during 2012.

	  	  
	  	
Mr. Estey ceased to be a member of the Corporate Governance and Nominating Committee and was appointed as a member of the Compensation Committee, for which he was eligible to attend one meeting during 2012.

	  	  
	  	
Mr. Kololian ceased to be a member of the Audit Committee and Compensation Committee and was appointed as a member of the Corporate Governance and Nominating Committee, for which he was eligible to attend one meeting during 2012.

	  	  
	  	
Mr. Konig was appointed as a member of the Health, Safety, Environment and Corporate Social Responsibility Committee, for which he was eligible to attend one meeting during 2012.

 

Directors’ Attendance Policy

 

As set out in the Board Mandate (available on New Gold’s website at www.newgold.com and attached to this Circular), Board members are expected to attend all meetings of the Board in person or by phone and to have reviewed in advance Board materials and be prepared to discuss such materials.

 

Independent Directors’ Meetings

 

The Board has implemented a policy to hold in-camera meetings of the independent directors at the end of each Board meeting. The Chair of the Corporate Governance and Nominating Committee presides at such meetings. In addition, at every Board meeting, members of management, including the Executive Chairman and President and Chief Executive Officer, are not present for the discussion and determination of certain matters.

 

All of the Committees have the option available to them of holding in-camera sessions without Messrs. Oliphant or Gallagher or other members of management in attendance.  During the financial year ended December 31, 2012, all four of the Audit Committee meetings and one of the Compensation Committee meetings held in-camera sessions without Messrs. Oliphant or Gallagher or other members of management in attendance.  During the financial year ended December 31, 2012 the Compensation Committee (at two of its three meetings in 2012), the Corporate Governance and Nominating Committee and the Health, Safety, Environment and Corporate Social Responsibility Committee each determined that there was no reason to hold such sessions.

 

  

52

  

Areas of Expertise

 

The skills and areas of expertise possessed by each member of the Board are identified in the following table  The relevant skills and areas of expertise are: experience regarding the mining industry and/or operations; experience in accounting, finance or capital markets; corporate governance; experience in health, safety and environment (“HSE”) compliance and/or risk management; public company board experience; management experience for public and/or private companies; and experience in dealing with government and legal matters.

 

	
Skill

	
Emerson

	
Estey

	
Gallagher

	
Kololian

	
Konig

	
Lassonde

	
Oliphant

	
Threlkeld

	
Mining Industry and Operations

	  	  	
x

	  	
x

	
x

	
x

	
x

	
Accounting & Finance

	
x

	
x

	
x

	
x

	
x

	
x

	
x

	  
	
Corporate Governance

	
x

	
x

	  	
x

	
x

	
x

	
x

	  
	
HSE & Risk Management

	  	  	
x

	
x

	
x

	
x

	
x

	
x

	
Public Company Board

	
x

	
x

	
x

	
x

	
x

	
x

	
x

	
x

	
Company Management

	
x

	
x

	
x

	
x

	
x

	
x

	
x

	
x

	
Government Relations & Legal

	
x

	  	
x

	
x

	
x

	  	  	  

 

Other Public Company Directorships/Committee Appointments

 

The following table provides details regarding directorships and committee appointments held by New Gold’s directors in other public companies.  None of the directors of New Gold serve together as directors on the boards of other public companies, except Messrs. Oliphant and Lassonde who are both on the board of Franco-Nevada Corporation.

 

	
Director

	
Other Public Company

Directorships

	
Other Public Company

Committee Appointments

	
David Emerson

	
Finning International Inc. (since 2008)

 

	
Chair of the Corporate Governance Committee

Audit Committee

Pension Committee.

	  	
Stantec Inc.  (since 2009)

 

	
Chair of the Corporate Governance

Audit Committee

Pension Committee

	  	
Maple Leaf Foods Inc. (since 2012)

	
Chairman of the Board

Corporate Governance Committee

Environment, Health and Safety Committee

 

  

53

  

 

	
Director

	
Other Public Company

Directorships

	
Other Public Company

Committee Appointments

	
James Estey

	
Gibson Energy Inc. (since August 2011)

	
n/a

	
Robert Gallagher

	
Southern Arc Minerals (since 2010)

Dynasty Gold Corp (since 2009)

	
n/a

	
Vahan Kololian

	
Manicouagan Minerals Inc. (since 2001)

	
Chairman of the Audit Committee

Compensation Committee

	
Martyn Konig

	
n/a

	
n/a

	
Pierre Lassonde

	
Franco-Nevada Corporation (since 2007)

Enghouse Systems Limited (since 2000)

	
Chairman of the Board

Chairman of the Compensation Committee

	
Randall Oliphant

	
Franco-Nevada Corporation (since 2007)

WesternZagros Resources Ltd. (since 2007)

 

Silver Bear Resources Inc. (since 2004)

 

	
Audit Committee

Audit Committee and Corporate Governance Committee

 n/a

 

	
Raymond Threlkeld

	
Rainy River Resources Ltd. (since 2009)

	
n/a

 

The Board has determined that the simultaneous service of some of its directors on other audit committees does not impair the ability of such directors to effectively serve on New Gold’s Audit Committee.

 

Position Descriptions

 

The Board has developed a written position description for the Executive Chairman as detailed in the Board’s written mandate.  The Chair of each Board committee acts within the parameters set by their respective committee charters.  The Board, has also, in consultation with Mr. Gallagher, developed a written position description for the President and Chief Executive Officer.

 

Board Mandate

 

A copy of the Board’s written mandate, which sets out the responsibilities and duties of the directors, is attached as Schedule “A” to this Circular.

 

Succession Planning for Executive Officers

 

The Company has a formal process for succession planning for its executive officers.  As part of this process, the Compensation Committee conducts an annual review of the succession plan for the Company’s Executive Officers, including the President and Chief Executive Officer, and prepares a report to the Board on succession planning.

 

The Compensation Committee most recently reviewed the succession plans for all of the Company’s Executive Officers, on February 27, 2013.  As part of the review process the Committee: considered the risk of the relevant position becoming vacant; identified potential successors; evaluated the readiness of such potential successors to assume the relevant position; and considered the development activities that each potential successor would have to undergo to assume the relevant position.

 

In the event that the position of Executive Chairman or President and Chief Executive Officer becomes vacant, the entire Board is responsible for working with the Compensation Committee to evaluate and nominate potential successors to the position in accordance with the succession plan.

 

  

54

  

 

In addition to its annual review of the succession plan, the Compensation Committee is responsible for developing the annual performance review for the Executive Chairman and President and Chief Executive Officer and providing its recommendations to the Board. The Board assesses the effectiveness by the Executive Chairman and  President and Chief Executive Officer in attaining New Gold’s corporate objectives, budgets and milestones.

 

Orientation and Continuing Education

 

The Board, in conjunction with the Chair of the Corporate Governance and Nominating Committee, is responsible for ensuring that new directors are provided with an orientation and education program that includes, among other things, information about the duties and obligations of directors (including copies of the Board mandate, committee charters and Company policies), the business and operations of the Company and documents from recent Board meetings.

 

In regard to ongoing director education, the Chair of the Corporate Governance and Nominating Committee, in conjunction with the Executive Chairman, is responsible for ensuring that:

 

	  	
(a)  

	
all directors receive updates to Company policy documents and applicable TSX or NYSE MKT listing polices;

	  	  	  
	  	
(b)  

	
regular discussions relating to corporate governance issues and directors’ duties are conducted at Board meetings;

	  	  	  
	  	
(c)  

	
the Company’s policies are reviewed and updated by the Board as new rules or circumstances dictate; and

	  	  	  
	  	
(d)  

	
appropriate funding is allocated to directors to attend seminars or conferences relevant to their positions as directors of the Company.

All directors are expected to pursue educational opportunities as appropriate to enable them to perform their duties as directors and are encouraged to visit one of the Company’s operating sites at least once every two years.  In November 2012, all of the directors, other than Raymond Threlkeld, visited the New Afton Mine and the Blackwater Project, each located in British Columbia, Canada.  Mr. Threlkeld visited the New Afton Mine in November 2011.  Directors have full and free access to officers and employees of the Company and may arrange meetings either directly or through the President and Chief Executive Officer.  Management provides briefings to directors with respect to the business and operations of the Company at every regularly scheduled Board meeting.

 

Code of Business Conduct and Ethics

 

The Company has a written code of ethics and expectations for business conduct (“Code”) for the directors, officers and employees of New Gold and its subsidiaries.  The Board most recently reviewed the Code on February 28, 2013.  A copy of the Code is available under New Gold’s profile on SEDAR at www.sedar.com and is posted on New Gold’s website at www.newgold.com.

 

All directors, officers and employees are expected to comply with the Code and sign off annually on the Code, which reaffirms the Company’s high standards of business conduct. The Code is part of New Gold’s continuing effort to ensure that it complies with all applicable laws, has an effective program to prevent and detect violations of law, and conducts its business with fairness, honesty and integrity.

 

The Board monitors compliance with the Code generally and, at least annually, the Board discusses the Code and each member certifies as to whether they have been in compliance with the Code and if they are aware of any non-compliance with the Code that they have not raised with the Corporate Secretary or other senior management of the Company during the preceding year.

 

  

55

  

Under the Code, any officer, director or employee of New Gold who suspects a violation of a law, regulation or the Code itself is obligated to report it to the Chair of the Audit Committee.

 

In the unlikely event of a waiver, any such waivers of the Code for directors or NEOs must be approved by the Audit Committee and such waiver will be promptly disclosed to shareholders as required by law.  The Board did not grant any waiver of the Code in favour of a director or NEO during 2012 or during the past 12 months and accordingly no material change report has been required.

 

A thorough discussion of the documentation related to a material transaction is required for review by the Board, particularly independent directors. Directors with an interest in a material transaction are required to declare their interest and abstain from voting on such transactions.

 

Whistleblower Policy

 

New Gold has adopted a Whistleblower Policy which allows its directors, officers and employees who feel that a violation of the Code has occurred, or who have concerns regarding financial statement disclosure issues, accounting, internal accounting controls or auditing matters, to report such violation to the Chair of the Audit Committee in writing, through an external hotline service provider, Global Compliance, by email or online.  Concerns are reviewed as soon as possible by the Audit Committee in the manner deemed to be appropriate based on the merits of the submission and with the assistance and direction of whomever the Audit Committee deems appropriate.

 

Nomination of Directors

 

The Board has established a Corporate Governance and Nominating Committee, the three members of which are independent directors.  As noted in more detail below, the mandate of the Corporate Governance and Nominating Committee establishes a process for selection of new Board members, factoring in the skills and competencies the Board has, and the skills and competencies the Board should have.  This process establishes the criteria for Board membership, including recommending composition of the Board.  While the Corporate Governance and Nominating Committee has the primary responsibility for identifying prospective Board members, all qualified candidates proposed are considered.

 

To encourage an objective nominating process, when considering potential Board nominees the Corporate Governance and Nominating Committee takes into account a number of factors, which may include the current composition of the Board, the ability of the individual candidate to contribute on an overall basis, the ability of the individual to contribute sufficient time and resources to the Board, the current and future needs of New Gold, the individual’s direct experience with public companies in general and mining companies in particular as well as the individual’s skills and knowledge and the skills and knowledge of existing members of the Board.

 

The overall purpose of the Corporate Governance and Nominating Committee is to:

 

	  	
(a)  

	
provide a focus on corporate governance that will enhance corporate performance;

	  	  	  
	  	
(b)  

	
assist New Gold in its corporate governance responsibilities under applicable law;

	  	  	  
	  	
(c)  

	
establish criteria for Board and committee membership;

	  	  	  
	  	
(d)  

	
recommend composition of the Board and its committees; and

	  	  	  
	  	
(e)  

	
as circumstances arise, assess directors’ performance.

The Corporate Governance and Nominating Committee uses the following process to identify and nominate highly qualified and dedicated director candidates for election to the Board:

 

  

56

  

 

	  	
(a)  

	
the Executive Chairman, the Chair of the Corporate Governance and Nominating Committee or other members of the Board identify the need to add new Board members, with careful consideration of the mix of qualifications, skills and experience represented on the Board;

	  	  	  
	  	
(b)  

	
the Corporate Governance and Nominating Committee coordinates the search for qualified candidates with input from management and other Board members;

	  	  	  
	  	
(c)  

	
the Corporate Governance and Nominating Committee may engage a candidate search firm to assist in identifying potential nominees, if it deems such engagement necessary and appropriate;

	  	  	  
	  	
(d)  

	
selected members of management and the Board will interview prospective candidates;

	  	  	  
	  	
(e)  

	
the Corporate Governance and Nominating Committee will recommend a nominee and seek full Board endorsement of the selected candidate, based on its judgment as to which candidate will best serve the interests of the shareholders;

	  	  	  
	  	
(f)  

	
the Corporate Governance and Nominating Committee may, to the extent it deems appropriate, consult with significant shareholders of the Company or other shareholders as part of the process of nominating new directors; and

	  	  	  
	  	
(g)  

	
the Corporate Governance and Nominating Committee will consider any candidates submitted by shareholders on the same basis as any other candidate.

 

Any shareholder with a nomination should submit the candidate’s name, along with a curriculum vitae or other summary of qualifications, experience and skills to the Corporate Secretary of the Company.

 

Committees of the Board

 

The Board has the following four standing committees:

 

	  	
(a)  

	
the Audit Committee;

	  	  	  
	  	
(b)  

	
the Compensation Committee;

	  	  	  
	  	
(c)  

	
the Corporate Governance and Nominating Committee; and

	  	  	  
	  	
(d)  

	
the Health, Safety, Environment and Corporate Social Responsibility Committee.

All of the committees are independent of management and report directly to the Board.

 

Each committee is comprised of independent directors. From time to time, when appropriate, ad hoc committees of the Board may be appointed by the Board.  The current membership of each standing committee of the Board is as follows:

 

	
Board Committee

	
Committee Members

	
Status

	
Audit Committee

	
James Estey (Chair)

	
Independent

	
David Emerson

	
Independent

	
Martyn Konig

	
Independent

	
Compensation Committee

	
Martyn Konig (Chair)

	
Independent

	
James Estey

	
Independent

	
Pierre Lassonde

	
Independent

	
Corporate Governance and Nominating Committee

	
David Emerson (Chair)

	
Independent

	
Vahan Kololian

	
Independent

	
Pierre Lassonde

	
Independent

 

  

57

  

 

	
Board Committee

	
Committee Members

	
Status

	
Health, Safety, Environment and Corporate Social Responsibility Committee

	
Raymond Threlkeld (Chair)

	
Independent

	
Vahan Kololian

	
Independent

	
Martyn Konig

	
Independent

 

Audit Committee

 

The Audit Committee is comprised of independent directors, as described above.  The Committee’s primary function is 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, compliance with legal and regulatory requirements, the overall adequacy and maintenance of the systems of internal controls that management has established and the overall responsibility for New Gold’s external and internal audit processes including the external auditor’s qualifications, independence and performance.

 

Further information regarding the Audit Committee is contained in New Gold’s latest annual information form (“AIF”)  under the heading “Audit Committee” and a copy of the Audit Committee charter is attached to the AIF as Schedule “A”.  The AIF is available under New Gold’s profile on SEDAR at www.sedar.com and as an exhibit to New Gold’s Form 40-F at www.sec.gov.

 

Compensation Committee

 

As described under the heading “Role of the Compensation Committee”, the Compensation Committee is comprised of three independent directors, and the purpose of the Compensation Committee is to assist the board in approving and monitoring the Company’s guidelines and practices with respect to compensation and benefits, as well as administering the Company’s equity-based compensation plans.

 

Corporate Governance and Nominating Committee

 

As described under the heading “Nomination of Directors” above, the Corporate Governance and Nominating Committee is comprised of three independent directors, and its main purpose is to establish criteria for Board and committee membership, to recommend composition of the Board and its committees and, as circumstances arise, to assess directors’ performance.

 

Health, Safety, Environment and Corporate Social Responsibility Committee

 

The Health, Safety, Environment and Corporate Social Responsibility Committee  is comprised of three independent directors, and its overall purpose is to review and monitor the health, safety, environmental and sustainable development policies of New Gold on behalf of the Board.  The committee may investigate any activity of New Gold that relates to sustainable development and community development, environment, health and safety.  The committee will have access to such officers and employees of New Gold and to independent consultants and advisors, and to such information respecting New Gold as it considers necessary in order to perform its duties and responsibilities.

 

Board and Director Assessments

 

The Corporate Governance and Nominating Committee, in conjunction with the Board, is responsible for reviewing, on an annual basis, the role of the Board, the terms of reference of each Board committee and the methods and processes by which the Board fulfills its duties and responsibilities.

 

  

58

  

In February 2013, the Corporate Governance and Nominating Committee solicited comments on a confidential basis from each director regarding the performance of the Board and each Board committee, as well as individual director performance, using an online evaluation questionnaire. The topics covered by the questionnaire included the conduct of meetings, the composition of the Board and Committees as well as peer review by each director of the conduct of the Board, the Committees and their respective members.  The Corporate Governance and Nominating Committee is responsible for overseeing the evaluation process, discussing the results and preparing a final report with recommendations to the Board.

 

The Board does not consider it appropriate or necessary to limit the number of terms a director may serve due to the time and effort necessary for each director to become familiar with the business of the Company. As an alternative to term limits, the Corporate Governance and Nominating Committee is responsible for reviewing director performance and the appropriate skills and characteristics required of Board members in the context of the current make-up of the Board and identifying any perceived needs on an annual basis. This is primarily achieved through the evaluation questionnaire described above.

 

 

CONTACTING THE BOARD OF DIRECTORS 

Shareholders and other interested parties may communicate directly with the Board by writing to the Corporate Secretary, New Gold Inc., Suite 1800 Two Bentall Centre, 555 Burrard Street, Vancouver, British Columbia, V7X 1M9, Canada.

 

 

INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS

None of New Gold’s directors, executive officers or employees, or former directors, executive officers or employees, nor any associate of such individuals, is as at the date of this Circular, or has been, during the financial year ended December 31, 2012, indebted to New Gold or its subsidiaries in connection with a purchase of securities or otherwise.  In addition, no indebtedness of these individuals to another entity has been the subject of a guarantee, support agreement, letter of credit or similar arrangement or understanding of New Gold or any of its subsidiaries.

 

 

INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON

No (a) director or executive officer of New Gold who has held such position at any time since January 1, 2012; (b) proposed nominee for election as a director of New Gold; or (c) associate or affiliate of a person in (a) or (b), has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any matter to be acted on at the Meeting, other than the election of directors.

 

 

INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

Other than as described elsewhere in this Circular, since January 1, 2012, no informed person of New Gold, Nominee for election as a director of New Gold, or any associate or affiliate of an informed person or Nominee, has or had any material interest, direct or indirect, in any transaction or any proposed transaction which has materially affected or will materially affect New Gold or any of its subsidiaries.

 

 

OTHER MATTERS

 

Management of New Gold knows of no matters to come before the Meeting other than those referred to in the Notice of Meeting accompanying this Circular.  However, if any other matters properly come before the meeting, it is the intention of the persons named in the form of proxy accompanying this Circular to vote the same in accordance with their best judgment of such matters.

 

  

59

  

 

ADDITIONAL INFORMATION

 

Additional information regarding New Gold and its business activities is available on SEDAR at www.sedar.com under New Gold’s profile, at the United States Securities and Exchange Commission’s website at www.sec.gov and on New Gold’s website at www.newgold.com.  Following the Meeting, the voting results for each item on the proxy, will be available on SEDAR at www.sedar.com under New Gold’s profile.  New Gold’s financial information is provided in New Gold’s annual financial statements and related Management’s Discussion and Analysis for its most recently completed financial year and may be viewed on SEDAR at the location noted above and on the United States Securities and Exchange Commission’s website at the location noted above and on New Gold’s website. Shareholders may also contact New Gold by phone at 1-888-315-9715 or by email at info@newgold.com to request copies of these documents, which will be provided free of charge.

 

 

DIRECTORS’ APPROVAL

The contents of this management information circular and its distribution to the shareholders of New Gold have been approved by the Board.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

"Robert Gallager"

Robert Gallagher

President and Chief Executive Officer

Vancouver, British Columbia

March 22, 2013

  

60

  

Schedule A

 

 

 

 

Board of Directors Mandate

 

	
1.

	
Introduction

 

The Board of Directors (the “Board”) has the responsibility for the overall stewardship of the conduct of the business of New Gold Inc. (the “Company”) and the activities of management, which is responsible for the day-to-day conduct of the business.  The Board’s fundamental objectives are to enhance and preserve long-term shareholder value, to ensure that the Company meets its obligations on an ongoing basis and that the Company operates in a reliable and safe manner.  In performing its functions, the Board should also consider the legitimate interests its other stakeholders such as employees, customers and communities may have in the Company.  In overseeing the conduct of the business, the Board, through the Chief Executive Officer and Executive Chairman, shall set the standards of conduct for the Company.

	
2.

	
Procedures and Organization

The Board operates by delegating certain of its authorities to management and by reserving certain powers to itself.  The Board retains the responsibility for managing its own affairs including selecting its Chair, nominating candidates for election to the Board and constituting committees of the Board.  Subject to the Articles of the Company and the British Columbia Business Corporations Act (the “Act”), the Board may constitute, seek the advice of and delegate powers, duties and responsibilities to committees of the Board.  The Corporate Secretary of the Company (or in his or her absence, the person appointed by the Board to take minutes) shall have the responsibility for taking minutes of all meetings of the Board and for circulating drafts of such minutes to the directors promptly following each meeting.  The Corporate Secretary of the Company shall present draft minutes from the previous meeting containing the comments and corrections received from the directors at the next succeeding Board meeting for approval and execution.

	
3.

	
Duties and Responsibilities

The Board’s principal duties and responsibilities fall into a number of categories which are outlined below.

 

	
3.1  

	
Legal Requirements

 

	
a.  

	
The Board has the responsibility to ensure that legal requirements have been met and documents and records have been properly prepared, approved and maintained;

 

	
b.  

	
The Board has the statutory responsibility to:

 

	
i.  

	
manage or, to the extent it is entitled to delegate such power, to supervise the management of the business and affairs of the Company by the senior officers of the Company;

 

	
ii.  

	
act honestly and in good faith with a view to the best interests of the Company;

 

	
iii.  

	
exercise the care, diligence and skill that reasonable, prudent people would exercise in comparable circumstances; and

 

  

  

  

	
iv.  

	
act in accordance with its obligations contained in the Act and the regulations thereto, the Company’s Articles, securities legislation of each province and territory of Canada, and other relevant legislation and regulations.

 

	
3.2  

	
Independence

 

The Board has the responsibility to ensure that appropriate structures and procedures are in place to permit the Board to function independently of management, including endeavouring to have a majority of directors who are “independent” as defined by National Instrument 58-101.

 

	
3.3  

	
Strategy Determination

 

The Board has the responsibility to ensure, at least annually, that there are long-term goals and a strategic planning process in place for the Company and to participate with management directly or through its committees in developing and approving the mission of the business of the Company and the annual strategic plan by which it proposes to achieve its goals, which strategic plan takes into account, among other things, the opportunities and risks of the Company’s business.

 

	
3.4  

	
Managing Risk

 

The Board has the responsibility to identify and understand the principal risks of the business in which the Company is engaged, to achieve a proper balance between risks incurred and the potential return to shareholders, and to ensure that there are appropriate systems in place which effectively monitor and manage those risks with a view to the long-term viability of the Company.

 

	
3.5  

	
Division of Responsibilities

 

The Board has the power to:

 

	
a.  

	
appoint and delegate responsibilities to committees where appropriate to do so; and

 

	
b.  

	
develop position descriptions for:

 

	
i.  

	
the Board;

 

	
ii.  

	
the Chair and/or Lead-Director of the Board;

 

	
iii.  

	
the Chief Executive Officer; and

 

	
iv.  

	
the Chief Financial Officer.

 

The Board shall be responsible to ensure that the Company’s officers and the directors of the Company’s subsidiaries, if any, are qualified and appropriate in keeping with the Company’s Corporate Governance Policies and that they are provided with copies of the Company’s policies for implementation by the subsidiaries.

 

To assist it in exercising its responsibilities, the Board establishes four standing committees of the Board:  the Audit Committee, the Compensation Committee, the Corporate Governance and Nominating Committee and the Health, Safety, Environment & Corporate Social Responsibility Committee.  The Board may establish other standing committees from time to time which will function in accordance with its mandate.

 

  

2

  

Each committee shall have a written mandate that clearly establishes its purpose, responsibilities, members, structure and functions.  Each mandate shall be reviewed by the Board at least annually.  The Board is responsible for appointing the committee members.

 

	
3.6  

	
Appointment, Training and Monitoring Senior Management

 

The Board has the responsibility:

 

	
a.  

	
to appoint the Chief Executive Officer, to monitor and assess the Chief Executive Officer’s performance, to satisfy itself as to the integrity of the Chief Executive Officer, and to provide advice and counsel in the execution of the Chief Executive Officer’s duties;

 

	
b.  

	
to develop or approve the corporate goals or objectives that the Chief Executive Officer is responsible for;

 

	
c.  

	
to approve the appointment of all corporate officers, acting on the advice of the Chief Executive Officer and to satisfy itself as to the integrity of such corporate officers;

 

	
d.  

	
to ensure that adequate provision has been made to train and develop management and for the orderly succession of management;

 

	
e.  

	
to ensure that all new directors receive a comprehensive orientation, fully understand the role of the Board and its committees, the nature and operation of the Company’s business and the contribution that individual directors are required to make;

 

	
f.  

	
to create a culture of integrity throughout the Company;

 

	
g.  

	
to ensure that management is aware of the Board’s expectations of management;

 

	
h.  

	
to set out expectations and responsibilities of directors including attendance at meetings and review of meeting materials; and

 

	
i.  

	
to avail itself collectively and individually of the open access to the Company’s senior management and to advise the Chair of the Board of significant matters discussed.

 

	
3.7  

	
Policies, Procedures and Compliance

 

The Board has the responsibility:

 

	
a.  

	
to ensure that the Company operates at all times within applicable laws, regulations and ethical standards; and

 

	
b.  

	
to approve and monitor compliance with significant policies and procedures by which the Company is operated.

 

	
3.8  

	
Reporting and Communication

 

The Board has the responsibility:

 

	
a.  

	
to ensure the Company has in place policies and programs to enable the Company to communicate effectively with its shareholders, other stakeholders and the public generally;

 

	
b.  

	
to ensure that the financial performance of the Company is adequately reported to shareholders, other security holders and regulators on a timely and regular basis;

 

 

  

3

  

 

	
c.  

	
to ensure the timely reporting of developments that have a significant and material impact on the value of the Company;

 

	
d.  

	
to report annually to shareholders on its stewardship of the affairs of the Company for the preceding year;

 

	
e.  

	
to develop appropriate measures for receiving shareholder feedback; and

 

	
f.  

	
to develop the Company’s approach to corporate governance and to develop a set of corporate governance principles and guidelines.

 

	
3.9  

	
Monitoring and Acting

 

The Board has the responsibility:

 

	
a.  

	
to monitor the Company’s progress towards it goals and objectives and to revise and alter its direction through management in response to changing circumstances;

 

	
b.  

	
to take action when performance falls short of its goals and objectives or when other special circumstances warrant;

 

	
c.  

	
to ensure that the Company has implemented adequate internal control and management information systems which ensure the effective discharge of its responsibilities; and

 

	
d.  

	
to make regular assessments of the Board’s, its committees and each individual director’s effectiveness and contribution.

 

	
3.10  

	
  Membership and Composition

 

The Board has the responsibility to determine:

 

	
a.  

	
its appropriate size and composition;

 

	
b.  

	
the relevant criteria for proposed additions to the Board, having regard to areas of required expertise and the need for independent directors, as that term is defined in National Instrument 58-101 “Disclosure of Corporate Governance Practices” and the rules of the applicable exchanges;

 

	
c.  

	
the maximum number of boards or other engagements considered appropriate for directors, having regard to whether they are independent directors or members of management;

 

	
d.  

	
any appropriate age for retirement of directors;

 

	
e.  

	
the recommended compensation of directors after consideration by the Compensation Committee; and

 

	
f.  

	
the number of meetings of the Board to be held each year and the time and place of such meetings; provided that the Board shall meet at least on a quarterly basis, and the independent directors shall meet on a regular basis as often as necessary to fulfill their responsibilities including at least annually in executive session without the presence of non-independent directors or management.

 

Members are expected to attend all meetings of the Board in person or by phone and to have reviewed in advance board materials and be prepared to discuss such materials.

 

  

4

  

 

	
3.11  

	
  Self-Assessment

 

Members of the Board will be required annually to assess their own effectiveness as directors and the effectiveness of the Board in conjunction with the Company’s Directors and Officers insurance requirements.

	
3.12  

	
  Third Party Advisors

 

The Board, and any individual director with the approval of the Board, may retain at the expense of the Company independent counsel and advisors in appropriate circumstances.

4.           Chair of the Board

The Chair of the Board with the assistance of the Chair of the Corporate Governance and Nominating Committee (or a Lead-Director if one is appointed from time to time) will provide leadership to directors in discharging their duties as set out in this Charter, including by:

	
a.  

	
leading, managing and organizing the Board consistent with the approach to corporate governance adopted by the Board from time to time;

 

	
b.  

	
promoting cohesiveness among the directors; and

 

	
c.  

	
being satisfied, that the responsibilities of the Board and its committees are well understood by the directors.

 

The Chair will (with the assistance of any Lead-Director if one is appointed from time to time) assist the Board in discharging its stewardship function, which includes:

	
a.  

	
leading, managing and organizing the Board consistent with the approach to corporate governance adopted by the Board from time to time;

 

	
b.  

	
satisfying itself as to the integrity of the senior officers of the Corporation and ensuring that such senior officers created a culture of integrity throughout the organization;

 

	
c.  

	
strategic planning;

 

	
d.  

	
identifying and managing risks;

 

	
e.  

	
succession planning;

 

	
f.  

	
together with the Corporate Governance and Nominating Committee Chair, reviewing the Committees of the Board, the Chairs of such Committees and the charters of such Committees; and

 

	
g.  

	
together with the Corporate Governance and Nominating Committee Chair, ensuring that the Board, committees of the Board, individual directors and senior management of the Company understand and discharge their duties and obligations under the Company’s system of corporate governance.

 

  

5

  

In connection with meetings of the directors, the Chair shall be responsible for the following (in consultation with the Corporate Governance and Nominating Committee Chair (alternatively with the assistance of any Lead-Director if one is appointed from time to time), as appropriate):

	
a.  

	
scheduling meetings of the directors;

 

	
b.  

	
coordinating with the Chairs of the committees of the Board to schedule meetings of the committees;

 

	
c.  

	
reviewing items of importance for consideration by the Board;

 

	
d.  

	
ensuring that all business required to come before the Board is brought before the Board, such that the Board is able to carry out all of its duties to manage or supervise the management of the business and affairs of the Company;

 

	
e.  

	
setting the agenda for meetings of the Board;

 

	
f.  

	
monitoring the adequacy of materials provided to the directors by management in connection with the directors' deliberations;

 

	
g.  

	
ensuring that the directors have sufficient time to review the materials provided to them and to fully discuss the business that comes before the Board;

 

	
h.  

	
presiding over meetings of the directors; and

 

	
i.  

	
encouraging free and open discussion at meetings of the Board.

 

The Corporate Governance and Nominating Committee will annually review and reassess the adequacy of this Mandate and submit any recommended changes to the Board for approval.

Last reviewed and approved by the Board on February 28, 2013.

 

  

6

  

Any questions and requests for assistance may be directed to the

Proxy Solicitation Agent:

The Exchange Tower

130 King Street West, Suite 2950, P.O. Box 361

Toronto, Ontario

M5X 1E2

North American Toll Free Phone:

1-866-581-1477

Email: contactus@kingsdaleshareholder.com

Facsimile: 416-867-2271

Toll Free Facsimile: 1-866-545-5580

Outside North America, Banks and Brokers Call Collect: 416-644-4031

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